Atlantic Energy and its “enduring commitment”

 

Based on the key metrics that we looked at when we thought about entering the Nigerian market some time around 2005, we found that it is a country of scale. Globally, it has the 7th largest population (about 174.5 million last year), the 9th largest oil reserves, and the 7th or 8th largest natural reserves. Nigeria is a country that cannot be ignored. It has tremendous onshore oil and gas (O&G) reserves that could be developed. 

 

This industry itself has been largely operated by 4 to 6 international oil companies (IOCs), which have focused on the larger-scale fields because those are the ones that move the needle for them (which is understandable).

As the fields are developed, IOCs have started to focus on LNG projects where they have the technological advantage. Their project management skills and balance sheets differentiate their level of participation. The same trend can be seen in deep water operations.  

 

The participation of independent or indigenous companies has been quite limited. As such, many of the small to mid-sized fields (as well as the domestic gas market) remain under developed. Furthermore, several large-scale opportunities in the sector are underdeveloped, including the onshore oil projects and the domestic market for gas.

These are national priorities for Nigeria where the private sector could participate (through partnerships) to create large-scale and mutually beneficial business opportunities. 

 

There is also the aspect of human resources (HR), which is a national priority and consistent with resource nationalization. Nigeria has the resources for O&G, and they can be a great enabler for building skills and strengthening the workforce. The government is trying to leverage on that potential to increase the skill level and participation of the local HR. 

 

These are the reasons why the market is as attractive as Minister Aganga says, and very compelling when it comes to exploring business opportunities. It has a sizeable market base—more than 174 million people. That is a lot to consider when you talk about fast moving consumer goods, education, travel, and many other sectors. 

 

 

The losses incurred from vandalism and the like affect all Nigerians. It also has an impact on local and international investors. With regards to losses from the federal account from royalties or not, every barrel carries a royalty. This means that for every barrel lost, royalty is not being remitted into the national and federal accounts. Everybody is affected by this. 

 

As for solutions, a wide range of actions are being taken. It is, after all, a complex problem. The scale of losses being incurred is clearly extremely lucrative. This means no one is going to give up this type of business quite easily. These projects have been going on for a sufficiently long period. Interests are obviously quite entrenched. It is going to be a package. It will take a whole range of initiatives to solve it. Some will come from the surveillance of the pipeline networks to detect losses earlier.

Another initiative will be to engage the communities who are stakeholders and affected by these losses, as well. As you know, these kinds of theft cause environmental damage. Members of the communities are a part of the surveillance program, as well as maintenance and repair. They can be our first line of defense from theft. They could keep watch and prevent possible thieves from entering.      

 

We are also looking on establishing better metering so that we can have a clear idea of the amount that is being lost, that way we could plan and allocate resources accordingly. Because of the IOCs and the large tracts of the licenses that were being centrally managed, there is very little distributed metering that will help us identify the losses immediately. 

 

Indigenous companies are acquiring some of these blocs from the IOCs. Each bloc becomes even more important to the indigenous investor. Because the stakes are higher, the reaction time is faster. This also allows us to find indigenous solutions to indigenous problems. The ability to identify and communicate these solutions to the communities (or the stakeholders) is more direct and rapid. 

 

 

The general over-arching policy is around community engagement—to understand the environment in which one is operating in. It is important that we communicate that the community members are our business partners. It is not just about social hand-outs, but long-term sustainable business partnerships. Our ability to add skills to the community serves as a long-term benefit to them and us.

 

After all, Atlantic Energy is an oil company and not a charity, and it is in our interest to perform as a respectful business partner.

The communities know how to manage their own aspirations. We are there to help enable that and possibly provide structures and foundations that could help deliver some of these priorities. We are talking about skilled labor, suppliers of fresh water, diesel, equipment and services and so on. These are the things that we require in our operations, and the communities are well-placed to provide those. Our generated profits are reinvested in the communities in a more direct way than most are able to do from a high level. It is about building the communities.

In this sense, profit creates sustainability (unlike charity, which is not sustainable). This should provide long-term sustainability beyond the life of the fields.   

 

 

The requirement for the latest technology is often dependent on the sub-surface and environmental challenges that one is facing. For example, in deep water, you often have to find solutions that have (maybe) been applied only once or twice before (so that would be regarded as high technology). There are fields onshore that may have been discovered 50 ago, and may have been producing for 30 years, already. 

 

When it comes to our focus on technology, we look into ways we could increase our recovery factors and extend the life of the fields. This entails 3D or 4D seismic activities to understand remaining recoverable reserves, as well as very detailed simulation studies on computers that allow us to apply and compare multiple development scenarios to achieve the best recovery factors. Once we have done that, we begin to understand the long-term development plan. That leads us to the environment where we develop O&G. 

 

A lot of the production facilities have been in existence for 30 years, and are either no longer fit for purpose, or have simply reached the end of their service life. Now, we are looking at the sort of fit for purpose technology that could replace the old technology. As you can see, we are not looking to squeeze existing equipment for 5 more years. We are looking to replace and reinstall equipment that would be fit for purpose for another 30 years. These technologies are easily operable in remote environments all while increasing the amount of information that is fed back centrally. This allows us to optimize the assets. We are looking to optimize field development and production. These are the areas where we apply technology.  

 

 

The way that could be achieved is two-fold. One is by giving indigenous companies access to large-scale blocs. Exploration alone would be a long-term and risky way to generate such production targets. The existing blocs often have very large scopes to increase recovery factors. As you may have seen, between sales and announcements of divestments, interests in approximately 24 blocs have been offered by 5 IOCs over the last 3 years. These blocs contain about 8 billion barrels of oil, and 20 to 30 TCF of gas. That is the material opportunity (or divestment program) where government policy is encouraging indigenous participation.    

 

To generate these production levels and optimize existing fields, indigenous firms require access to capital, expertise and technology. Basically, we need access to the blocs, the financing and the technology. 

 

Today, we see a transition where IOCs are divesting, and indigenous companies are successfully collaborating with foreign companies to access the capital and the expertise. Together, they generate collaborative Nigerian solutions to Nigerian challenges, allowing them to participate in a very meaningful way in the sector.     

 

The end of year production for 2014 is 50,000 barrels of oil per day. We have a strong base. With our partners and the operators of our fields, we are undertaking development plans to add significant amounts of production volume from the reserves that we have spent the last 2 years identifying and optimizing. Through this, we confidently have independently certified development plans to achieve these levels of production. 

 

To achieve that, we need robust and sustainable community relations, as well as the expertise. As it is, we have a strong management team. We are expanding the technical and professional levels to commence the drilling programs. We have already commenced the facilities redevelopment plans to achieve these production targets.      

 

 

We intend to spend the next year optimizing existing production. In the next 3 years, we will be focused on reinstating old facilities to increase production. This will happen alongside the development of drilling programs. To grow our reserve base, in the next 5 years, we are going to add appraisal and exploration to what we have. As it is, we have a considerably large reserve base to develop. 

 

In terms of acquisition opportunities, we will remain vigilant in the hopes of expanding our portfolio and our key footprint in Nigeria. 

 

 

Atlantic Energy has an established and diverse asset portfolio with existing production. We have development plants to grow that production over the next 3 to 5 years at a very low unit development cost base. The combination of near-term growth, scale and low unit development cost is something that you cannot easily find anywhere in the world, and that is our company’s compelling proposition.