Interview

Global Oil Downturn: How Nigerian oil and gas industry can survive in 2016 – MD, Offshore Dimension Limited

Managing Director, Offshore Dimension Limited, Seun Faluyi

In this interview with OLUWAGBENGA BANKOLE, the Managing Director/ Chief Executive Officer of Offshore Dimension Limited, Mr. Seun Faluyi reviews the oil and gas industry in 2015, previews 2016, speaks on the PIB, the new PMS price regime and other topical issues in the industry. Excerpts

Tell us about Offshore Dimension Limited

Offshore Dimension Limited is an engineering and construction company which works for the oil and gas industry. We started doing engineering designing and scaled up to start doing engineering procurement and construction.  We do from concept to inauguration. That is from engineering design, detail designing, procurement of the needed materials, construction, supervision and up to inauguration.  We also do assets integrity. That is looking at what is existing, facilities that are old and need to be upgraded so that they will be suitable to work.
Despite the fact that oil price is going down and oil companies are becoming more cost-sensitive, we have married the skills we have acquired from working for international companies and also our high value capability to ensure we have a low cost.

How has the Nigerian Content Act enhanced your business?

The Nigerian Content Act has been very helpful. Five years ago when it started, there were not too many Nigerian companies in the industry. There were few companies that were doing engineering and construction works during that time. About 10 years ago I started a company called Global Ocean Engineers (Nigeria) Limited. The company does engineering designing for oil and gas companies and as at that time there were very few engineering companies that were Nigerian.
When the Nigerian Content Regulation came in, it was like a volume target of how much Nigerian should be in the industry. Considering what Nigerian companies could do at that time it was as if the Nigerian Content Act was impossible. But although it seemed as if it was impossible, when you look at the industry and see Nigerian companies that are now offering services you will surely be surprised. It happens because of the legislative encouragement to see that Nigerian companies do it. In any oil and gas conference that you go now you will see more Nigerians that are Chief Executive Officers of companies. It was not like that few years ago. For me it has been a success it terms of the volume of Nigerians participating in the industry. There have been successes in terms of value, quality and there are a lot of people that have more skills that are doing things. Some years ago the International Oil Companies (IOCs) were skeptical about the ability of Nigerians to do it, but right now they don’t have such excuse anymore because Nigerians have demonstrated the ability to do it.

Another thing is that the quantum of value that has been harvested in the industry has increased. There is more that is changing to Nigerian hand in terms of ownership of oil companies.  For example, marginal field owners that are Nigerians were not much before but now we have more of them. Oil companies that are owned by Nigerians are more than before. More Nigerians are putting more money into the industry because of the Local Content Act.
The Oil and Gas industry went through a turbulent period in 2015 considering the drastic drop in oil prices which led to cut in expenditure of oil companies.

How would you assess the oil industry in 2015?

Year 2015 was indeed turbulent for the industry. As you said, oil price dropped from over $100 per barrel to less than $30 per barrel. If a person has been getting one dollar and now is getting 25 cent, it means that the person is getting one quarter of his income and he has to cut his lifestyle. The drop in oil price has really affected the industry negatively. Apart from the drop in oil price, the exchange rate that went up was another thing that affected the industry in 2015. A dollar was about 160 to a naira at the beginning of 2015, but later went up to about N270. It means that what the oil industry buys using dollar is now 40 per cent expensive. If you have borrowed money from a bank, the money you are making is one quarter of what you used to make and the money you are spending is 40 per cent more than what you used to spend. A lot of companies in the sector are facing severe pressure. The turbulence has forced the re-jigging of the landscape and as a result of this a number of companies exited the market because they can no longer cope. Some companies downsized. There were indeed severe challenges in 2015 due to the micro-environment and micro-economy.

Any positive to take from Year 2015?    

I will say yes. I am an optimist. The cost of contracting in the oil industry is very high because the processing is very slow. Contracting is very high because in the industry there is additional cost due to security that has to be taken into consideration. The lending rate of Banks and other finance institutions have been very high. What 2015 taught us in the industry is that we need to sit up and change the way we approach business. If we didn’t have this kind of wakeup call people will not know that there is a need to be cost-efficient and prudent. Right now everybody has to go back to the basics and say what exactly are we doing? Are we doing it in the appropriate way? Once everybody can look at their value chain and do it appropriately, everybody will be able to get it right. Year 2015 taught all of us that we need to sit up.

How will you preview the Nigerian oil and gas industry in 2016? How do you want the industry to look like in 2016?

