‘Our Host Communities Are Critical Stakeholders in the Work We Do’ – Avuru
Austin Avuru is an outstanding professional with more than three decades experience at top management level in the Oil and Gas Industry. Currently, Chief Executive Officer (CEO) of Seplat Petroleum Development Company PLC; he spent 12 years at the Nigerian National Petroleum Corporation, NNPC and held various responsibilities as well-site geologist, production seismologist and reservoir engineer. In this interview with Orient Energy Review-OER’s Editor, MARGARET NONGO-OKOJOKWU on the sidelines of the 24th Africa Oil Week, held in Cape Town South Africa; the former Exploration and Technical Manager at Allied Energy Resources speaks on developments in the petroleum industry, the Gas Master Plan, petroleum pricing and sundry issues. It is OER’s exclusive. Excerpts!
Just by way of introduction, can you just tell us about yourself briefly?
My name is Austin Avuru. I am the CEO of Seplat. I have been CEO since we founded Seplat in 2009. And as you know, Seplat started out with assets acquired from Shell, Total and ENI back in 2010 and we have developed those assets which are currently producing over 70,000 barrels of oil and about 300million standard cubic feet of gas a day.
Tell us about trans-forcados. We heard that it just came up on stream after the vandalization. Now that the pipeline is up and running, how badly were you hit and what are your projections with this recent developments?
We were badly hit, about 17months of highly restricted production and it showed in our results. So our full year 2016 was a huge loss for us and even up to the third quarter of 2017. We are just recovering from the accumulated losses of the previous year. As you saw in our third quarter results, even though in the third quarter, we made a profit and overall we are still at a modest loss situation; all of that is an accumulated impact of almost non production for about 17months. So it took a very big hit on us.
Would you be making alternative plans in the future?
Yes. One of the biggest lessons from that incident is the fact that as part of our internal plans now, it doesn’t matter which field we develop, we must create redundancy in evacuation. So in the West apart from Trans-Forcados, we are working hard to finalize and commission the Escravos pipeline. And we are also building the facility that enables us to badge out of the Warri refinery. So when all of these are in place, it will mean that at any point in time, we will have at least two evacuation options and that is what we will do even in our development in the East in OML53. From day one, we will make sure that we create redundancy in evacuation because that has turned out to be highest risk in our business.
We are no longer where we used to be in terms of gas reserve because it has depleted and there is even more pressure for LPG consumption in our homes besides our obligations to LNG contracts and power generation. What is your advice to the government on new discoveries?
I think with the prevailing domestic price for gas and combined with LNG opportunities, there is a connection case now for gas discoveries, exploration and development. Before now, nobody paid any attention to any gas discoveries. Today gas assets that come with sizable gas volumes are even attractive to us as a company. So we are beginning to get into a pricing regime where there will be deliberate exploration and development of gas resources. Again the lesson from this is that all the former policies that emphasize punishment for gas flaring yielded very little result.. But now that a commercial case is being made for gas development, you are going to see efforts to increase our gas reserves.
How is this different from the Gas Master Plan?
This is part of the Gas Master Plan; the Gas Master Plan was to develop processing capacity for gas and then supply gas into the domestic market. It hasn’t quite work out in the sense of having CPF- Central processing facilities. At Seplat, we have developed substantial capacity to process gas. Again, like I said, it is driven by the fact that the pricing regime for gas today makes a commercial case for such things. So in a way, the Gas Master Plan will eventually play out to the extent that you will be seeing people making commercial development for gas and sending them into the domestic market.
The LNG Act and the move by the legislature to tinker with it due to huge budget deficit as well as the request from the Niger Delta communities would impact on the industry for good. Can you throw more light on this?
That is not our territory; our entire gas business is focused on domestic gas supply. So the LNG and the few issues that they have with the National Assembly and NIMASA, we try not to delve into that.
Price of gas here compared to international market is huge. How is Seplat getting round the disparity and government regulation on pricing?
I think government regulation on pricing is falling away gradually. Most of our gas contracts are willing buyers and willing sellers. It is really the domestic supply obligation that comes under the government regulated price of $2.50. And even at that, the DSO prices are supposed to gradually phase into a willing buyer, willing seller regime. It is this pricing regime which emphasizes a commercial structure rather than a regulated price that is driving some of the investments you are seeing in gas development and I hope that will continue.
Nigerian infrastructure in terms of gas development still lags behind; what happens to the Gas Master Plan and how best do you think we can achieve the desired end? And what is your take on the virtual pipeline and the recent modular structure that is being talked about?
