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Partner of choice for IOCs

Interview - April 19, 2012
Emeka Okwuosa, Managing Director of Oilserv shares his perspective on Nigeria’s energy legislation, the need to build more local capacity, and the company’s shining track record working with international oil companies (IOC) and quest to attract more investment

The oil industry in Nigeria is undergoing changes, with the Petroleum Industry Bill (PIB) apparently set to overhaul the industry and give it a long awaited facelift, changing the relationship between international oil companies (IOCs) and indigenous companies. What is your assessment of the PIB? When are we going to see it implemented, and what sort of impact do you think it will have on the economy?

The PIB is long overdue as far as the concept is concerned. All of us in the oil and gas industry in Nigeria know that the regulatory system and laws under which we operate are very much outdated, and do not accurately represent the true position of things. The second part of it is that the regime that defines the relationship between IOCs and the government of Nigeria, as well as all of the associated activities that make up the service industry, is again completely outdated. There has been a need for change for a long time. In terms of timeliness, it should have happened yesterday.
Now of course there will be some fears, because to make changes it is only natural that people feel unsure as to whether the change will be positive for their operations. I understand if there is apprehension in the beginning, but obviously there will be a win-win situation for it to work. As far as I am concerned, the PIB is overdue for enactment and the earlier it is put in place, the better, to ensure the proper level of investment in the oil and gas industry.

In the interim, what do you think can be done to empower indigenous companies?

In the interim I think it is a matter of continuing what has started, which is that the Local Content Bill has been made into law and has been in practice for about two years now. It has been very positive, and it is something that the current administration of President Goodluck Jonathan has done well in trying to finally implement. The industry has been fighting for this since the early 1990s, but it was not implemented until a couple of years ago. It is very positive, and the right way to go in terms of building capacity. It is not just about empowering indigenous companies, but building the required capacity that is sustainable – the ability to have Nigerians coming into the service industry in a serious manner, and be able to offer credible and competitive services. There is no place for people offering substandard services in the name of local content.
But there is still a gap there when it comes to the issue of funding. I know part of the Local Content Law makes it possible for a fund to be put together. On any bill or invoice, we are all charged 1%, which goes into the fund. That fund, with the intention of building capacity, has to be managed properly. Beyond that fund, there has to be systematic change in the financial sector in Nigeria that allows indigenous companies to have access to funds at a reasonable rate. Sometimes we are borrowing at more than 20%, which is not a competitive rate. On that basis, it makes it difficult to build capacity. Some of the things that will help build capacity are actually outside of the control of the oil and gas industry.

What is your valuation, post-Local Content Act, of the relationship between IOCs and companies such as yours?

I will speak in general, not from my personal experience only. We have been competing to build capacity prior to the Local Content Law and for us, it does not make much difference because we still compete in the same way. But generally, it makes a difference for new entrants and capacity building. I strongly believe that the management of the Nigerian Content Development & Monitoring Board (NCDMB) under Ernest Nwapa has done very well. He is very experienced in these matters because prior to the establishment of the NCDMB, Mr. Nwapa was already handling the portfolio that developed the basis of the entire law itself under the Nigerian National Petroleum Corp (NNPC). He was the General Manager of Nigerian content under NNPC, so he knows that business very well.

Further demonstrating your commitment to developing the local content, you have taken up a series of projects from Oando Plc. What is the significance of this transaction to Oilserv? Could you also comment on the 128-kilometre gas pipeline?

