Edward During, the Chief Financial Officer (CFO) of Lekoil Nigeria Limited, in this interview with Cynthia Egboboh, BusinessDay Energy correspondent, shared insights on the company’s operation in Nigeria, challenges faced, and how they are being addressed. Optimistic about the growth in the oil and gas sector.
Can you talk to us about some of Lekoil’s current projects in the Nigerian oil and gas space?
Lekoil has four fields at various stages of development. The first is the production of the Otakikpo field, in partnership with Green Energy. Another field, OPL276, is on the brink of development, with production expected to commence within the next 18 to 24 months. OPL310 is also slated for development in a similar time frame. Additionally, there is an exploration field, OPL325. Over the past five years, Lekoil has experienced significant growth, both financially and in production capacity, which has doubled. This growth has led to increased revenue and profits. We aim to sustain this momentum, continuing to boost production volumes and financial performance over time.
What are the challenges you have encountered in the sector, and how do you think they can be addressed?
Investment poses a significant challenge, largely due to concerns about global warming, climate change, and the international market’s reduction in industry investments. This issue affects not just Nigeria but everyone globally. Transition fuels, such as natural gas, represent a potential solution as the cleanest fossil fuel, and focusing on them could attract investments. Nigeria, along with the entire African continent, needs to develop its own investment mechanisms. Establishing an African bank, for instance, would be beneficial, reducing our reliance on Western funding.
I am aware progress is being made for Africa to have its own development bank, which companies will be able to go to for finance, and the focus of that bank will be on the continent. Nigeria is looking to play a big part in that, and the country just got the nod for the energy bank to be located in the country.
Government policies and regulations are linked to the challenges faced by the industry, but we are starting to see improvements. The industry is highly regulated with significant red tape, and previously, issuing a contract could take years. However, recent executive orders have aimed to reduce this time, and it’s crucial that these changes are fully implemented and not just theoretical. We need to see actual reductions in processing times and not revert to old practices. With proper investment and a clear regulatory path, we can progress rapidly.
Even the international oil companies (IOCs) that are divesting aren’t leaving Nigeria entirely; they’re simply re-strategizing and focusing on different areas, such as deep offshore. This shift leaves onshore and shallow offshore fields for indigenous companies to develop. Nigeria still has substantial resources, and achieving the target of producing four million barrels a day is feasible, despite currently producing about 1.3 million barrels per day.
“Establishing an African bank, for instance, would be beneficial, reducing our reliance on Western funding.”
Climate change challenges and the reluctance of many countries to invest further in fossil fuels present significant hurdles. Securing investments is more difficult than before, but with the right investments, Nigeria is well-positioned to attract capital and enhance production.
I know you just talked about regulation; do you see the high foreign exchange and other fiscal policies impacting your operations?
Well, no. Whenever there’s change, there’s always uncertainty, and there’s always destabilisation. These policies—foreign exchange and fuel subsidy removal—are all making operations feel very chaotic at the moment and causing lots of fluctuations. But it makes economic sense to remove the subsidy and leave the FX to float out there. I think it’s a matter of time before the impact is seen. I think it is going to end up where it will benefit the country. Take the subsidy. For example, the country could not afford it, but the government kept paying, and it was difficult to stop at some point. Now that it has finally been stopped, you will see that with time, people will get used to the market, and the market will adjust itself to a point where the actual value is being realised. The actual price will be realised while the demand and supply forces will determine the correct value. Because it costs money to do that, the country’s reserves are being used to regulate the naira. These things don’t happen overnight. Previous systems have been in place for many years. You have to just give it time; this is not the time to give up and pull out; you have to see it through to the end. As the Special Advisor to the President on Petroleum Affairs said, they have plans for other areas and other things that need to be reviewed and improved on. And once they get to the answer, they can then implement, maybe, other executive orders. It’s a very good first step, and it needs to continue.
Which of the executive orders are you referring to?
Well, the executive orders that have had the most significant impact on our business are those concerning local content, contracting, and procurement. Historically, the contracting process was fraught with lengthy delays, often taking three to four years to complete. This wasted time could have been used to develop and start producing in a field.
In my experience working with production sharing contracts, which require extensive compliance, such prolonged timelines made planning and execution extremely challenging. It’s difficult to plan for activities that should be completed in three to four years when contracting alone takes so long.
Recently, these processes have been reduced to about six months on paper, thanks to the new executive orders. However, it’s crucial that these improvements are fully implemented in practice. People have to be willing to implement these changes to make a real difference.
Can you share your view and expectations from the implementation of the Petroleum Industry Act?
The PIA is still relatively new, and we are all working to understand its full implications. From what we’ve seen so far, the PIA offers many positive aspects. Its goal is to simplify processes and attract investors to the country. Unlike before, the regulations are well documented, which enhances investment terms. However, the key factor is compliance. It is encouraging to see that industry regulators and the government are actively enforcing the PIA’s terms.
Investors now have a clear understanding of the rules, and if they adhere to them, they can expect to achieve their intended returns. For us, the primary benefit is the certainty provided by knowing exactly what the rules are and seeing that they are being implemented consistently by both the government and investors. This certainty is a significant relief, removing a major concern.
What are some of the organisational plans Lekoil is focused on in the next five to ten years?
By next year, we expect to double our production and, within two years from that, double our production capacity again, which means that by five to ten years, we should be northwards of 50,000 barrels a day to 100,000 barrels a day.
In terms of importance to the sector, what stands out for you at conferences like this?
Firstly, networking is paramount. If you ask anyone here, they’ll likely emphasise networking as the key benefit. It’s an opportunity to meet fellow professionals, government officials, regulators, and others in the industry, all in one place. This setting is ideal for conducting side businesses and making valuable connections.
The primary advantage for me is the networking opportunities, but the conference also addresses important industry issues. For example, there has been ongoing discussion about Nigeria’s need to increase its production, which currently stands at around 1.3 million barrels per day. While progress is slow, action is being taken. The government is reducing red tape and simplifying processes, making it easier for us to develop and increase production.
Change is happening, albeit gradually, but it’s a positive step forward. Conferences like this play a crucial role not just in making new contacts but also in discussing business and advancing our business agendas.
Why do we have Dangote refineries importing crude amidst the several oil-producing companies operating in Nigeria?
Well, perhaps part of the reason for importing crude oil is that our production levels are not as high as they should be. Currently, production is only 1.3 million barrels per day, though we have the capacity to produce up to 4 million barrels a day. With the significant increase in refining capacity, thanks to refineries like Dangote, there is a greater demand for crude oil to keep these refineries operational.
Not everyone sells to Dangote or other Nigerian refineries; some choose to sell abroad, as it’s an open market. Consequently, refineries may need to import crude to meet their needs. However, if we increase national production—potentially even doubling it—we could reduce or eliminate the need to import crude to run our refineries.
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