‘Production losses, multiple taxes, insecurity lead challenges for E&P operators’

Eroton Exploration and Production (Eroton E&P) Company Limited, operator of Oil Mining Licence (OML) 18, is an indigenous energy company, aiming to be the home-grown industry leader in the production of hydrocarbons in Nigeria, at a time indigenous companies play limited roles in exploration and production of oil and gas.
  
The Managing Director, Eroton E&P, Ebiaho Emafo in this interview with KINGSLEY JEREMIAH, discusses germane issues in the oil and sector in Nigeria, particularly the challenges faced by oil exploration and production companies.

Tell us about your operational profile?

Eroton Exploration and Production (Eroton E&P) Company Limited, is a leading Nigerian indigenous energy company, incorporated in August 2013, and began full operations in 2015.

We won the bid for the 45 percent total interest in OML 18, previously held by the Shell Petroleum Development Company, Total E&P Nigeria Limited, and Nigerian Agip Oil Company Limited.

The asset was producing 10,000 barrels per day (bpd). Consequently, we became operator of OML 18 asset in October of 2014, in a joint venture between Eroton and the Federal Government of Nigeria, represented by NAPIMS. We have been able to improve the production to about 65,000bpd.

As an integrated oil and natural gas exploration and production company with over 230 staff, Eroton is positioned for growth in the oil-rich Niger-Delta area of Nigeria.

The company’s business is conducted via its head office in Lagos State, and a branch office strategically located in Port Harcourt, Rivers State that oversees operations at the fields.

To date, there are over 11 developed fields comprising the following; Alakiri, Akaso, Asaritoru, Buguma, Bille, Cawthorne Channel, Orubiri, Krakama, Ibibio, Tema, and Awoba.

We currently provide 50 about million Standard Cubic Foot (SCF) of gas per day to fertiliser plant in Onne area of Port Harcourt for Notore. 

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?

We have been able to achieve a growth basically by rigorous intervention. The plan is to start drilling actively.

We intend to bring in a drilling rig to start drilling in the last quarter of 2018.

We see ourselves growing in terms of oil production by adding additional barrels through drilling activities.

We also see ourselves growing in gas space as well, increasing our gas production because there is a huge opportunity in the gas space.

You have the gas-to-power for the power industries; gas to industrial companies, and you also have gas for export.

We want to grow the gas business moving forward to next year in a really short time. We need to grow incremental barrels in terms of oil production.

What exactly are your plans in the area of gas? 

We currently produce 60 million standard cubic feet (scf). We delivered about 50mscf, and we intend to grow that to 100 mscf.

We have the potential, but we want to make it a decision that will be economically viable for us.

There are challenges with recovery in terms of payment for gas-to-power.

So we are not just going to increase the output of gas without commercial justification for that.

If we grow our gas business to about 100mscf, that would be dependent on commercially viable options.

Like I said earlier, the gas-to-power space is a little bit challenging because of recovery.

There is equally a potential of us having gas industries. But again in the gas business you have to look at the structures as well as challenges in infrastructure.

Are you hopeful that the Petroleum Industry Governance Bill (PIGB) will address some of these challenges?

It is hopeful that the PIGB will be able to clear some of the challenges, but when the PIGB will be signed into law is another question.

The intention of the PIGB is to make it easier for people to do business within the oil and gas space, but we have been waiting for several years for the PIGB to be signed into law.

For example, one aspect of the bill that will help us is in area of production to be recorded in terms of calculation of royalties, not at the well end but at the export end.

This is because for us, we quickly have loss of production on the line due to sabotage, theft, and at a time we were losing over 40 per cent of our production due to crude oil theft.

Initially, when we started, we were losing nine per cent of our production, but it went up to 46 per cent. Now, it has dropped to about 23 per cent loss on the line.

Meanwhile, royalties are calculated at the well end (production), not at export, it leads to losses to us in the business.

And nobody invests in an asset with the thought that these amount of losses would occur. 

Fiscal regime is important to make it comfortable for oil and gas operators to play in the Nigerian space.

We have challenges with a lot of multiplicity of taxes that oil and gas companies have to pay; development fund for NDDC and other areas where oil and gas companies are contributing towards the communities they operate.

I hope that the PIGB will address in terms of customer relation, fiscal term and in terms of losses.

We are hopeful that all of us will benefit if the PIGB is signed because more oil will be produced. The losses are never accounted for.

There is nowhere in the world you will buy an asset and factor in a loss of 40 per cent; that is huge, and alarming in terms of production.

You factor in a loss of one to five per cent. But when you go as high as 50 per cent, it is a challenge to any business. Be it manufacturing or oil and gas.

Also, security is a challenge. There is a lot of security problem in the Niger Delta area.

We have engaged and work closely with communities since we started and contributed immensely to the development of the community.

For instance, school rehabilitation, medical care, and we also provide them with scholarships.

We just finished a programme whereby 12 students went to the USA to obtain a degree programme.

We do WAEC sponsorship. We do empowerment. So working with the communities has helped us to have some form of security within our own operational area.

We pumped all our crude oil into the line that is not controlled by us; third party controls the line.

They maintain and provide the line we use to pump our crude oil.

So even if we have all the efforts currently ongoing with the community, we are still not able to guarantee the security on the line because it is not within our control.

You succeed with the community where you are operating but still you cannot produce crude oil.

For the last three-four weeks, we haven’t produced crude oil. We were only able to produce non-associated gas, and nobody envisaged that.

We don’t have storage for crude oil but it is something we may think of in terms of looking for alternative evacuation option. This is a big challenge for us.

We don’t have visibility of how long the pipeline will serve us.

What is your take on the delay in the award of marginal fields licence in the country?

It would be prudent for the government to open the marginal field, as it will bring revenue for the government. I don’t know why it is taking too long.

It should be awarded through a transparent process, and when the people who are beneficiaries start work, it will contribute towards the production quota of the country and more additional revenue for the government to be able to grow the country.

What should the country focus on to achieve desired objectives in the oil and gas sector?
 
Generally, as a country, best practice has to be in place for us to be able to grow. We had challenges in contracting cycle and approval delay.

But recently, it has improved. We need to have some improvement in terms of time of contract.

The time within which all the necessary approval will be given should be looked at. Also, efficient project execution is another aspect. The deficiencies in that area need to be wiped out.

Again, there has to be a decision to what is best for the industry in terms of financing as well.

We are gradually moving from cash call regime to alternative funding regime, which is good in itself.

Unfortunately, not all the operators have signed on to the alternative-funding regime.

It is a good idea, especially with the joint venture arrangement so that when you are ready to embark on a project, you are not waiting for cash call funding, because you have already sourced capital to be able to execute your project.

If you have a system whereby you are given free hand to start a contract from the beginning to the end, there will be efficiency.

We have to be able to secure our pipelines and the life of the workers.

At the end of the day, if you don’t have security on the line, you would be losing a lot of reserve.

Another key area is if more money is spent in developing a community like providing roads, water, and basic infrastructure, not lying solely in the hands of the operators, it will help to halt vandalism.

The situation is so bad, and government really needs to do something about it.

Do you see the price of oil hitting $100 anytime soon?

I wish it hits $120, but the reality is that it will be difficult. I think the price will hover around $60 to $80 per barrel.

If it goes up to $100 then there must be something fundamental that will change.

Though everybody wants the price of oil to go high, but we have to be realistic about it.

The major thing is to have the ability to export irrespective of the price of oil.