Working for Oando is quite a package; you can clearly say this is the ultimate in local content capacity building. But before I get to that, Oilserv itself has been in business since 1992, working almost exclusively for Shell in the early years, handling a lot of their major projects. By 2000 we already executed a 12-inch line for Shell, from Elelenwo West to Agbada 1. That was one of the first projects of its kind built by a Nigerian contractor.
From 1999 we maintained the entire Shell pipeline system, even at the height of militancy when there were bombings and sabotage. We were the only company with the capacity to move into the swamp with all of the facilities, build cofferdams, salvage a 28-inch pipeline within a few days, have oil flow again, and restore the production of 120,000 barrels of oil per day. We also built the biggest manifold station in Nigeria, a 36-inch TNP manifold in 2001. We have also built gas delivery lines in the swamp, like the one we built for Global Energy, which was a 26km pipeline to evacuate the products of their gas stripping system.
When we started working for Oando, we built their first pipeline in Lagos in 2001. Since then we have done two other phases of the pipeline; in fact the entire gas pipeline system in Lagos was built by Oilserv. We just commissioned the last one a couple of years ago. We also built for Oando the 12-megawatt (MW) Akute Power Plant in Lagos. Oando took that project on as a turnkey from the Lagos States Government, to supply power to their water treatment system. We were chosen as the Engineering, Procurement and Construction (EPC) contractor to build that from scratch.
The 128km pipeline, which was commissioned in November 2011, is the longest gas transmission pipeline built in southern Nigeria. It presented peculiar challenges because that pipeline runs through the most difficult terrain. We started from land terrain, moved into swamp terrain, moved into hilly terrain, and moved into granite terrain, that was 5-10km long. Sometimes you had up to ten metres high of granite, and had to blast a right of way 15 metres wide, before even laying the lines. On top of that we also built a full city gate, which is almost a project on its own. A city gate is a system from where the gas is distributed. We are taking the gas all the way to the United Cement Company of Nigeria (UNICEM), passing through a city gate on the outskirts of Calabar where there is interconnection. From there, it is possible to interconnect other companies. It is both a treatment and distribution centre. It has everything, and it is really a project on its own.
This project is also technically peculiar because we used Horizontal Directional Drilling Technology (HDD). Instead of dredging in order to cross the rivers and laying lines in the traditional way, we drilled under water like you have with the Channel Tunnel. We go under, come out and pull the pipes without disturbing the water. The longest crossing we did was 1.3km, which is very long for an 18-inch HDD line. We also built intermediate pigging stations, block valve stations, UNICEM’s facilities, and a pressure reduction metering station, so this is a fully integrated system. Everything was completed and commissioned on time, and worked perfectly.
It is a success story for us, as well as for Oando, which is an indigenous, integrated oil and gas company. We are exclusively working for one of its arms, Oando Gas & Power. They have built capacity from scratch. It is a great story because there is no other company like it in Nigeria today. They have proven that Nigerians can do such projects, and we are very happy to be associated with them. For any of their major projects they prefer to use Oilserv for clear reasons; we are very competitively priced, and we deliver very good quality, on-schedule. These are the three things that sell our company. We believe very strongly that our work can only be sustainable if we meet these three targets.
As I speak to you we are also building other lines. In May we will commission a 24-inch by 24km gas delivery pipeline, which we started in November 2011, in a record delivery time of seven months. We also kicked off an EPC for gas delivery to Geometric Power Plant in Osisioma. We have done all of the engineering, construction will kick off next month, and in the worst case the entire line will be delivered by August. We are also building a gas supply system under the National Integrated Power Project (NIPP) (Lots 1 & 2 respectively to supply gas to the following power stations: IHOVBOR, GBARAN and EGBEMA). We have a few other projects going on at the moment, and we are able to handle as many as ten projects at the same time. We want to build more capacity, and that is what we are focused on.

You are also the Managing Director of four other companies. Is there a synergy between these other companies and Oilserv? Do they complement each other, or is it absolutely separate?

No, they complement each other. For example Frazimex Engineering handles most of the front-end engineering for Oilserv when it gets an EPC contract. But Frazimex Engineering is a standalone company that also provides services to other companies, and works on different projects simultaneously. As of now the other arms – Energy Services and Drilling – are primarily doing drilling support services. A couple of years ago we decided to divest from actual drilling, and sold our rigs to Oando. We also have an arm in Sierra Leone, so all of these arms are complementary. What is important right now is that Oilserv is in a position to offer a wide range of services. Frazimex Engineering also provides services for Frazimex Energy Services, depending on what is required, especially when it comes to civil works.

The Sierra Leone arm was our first move outside of Nigeria, but there have been recent talks about expanding into Ghana as well, please comment on your future expansion plan.

Ghana is still an on-going discussion. Our intention is to move into Ghana, be able to pick up some franchises in oil and gas delivery and its processes, with emphasis on delivering pipelines. We are also looking at how Oilserv can offer its EPC services to any oil and gas company in Ghana, but the opportunities there are not quite as widespread as Nigeria. We are also looking into working with the power industry in Ghana. In Nigeria we just signed an MOU to provide a 500-MW power plant in Lagos. What will happen beyond the investment there is that Oilserv will be in a position to provide installation and engineering services for power plants. But the growth is more in Nigeria. We want to grow into power delivery and plants in Nigeria, as well as being able to offer our services in Ghana, Sierra Leone, and possibly Equatorial Guinea.

