The Managing Director Offshore Dimension Mr Seun Faluyi, an experienced engineer in this interview on the sideline of Practical Nigerian Content Conference in Abuja last week examined the focus of indigenous service providers during period of oil price downturn and operators in the upstream sector. He speaks on the importance of developing capacity in-country and the need for operators and state governments in Nigeria to domesticate post-graduate training programmes so as to reduce cost of operation at a time that global research revealed that Nigeria accounts for the highest cost of producing a barrel of oil which stands at $28. Excerpts
A year after the downturn of oil price, what’s the situation with indigenous companies in terms of cost that you are offering your clients?
As it has been mentioned in this conference, the downturn in oil prices has provided an opportunity for all operators in the upstream to look inward to try and reduce their cost. In Offshore Dimensions, we have tried to control our cost by looking at what we actually do and looking at what’s excess and making sure we stay to what’s critical. The reduction In demand implies that we don’t need to keep high significant overheads like software and equipment. Those things that I don’t need to renew, I just keep them until jobs come when I will need them. So as things are, I will say different people have been reducing their cost to hold it down. This is something I believe is cutting across because everybody says this is the new normal and is not something we can run away from and say the prices are low we are waiting for it to go up. We are not going to wait for it to go up in the near future because it’s still going to be something that will remain high. So, what can we change now and what can we do now? Those are the things we should be looking at and a number of things that companies have been doing. For instance, they have also been diversifying and one of the things that I’m also passionate about how we can drive values in other areas.
When you find companies like ours that are saying oil is going down does not mean life has ended. Are there other industries where the skills we have built can be used? We are finding more firms and companies that are building skills and capacity because the Nigerian content has helped them to look into other industries and they are making a lot of impact. My own company, Offshore Dimensions has partnered a global manufacturer of components, they do oil equipment like filters and these are things that are used in the industry, but not only in Oil and Gas sector.
They are needed in manufacturing, cement industry, railways and so many things. So, the standard we have been able to attain in the oil industry, we are now transferring it to other sectors of Nigeria. I’m sure our own story will not be unique, there are other companies. For instance paints, in order to use a type of paint in oil industry, it has to be top quality to be able to resist corrosion. That same paint can be used for painting buildings, it can be used for painting vehicles by the panel beaters. All these are things that are being used in Nigeria and we are creating additional value, we may say there is a downturn but there are opportunities for those who can see them.
Now in terms of opportunities, as in other oil producing economies, it’s easier to explore now that prices are down. What’s the situation like regarding exploration activities in Nigeria As a contractor, are you having new contracts from the IOCs as the operators? Any new request?
There hasn’t been any significant request for now. When there are low prices, what it does is that it lowers your returns and if you do an evaluation and based on the current reality, you say the oil produced will be sold at $45. if I cannot sell at that amount, I won’t go into it irrespective of the exploration opportunities. So, doing the economics, when you complete your project in four years, what would you be able to do with your reserves and a lot of projects that have been deferred because people say they cannot make money right now. It’s not because they are mean or they don’t want to do it but because they don’t want to spend and fail to recoup the cost back. That is probably why service providers have not been able to do much. In the industry now, we are still in talks with Bonga, Aparo and Zabazaba and by early next year when there is a level of comfort in the economy that guarantees returns and an increase in oil prices, I’m sure you will see more investments.
Would there be any increase in oil price anytime soon?
Fundamentally it may not increase so soon, the thing with buying and selling is that when somebody sells and there are many sellers with a lot to sell, the buyers many insist if the prices don’t go down, I won’t buy. Right now, we have over stocked fuel storages, we have so much capacity that anyone that wants to buy oil is in a buyer’s market and if you don’t sell at a low price, I will go back to the Americans or the Saudis.
With the winter coming, do you see price of oil rising above $60?
Even with the winter coming, in places that I have mentioned where they use the oil to preheat the environment at winter, they are the ones producing the most. As in America, they will want to use their own oil more to protect the economy. In terms of the liquidity of the market initially, we heard it was China that was driving the demand as a result of high consumption, but China has slowed down a bit in their economy. India too is trying but it’s not enough to balance the impact and Japan was buying a lot of gas which increased price, until their nuclear reactors were knocked out. But they have started to increase their capacity. In the short time, we may not have so much of an increase, even with the current spike in price for winter, it’s not something that will last, it will continue to show the volatility that’s in the market.
Now with this impact what do you expect with our Oil and Gas, because anytime there is a decrease in price we are always in a fix?
Now with the new regulation on Oil and Gas, the government is saying there must be a shift in paradigm, because most of the time as a country we are always fixated on the price and the production. Like currently, we are fixated on the price between $45 to 60 per barrel. We are fixated on whether to do 2 million barrels per day or less. This is the current feeling but however, the government is saying can we change the paradigm because we have an oil industry. And in the industry what is the supporting supply chain and they looking at how to aggregate the supply chain to make sure it delivers on the demand and make sure everything works well. If you build your own capacity to make sure everything functions well, you will be favouring the industry and when things swing, you benefit from that. One thing, we have also found is that somebody that does welding may not find jobs for welding in the Oil and Gas but could be welding for the transportation industry. He can weld tankers, buses with global quality. Like somebody that sells paints, the fact that there are no new projects means he may not be able to sell much for oil companies, but he can still sell for companies in the communication industry that have telecommunication towers and masts. These are still activities these companies can go into even as the prices are low now. We should not say it’s doomsday and that we cannot go ahead. There is still that latent demand and it now depends on what we can do in other parts of the industry. We need to look at what we can do in the other parts of the industry like the academia. Scholarship to develop capacity can help people rather than bringing people from abroad to do the things we can do here. It’s about what we are focusing on and giving value to the people and the country.
What can you say about the cancellation of overseea scholarships by PTDF, because we also waste a lot of forex on that?
Well, I may not support the cancellation, but we spend much money in sending people abroad. However, what if we flip and bring people from abroad. The irony is that most enrollments for Oil and Gas courses come from Nigeria. So, if we bring those people that are training them back to Nigeria to come and train, we will be training more and those ones who say they are going are only doing it to collect estacodes and to collect money for holiday among other things. We can try to give it a lot of institutional backing like the Bayelsa state government is doing to expose people to many opportunities. If we can make people develop the inherent potential in them to help develop the oil and gas resources that God has deposited in Nigeria, that will do us a lot of good. The reality is our GDP is not only oil-driven, it’s also driven by agriculture, telecoms and banking. But foreign exchange earnings come from oil and it’s that 85 per cent of foreign earnings coming from oil and anytime we need dollar and don’t get it, we say it’s the oil industry. But the growth in the economy is powered by other things that are not oil-based.
With this trend and the commencement of oil exportation by the US, don’t you see a threat to the sales of our oil products with the exploration of shale oil in America?
The thing with the national policy that changes paradigm on oil pricing and production is that we would look inward and not outward by not depending on what US President-elect Donald Trump will say, rather we should determine what we get and what’s it that we do. Like every country has self interest and we too must understand that we have legitimate self interest. As we cannot change what we do for their country, we also should not allow them dictate for us what we should do for our country . It’s now up to us not to wine with it, but to look at what we can do with the oil deposit in our own country and also transfer its dividends to other sectors. Even if the price of oil is not going up and we are not selling enough, that doesn’t mean the country should go down.