The pipeline infrastructure for gas development is not that bad. If you tie in the OB3 which is under construction and would probably be ready mid next year and the ELPS loop that would increase that volume from 1BCF to 2BCF, then we would be capable of delivering about 3BCF of gas into the critical areas of demand, which is not bad and the rest would be to tie in ancillary pipelines into that to deliver volumes. The real emphasis would be how to manage the pipelines in future. . The question is always asked whether the NNPC subsidiary has the capacity to manage that entire complex infrastructure. Virtual pipeline would always be there. If you compress gas or if you freeze it in the case of LNG, it can deliver substantial volumes by trucking to areas where they are needed and a few companies are doing that. But usually, virtual pipelines cannot deliver the kind of volumes that pipelines deliver. So they are only meant to supplement the pipeline infrastructure and deliver gas to places that are remote from pipelines.
Is Seplat utilising virtual pipelines?
No, virtual pipelines owners are our customers; they take gas from us and deliver to customers.
So the issue of pipeline vandalism doesn’t affect, you. Obviously you have structures in place. How do you ensure security?
Vandalism of gas pipelines has also been quite minimal. Crude oil pipelines are the ones most vandalized. . But also the real pipeline network for distributing gas is not part of our infrastructure; we sell our gas at our gates and customers have to negotiate with Nigeria Gas Company that practically runs the backbone pipeline infrastructure t to deliver the gas to them and that is the way the structure is.
Do you really see us moving to gas-driven automobile in Nigeria?
We have to be careful. A lot of things that can work very smoothly in Europe and in the United States may not work here. We have to be careful because of infrastructure deficit in our place. You look at electric cars and the ease with which people can plug in and charge their cars; you need to have that level of infrastructure here in Nigeria for such things to work. We have been talking about gas driven cars, CNG cars and so on. We have to have enough stations where people can go in and recharge their gas. It is a lot easier for people to just buy gasoline at petrol stations. It is about infrastructural development and making sure that those things can run smoothly in Nigeria and we are not there yet.
How soon can we get there?
I don’t know. I don’t even know if there is a race to get there .We still have to develop the basic infrastructure in which just to drive gasoline cars; so we are not at the point where we have to be racing to get there now.
So with the gas reserve we have in Nigeria, don’t you think if we put CNG driven cars on the motion, it will encourage more of exploration activities in terms of gas discoveries?
There is enough domestic demand for gas now even just power and the other industries that we are not meeting the demand. So that is what I am saying. I don’t see what would be driving us into CNG cars; it is not such a top priority. There is no reason to focus on that so much now.
How have you managed to stay immune to direct impact from community restiveness and what has been that winning strategy?
Our community relations policy from day one has always been a win-win policy and so we are at peace with our community because they see themselves as stakeholders in our business. That is the way we designed it from the beginning. We are already well set up in Sapele with our base office before this whole talk of about companies moving to the areas where they are operating. So we have not built our policies on tokenism. We have built our policies on genuine desires to make the communities our stakeholders and that has worked for us. That has been our strategy.
What is the strategy?
That is what I said that they have always been stakeholders in our business; that is the way we designed it from the beginning; it is not tokenism; do one or two things just to make a point, No. And when they are stakeholders in your business and they see the benefits of your continued business in their lives, they won’t attack you and that is what has worked for us.
Are you saying Seplat’s community engagement or stakeholder’s involvement is very critical to the success of oil and gas businesses?
It is the failure of that over a long period of time that resulted in the crises you are seeing now in the Niger Delta. If those engagements had been genuine over the past 50years and if those communities actually saw their future, saw any hope in the success of the oil and gas industry in their environment, then you won’t have the crises you have now.
Does it relate to the Petroleum Industry Bill regulations that have been passed?
It doesn’t matter what the laws are; the laws, even the petroleum Act of 1969 always made reference to how you treat the communities, it is about the implementation, it is about how honest all of us are at every level from the government to the operators, how honest are we in really integrating those communities into the business we do.
If you move around those communities, you’ll ask yourself, do these communities look like communities that have seen 60years of oil production and a lot of wealth generation? They don’t. So it is taking a long time for the impact to hit all of us but it is never too late to go back to the drawing board and make the engagement more meaningful which is what we do at our individual levels.
Seplat is one of the independent companies in Africa that is seen as one of the champions of both local content and how independents are succeeding in Africa. So what would you say is that magic wand that Seplat has been using to ride on over the years?
There is no magic. We set up a company from one day with emphasis on proper governance, so it wasn’t by chance that we were listed on the London Stock Exchange just less than 4years after we set up the company, and being listed at the main board in London stock exchange comes with the big challenge of running a company properly to international standards. So those were our aspirations from the beginning and those are the things we have done over the past 7years to build a company that is here in the long haul. Whatever you see happening with Seplat wasn’t some kind of magic wand, that was the plan from the beginning and it is still work in progress.
What is your advice to smaller companies who are looking up to your company for direction?
It is all about governance and governance takes a lot of discipline; it takes a lot of sacrifice. It is easier to cut corners; it is easier to make money by cutting corners. When you set out not to cut corners but to set the proper governance structure, in the long term, you will reap the benefits.