Oil & Gas
To ensure gas supplies, we have made strategic acquisitions, says Eroton CEO
Ebiaho Emafo, Managing Director/ CEO of Eroton E&P Plc.
Ebiaho Emafo, Managing Director/ CEO of Eroton E&P, in this interview with BusinessDay, speaks about the dynamics of Nigeria’s oil and gas sector and the spin-offs, as well the growth, activities and projections of the company going forward. Excerpts:
Eroton E&P signed a strategic gas supply agreement with leading fertilizer producer Notore Chemical Industries in 2015.How has the agreement changed things for your firm?
It is indeed correct that we have a gas supply agreement with Notore but it would interest you to know that the acquisition of OML 18 acreage was in part driven by the need to ensure regular and steady supplies of gas to Notore and the domestic market as historical gas deliveries were epileptic and unreliable with the previous operator of OML 18.
What are your projections, considering that we are at a time when the country is looking forward to seeing more indigenous players in E&P?
Our projections in terms of production goals are essentially to be the number one hydrocarbon producer in the country and the region in the nearest future. Since acquisition we have been able to ramp up production progressively via rigless activities and field re-entries from a rate of circa 10 kbopd to circa 50 kbpod of net oil production. We see ourselves doubling this production within the medium term time frame via our infield drilling campaign which is set to commence next month (October 2018).
Eroton E&P currently boast of seven oil flow stations with capacity ranging from 10kbopd to 60kbopd, a 120 MMscf/day capacity non-associated gas (NAG) and three associated gas gathering.
What are your plans as regards improving performance of this asset and your expansion plans going forward?
Slight correction, we had seven flow stations, unfortunately two (Buguma and Orubiri) were completely vandalised and inoperable. We have however resumed production from Orubiri, via our Alakiri flow station and intend to resume production in Buguma in the nearest future. In terms of performance, our operations and maintenance teams have been able to achieve facility uptimes above 85% and rarely have operational outages which is a stark difference from the previous operators track record for various reasons. In terms of expansion, as you rightly mentioned, our facility capacities are yet to be constrained, so we are of the opinion that the existing facilities will be sufficient for our medium term production growth targets.
Gas however is a key area where we want to expand our footprint and we are therefore aligning ourselves with the seven Critical Gas Development Project championed by the NNPC, to grow our production and sales volumes.
What exactly are your plans to grow your gas reserves?
At the moment we have 2P reserves of circa 4.7 Tcf, so our primary goal at the moment is to develop those reserves and monetise them via either supplies to the domestic market or mid-stream opportunities. Naturally, as we develop the reserves, our replacement strategy would be to at a minimum, replace what we produce (i.e. 1:1) and we are of the firm opinion that the asset has significant upsides in the exploration space.
What are the challenges you face in the gas to power space?
The gas to power market in Nigeria can be tough for a few reasons. First of all, you have a situation where the Disco’s are not able to collect all their revenues from their customers due to metering and collection issues that have plagued the industry for a long time. This fact now has a knock-on effect on the entire value chain. The Genco’s don’t receive full payment and as thus cannot pay the producers for the gas supplied. The second major issue is in the area of billing currency and attendant FX rates applied. Gas supplies are invoiced in naira, whereas the industry primarily spends in USD. This would be alright if the FX rates applied were what was obtainable for the producers to utilise, but unfortunately the CBN rate of 305 is applied when the reality is that most producers are sourcing USD at 360.
This leaves a disparity of N55 on every dollar billed, which will naturally impact any producer’s financials. Finally, I will raise the issue of fixed / regulated pricing, this policy impedes the level of investment into the gas industry due to the less than desirable returns on investment. There is a need to review the policy to make it more appealing to investors, we hope the PIB would be able to address these issues but in summary those are the major challenges we face today.
What is your take on the delay in the award of marginal field licenses in the country and is your company planning to acquire a marginal field?
Well… like you, we await the commencement of the bidding round with great anticipation, due to the fact that it would allow more indigenous players to come into the oil and gas space and therefore increase and improve our collective technical, financial and human capital.
We heard last year that the process was to commence in the nearest future but have sadly heard nothing further till date. At Eroton, we constantly seek to increase our reserves via exploration and acquisitions, so we can never rule out any opportunity until we do our due diligence.
What proactive steps are Eroton E&P taking in solving the problem of Crude oil theft?
Crude oil theft is a problem that cuts across many sectors and stakeholders in Nigeria. At Eroton, we have applied a multi-faceted approach by involving the various stakeholders such as communities, relevant government agencies and security agents and deployment of novel technologies that assist with detection and prevention of intrusion on our pipelines.
Everybody has their role to play in curbing this menace and we are hopeful that the current regime will provide the enabling environment to address this issue. At the end of the day, crude theft happens because the people in the area feel they have no better alternative, so in our small bid to provide alternative means of income to our host communities, Eroton has undertaken several CSR initiatives. These initiatives have touched on rural electrification, educational grants and scholarships, access to medical care, skilled and vocational training, and a host our youth empowerment schemes such as setting up poultry and fish farms.
Recently, there are a lot of misconceptions in the media about a gas fire that broke out at the Buguma 10 Gas Well, a gas well located within Oil Mining Lease 18 (OML18) which is one of your major asset….can you clarify that?
In terms of clarification, you are indeed correct that we experienced a well fire on one of our wellheads in the Buguma axis. This was unfortunately as a result of third party interference deemed to sabotage / vandalisation by the relevant authorities. As discussed earlier, Buguma is a field that we are yet to resume production on but nevertheless have to keep a vigilant eye on our all our assets, whether actively producing or not, in view of the potential attendant hazards to life and the environment. It is pertinent to note that we addressed the situation in record time with no loss of life or property.
As a corporate policy I’m not permitted to discuss commercial matters and would rather refer you to Dangote to get a more informed response.
What are your plans to improve collaboration with oilfield services to improve logistics?
We work very closely with our vendors and contractors as they form an integral part of our business. We recognise the need to enable and support our vendors so they can effectively carry out their activities. In terms of plans, we already have in place vendor financing programs in collaboration with some financial institutions and also invoice discounting to assist with cash flow constraints. Our contracting and procurement departments also support our vendors with awareness sessions in order to ease and facilitate the contracting cycle. In particular, we pay special focus to our local and host community contractors and vendors by giving them opportunities that are within their technical and or financial capability.
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