Independent Producers Must Remodel Portfolio To Remain In Business – Avuru
… Recommends niche playing, consolidation
The Chief Executive Officer of Seplat Petroleum Plc, Dr Austin Avuru has called on the independent oil producers in the Nigerian oil and gas industry to reposition their businesses as part of the strategies in surviving the twin impact of the Coronavirus outbreak and the slump in oil prices.
Speaking during the Nigerian Association of Explorationists (NAPE) second webinar series, themed “The New Normal Post Covid-19 for the Oil and Gas sector in Nigeria”, Avuru said the current realities in the industry demand that companies must boldly reposition their portfolio and transform their operating models to navigate through the new regime of low oil prices.
According to the Seplat CEO, in the coming oil industry reset, operators need to reposition their businesses to capture regional market, adding that niche playing and consolidation are highly recommended as earnings from oil dwindle.
“We have to diversify our portfolios now! Operators have to choose whether they want to do oil and gas or oil and gas midstream, oil and gas and some midstream like refining.
“I am talking particularly about the independent oil producers in Nigeria because if the business is not good enough for the multinationals, they move somewhere else but the independent operators have to remodel their portfolios in such a way that even at such low price, we can survive.”
Continuing, he said, “We are going to start seeing Basin niche players. If you are a niche player in some portion of the onshore, you probably have to stay there, develop and master it to make you in the long term, become a low-cost producer to be able to survive.
“There will also be consolidation. If this kind of prices go on for a long time, some companies with weak balance sheet may not survive it and if they are sensible enough they have to initiate consolidation so that can take the value of what remains of their assets.”
Stating on the need for the operators to capture the regional market, Avuru said “refineries and Petrochemicals companies like Dangote have to target the entire West African region for their products.
“Those of us in gas business should take advantage of the West Africa Gas Pipeline and work to deliver the gas that will power the entire West Africa.
“This is also the same thing with the LPG. We have to capture the regional market as part of our survival strategies.”
Speaking further, Avuru urged the operators to keep an eye on energy transition. Envisaging full deregulation of electricity tariffs sometime in the future, he said: “I am sure there will be a time, especially when there will be full deregulation of electricity tariffs where it might be cheaper for people in Borno and Jigwa to actually get electricity through solar than joining the grid and get electricity that is produced using gas here in the south.”
Stating that current realities had shown that that oil revenue was trending downwards below 45 per cent as a percentage of total federal revenue for 2020, Avuru said government must diversify the economy to run on non-oil revenue.
According to him, Nigeria may no longer enjoy the luxury when in the past, the revenue from oil accounted for 80 per cent of federal revenue and 92 per cent of foreign exchange.
“They economic landscape has to be reset in line with the new realities that oil price is trending downward below 45 per cent as a percentage of total generated revenue. And because we are looking forward to almost a new normal of very low oil prices somewhere between $40 and $50, we will be lucky if it gets to $60,” he said.