Such expansion will require capital, and one of the challenges is that the financial sector is not really conducive to that. Another way to get that funding is by inviting new investors. In a previous interview you said, “Investors should be willing to come in and offer their services. But part of that is to link up with local companies to establish a base here, or set up a fabrication shop and facilities.” What are you doing in order to attract the right level and quality of investors?

Two clear things are needed to attract investment. The first is necessity, as far as we are concerned, which depends on our general plan for expansion and development. The other issue is the willingness of international investors to come into Nigeria and partner. That willingness is multifaceted. It is about being able to understand how it works here, and having a realistic approach towards that. We have had a few discussions, and not many people or companies understand Nigeria very well. Most people think Nigeria is a high-risk place, and usually the conditions they offer are such that you cannot accept; they are skewed in a way as to reflect the mind-set. However that does not mean it is not possible. But we have not progressed very far in terms of trying to establish that kind of partnership.
Raising money to work in Nigeria is expensive, but we also have access to international funding. When I bought two rigs, I raised the money through the African Development Bank in partnership with Standard Chartered Bank in London. We have the ability to raise funds; it just depends on the necessity and conditions. Oilserv has a wider reach than most service companies in Nigeria. We also have an international outlook in the sense that we have quite a good profile, and our credit record is excellent because we have never defaulted. What keeps you going as a service company is the ability to take a project and finish it. It does not matter how cheap your funding is; if you cannot finish a project, you will fail. The bottom line is that we always finish our projects, and finish them on schedule.
We would be willing to partner with any foreign entity towards funding, provision of certain aspects of equipment, and facilities. Personally, I worked internationally before returning to Nigeria and I understand how things work all over the world. I understand that in order to reach a certain level of growth you have to be open-minded in order to attract any foreign partnership or investment.

In your work you have a great impact on the local communities. How do you strike the right balance between business objectives and giving back to the communities in need?

We have a very strong corporate social responsibility (CSR) policy. Working in Nigeria for 20 years, we have seen the evolution from locals not knowing their rights and what they should be asking for, to locals making demands as to what they deserve, to finally some locals taking up arms to fight for what they believe is their right. I understand that any sustainable business of the type that we are doing has to be at peace with the environment you are working in. If you are not at peace with that environment, you cannot sustain your business. CSR is also a way to give back to society, regardless of whether society deserves it or not. In my opinion, CSR is a way of showing that you are responsible. Business is not just about making money.
It is about growing a system, which can be defined in any way. We define the system as the clients Oilserv works for and the people that live within the areas in which we operate (who are impacted by our activities); our mind-set is to integrate this in a way that we can achieve both profitability and a peaceful coexistence. We take CSR very seriously, and we do it in a way that is sustainable. Sustainability is about having both profitability and peace. We have challenges in the places we are working, but we have remained in business because we are aware that along every inch of our pipeline route, we are exposed to people. We do everything possible to understand the people, enter into a MOU with many of them (where necessary), come to agreements in terms of local employment, or building necessary infrastructure such as water wells, etc. All of these things keep the system going.

Your success story is a testament to that. As a visionary and local entrepreneur, what legacy would you like to leave behind upon your retirement?

I want Nigeria to be better governed than it has been all these years. In Nigeria, I want our hopes to match with our actions. I want the oil and gas industry to be so well-developed thanks to the work done by ourselves and others, that Nigerians are seen to be capable of setting up their own companies, building capacity, developing people and systems that deliver full support for the oil and gas industry, which will in turn be able to build up businesses around this profile that will improve and increase the business outlook in the oil and gas industry for Nigerians.
At the beginning I said I do not believe in handouts. You have to work for what you get, but sometimes people do not even have the opportunity. What I am doing now is creating those opportunities. In the past ten years I have created five or six different companies. I have helped people who worked for me set-up their own companies and subcontract work to them, which builds capacity. Over years, we will be able to say that Nigeria is in a position to have a system that will support services in the oil and gas industry, by day-to-day capacity building. In addition, people will know they have to be well educated, understand that they have to work hard to gain experience, work beyond that to set-up their own businesses, and make it profitable and sustainable. If that is achieved, for me it is a very good vision.

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