There are a lot of industry forces that are shaping the industry’s economy and are not something the country can control. The continued drop in oil prices has made oil companies to cut their budget. International companies have scaled back on their projects. The IOCs are no longer investing in new fields. It is unlikely there will be new fields in 2016. We may likely face the impact of what we experienced in the industry in 2015 for a long time. We need to be conscious this year. What we experienced last year may still continue. Oil price that is coming down is not just coming down. It is because there is price war between United States and OPEC. United States produces shale oil and they have a lot of reserve. The thinking of OPEC was that if oil price goes below $40 per barrel it will shorten the production of shale oil and they (OPEC) can continue to produce. Even now that the price has gone below $40 per barrel, this has not stopped the Americans from producing. Recently the American government placed a ban on exporting shale oil. They said all oil produced in America should be used domestically and not be exported. The American government is like it is taking the bluff off; if OPEC wants to go all out, they can also go. They are saying that their own oil may be as low as $20 per barrel. It means that the price will continue going down until it can force somebody to say that let us slow down on production. America is not slowing down production they are even producing more.

2016 is still going to be a tough year for the industry. It is not what we wish it to be. The fundamentals have not changed. We are still going to have low oil pricing. What we should be looking at is what can be done to survive despite the current situation. It requires being cost efficient. Some people will cut down their staff and expenses. The average salaries of IOCs are very high and for you to bring down the price a lot of people have to refresh the pyramid. Several companies are facing the reality of the present situation.

At Offshore Dimension we have seen the drop in oil price coming for a long while and we have decided to diversify. We have developed our relationship with Parker Hannifin of America. Parker Hannifin manufactures products not just for oil and gas but for other industries. We started with them in oil and gas. We can also supply to other industries all over Nigeria whether it is manufacturing, aviation or transportation.  This is an approach I am sure other companies will be looking at. I am sure other companies will be looking at diversification. I am sure others will also be looking at how to spread their cost on a wider base and do things more efficiently.

You said that the industry will still be tough in 2016 because of the drop in oil price. What are those things government can do to ensure that stakeholders in the oil and gas industry survive despite the current situation?

Government must make policy that will be positive to Nigerian business for it to be cost efficient. At present the cost of contracting is very high because it is very long. There are different levels of approval and controls that make things very expensive to run. Once the policy framework is able to make it easier for business to go ahead, it will make it cheaper for companies to survive.

Government must also look at how they can restructure the Petroleum Industry Bill (PIB). They should also put adequate measures in place to make sure professionals and technocrats are put at the helm to manage the industry. We need tough decisions to be made in the industry and for this tough decisions to be made we need people who are insightful.

The PIB has been in the Senate for donkey years. What is your advice for the current Senate concerning the passage of the bill in 2016?

The PIB has been in the Senate for years because of the resistance that has been stopping it from going forward.  And the resistance has been from different stakeholders which include the Oil companies, the OPTS, the Northerners and others. They said they want different provision to be included in the bill. We have been tinkering with it and by the time you aggregate all the compliance  you will find out that everybody has different reasons for saying they don’t want the bill to go ahead. One approach to solve the problem is to break it up into pieces. Another approach is to engage stakeholders independently and keep working at what will be the best solution to let it go further.

The approach that I would suggest is the adoption of a comprehensive change management strategy in which those who are skeptical about the benefit of the bill to them will be engaged so that they can be communicated with the benefit of the bill. Also, whatever their concerns are can be embodied, and any changes that need to be made can be made.

Some marketers and stakeholders have expressed their dissatisfaction with the new price regime of petrol. They are of the opinion that government should not only remove subsidy, but also deregulate the downstream sector. What is your take on this?

There are different steps when it comes to deregulation. One of the steps is to say we are not subsiding anymore. It is a step in the right direction for government to remove the subsidy because the inclusion of subsidy is what can be described as government trying to influence the price by paying the difference between the landing price and what the marketers will charge Nigerians. If there is going to be deregulation, removal of subsidy should be the first thing. It appears that this is a step towards a full deregulation. However, deregulation requires a political will. It has not been achieved before because of resistance.

What is the business plan or growth projection of Offshore Dimension in 2016?

In spite of the turbulence in the market in 2015, we were able to grow. It is not because we are better than others; it is just because when there is chaos there is opportunity. We targeted where it is that people are looking for low cost high quality services and we provided it. And because we provided it we were paid for it. We are not up to two years old but we have grown against industry trend. We have been on an upward trajectory. We have used the skills and capabilities we have developed working with international companies with Nigerians. So we are not paying high cost to expatriates. We are able to remove at least 40 per cent of what would have been a premium if we have a lot of expatriates. The customers we are talking to are in-country people, who are looking for low cost service, but high quality that is comparable to what expatriates will provide them and because we are able to provide it we have been getting work.

In addition to that, the agreement we have with Parker Hannifin right now is something that is growing. Parker Hannifin produces equipment not only for the oil and gas industry but for a lot of industries. We are moving still further up and the thing with this kind of deal is that it is positive. We have got Parker Hannifin that is the number one in the world when it comes to what they do. They said they are going to come to Nigeria and they are working with a Nigerian company. They believe that there is potential in Nigerian market and working with Nigerians. It is an achievement for Nigerian content. It is an achievement for the country. Even as everywhere is looking negative in the country, Parker Hannifin believes there is positive in Nigeria.  We are kicking off in 2016.

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