Chinwendu Obienyi
The Assa North-Ohaji South (ANOH) gas and condensate processing plant in Imo State slated to commence operations in the first quarter of 2021, is expected to be a game changer in Nigeria’s oil and gas industry as it sets to also boost power generation in the country by over 1,200 megawatts.
According to Ambrosie Orjiako, the Chairman and Co-founder, Seplat Plc, the project, which is the first incorporated Joint Venture (JV) between an indigeneous oil company and the Nigerian National Petroleum Corporation (NNPC), remains a topmost priority despite the impact of the novel coronavirus (COVID-19) on businesses especially in the global oil and gas business.
In this interview with Daily Sun, Orjiako reveals Seplat ‘s strategies to contain the negative impact of COVID-19 on its operations, noting that the fundamentals of the company’s core business remain strong. He also revealed that the oil company is open to more consolidation and acquisition as opportunities arise
Excerpts.
ANOH project
We are delivering on ANOH as it is incidentally the first incorporated Joint Venture between an indigeneous oil company and the NNPC. One of the things that we are very happy about is that the cash calls required for this havebeen made and most of the project will be funded from equity and only a proportion of that will be through debt. We are going to make sure that funding will not be a problem despite the difficulties because of the ongoing coronavirus (COVID-19) pandemic. But we are doing everything possible to ensure that we do not postpone the date of our first gas because gas is very critical to our growth. ANOH is a key project and we
are looking to have the first gas in 2021 and everything is on course to meet that target.
Cash flow projections
Our cash flows have continued to improve but before the year ended, we did a major accquistion which definitely affected our cash flows. We are a lowly leveraged company and a look at our current cash balance of over $300 million, means that we have absolutely no problem satisfying our obligations going forward.
Our survival strategies
We are making sure that we do not spend money when it is not necessary and we are cutting down on costs, and maintaining a low operating cost and perhaps, we are working hard to reduce it below $6 per barrel equivalent of oil. We are making sure also that in terms of our capital expenditure, we will not spend capex that is not essential at this time. So, we are also going to be priortising our gas business as gas pricing in domestic market has become attractive and at the back of that we will continue to improve on our gas business.
Already our board has taken strict steps to maintain the business liquidity to ensure that our cash flow especially the balance sheet remains very robust which is obviously the reason we pay dividends to shareholders irrespective of what is happening in the operating environment. Going forward, we can only improve more on that.
Corporate Social Responsibility (CSR)
We do recognise that people in communities need help and so we make sure whatever items we send to communities get to the people. Frankly, the things we have done regarding our CSR which is where we have emphasized that our business is not just about declaring profits for shareholders but to run an inclusive programme where all stakeholders matter to us.
Over the years, we have spent tremendous amount of time and resources in communities where we operate as well as making sure that we play at every level of all the stakeholders in our business. You would notice that in com- munities where we operate, we focus in areas of education where we believe that solving education problem is one major step towards the emancipation of any economy. Therefore, we have been running quiz and scholarship programmes because we believe that if we produce good university graduates and better employable Nigerian youths, then you can employ them. I think that we have also made our mark in the health sector where we have focused on child and maternal health and so the save mother food programme of Seplat is next to none where we have treated tens and thousands of pregnant women and this is aimed at reducing the mortality rate in terms of maternal and infant health which has paid off. We have spent a lot providing them with the required amenities. We also launched the i-can-see programme where we reached out to several Nigerians especially in areas we operate. We have since moved away from making tokens available to youths and so we decided to empower them with the various skill acquisition programmes where we train, employ and ensure that they represent us in the areas we were operate following our laid down procedures and processes. So the people have confidence in what we do, going forward we will keep improving.
Expansion cost
We are committed to growing the business and that is what is in our mission statement and we are working hard to reducing cost where we deem it fit to do so.
Funding strategy
Our funding strategy is such that the company would remain minimally leveraged only at the appropriate level and we are not going to see this company being excessively leveraged and the next point of call is that we will make sure that the cost of funding remains very manageable. One of the reasons we took a corporate bond is because of our strategy as it relates to our financing strategy and we will make sure this remains very solid. We will also re-invest our revenues so that we can take loans when it is absolutely necessary to do so.
It is noticeable that even though we had financial institutions having confidence in us and giving us loan facilities, we never took this facilities until it was necessary which we did when we acquired Eland at the close of last year and today our net cash remains positive.
Share price
Our shares have not been doing quite well as they have been low as a result of the pandemic which is a global problem too. Capital markets all over the world are actually depressed and we are hoping that global economies recover, the capital market would recover and oil price will also recover which would impact massively on our share price.
Measures to arrest impact of COVID-19 on business
For a company that has had profit after tax (PAT) of $277 mil- lion, that is quite significant and means that 2020 challenges are things we will keep in mind and as I did say, we have priortised four main areas to arrest the situation already happening this year.
Firstly, we are looking to take care of our staff and stakeholders. We had to have a quarantine programme for all staffs who traveled outside Nigeria stay isolated for 14 days before they came to work. This preditated what was happening at the national level, even before the FG declared closure of all offices both in Lagos and Abuja, we had already taken a decision to close our offices and reduce the number of staffs we had at the fields to make sure that adequate social distancing was maintained. We also made sure that all of the requirements that the NCDC have put across as regards hygiene was well obeyed and the HSE department has been making sure that these guidelines were followed strictly.
At the areas where we operate, we have made sure that despite the $1.2 million we donated at the national level, we still went further to put money in the states where we operate so as to ensure we contribute to giving out palliatives as we have helped to strengthen supplies to the hospitals. We have also made sure that the commmunities received pallaitives with respect to food security during this period and we made sure we supplied them with significant sanitation and hygiene materials. Secondly, we have to make sure that the liquidity and the cash flow remain strong and that our balance sheet maintains its resilience and robustness. The Board made sure that we cooperate to keep our liquidity healthy and cash flows remain robust with free cash of over $300 million as at last year was maintained into 2020.
I think the other area is the area of priortizing our gas. Gas before the pandemic, remained a continuous project in terms of commercialisation for a very long time. The reasons are not far fetched because we want to identify with the FG in terms of closing the gap in power infrastructure and as a result of that we have invested heavily in gas. Today, Seplat is happy to say that we have provided 30 per cent of gas in Nigeria which is still growing. We have made sure that we support the government to make sure that the narrative of the diversification of the economy is built on a platform of growth in power infrastructure and this is where Seplat is doing a lot of work.
Looking at statistics as regards off grid power supply in homes through gas, diesel generators and petrol is accounting as high as 20 gigawatts of power, that tells you that the level of pollution in the environment is very high and if you play this against the gas supply that we are doing, it means that we will continue to contribute to cleaner energy form of power supply. The other point is that gas is very lucrative and we are getting good rewards from the gas we have invested as evident in our revenues and we are going to see this continue to increase year-on-year as the volatilites in oil price continues to happen, you would see that our gas contribution will continue to increase mainly because there is no reduction in the price of gas due to increased demand for gas in the domestic market. So, in 2020, we will leverage on all of this and make sure that this year, we would not only survive the hardship but we will remain positive with our performance indicators.
Other strategies to tame COVID-19 fallouts
We will not shorten our wells because we want to continue to produce but this is mainly because we are a very low-cost producing company. Our OPEX per barrel is just a little above $6 per barrel of oil equivalent and this is one of the lowest in the industry environment and with everything we have put in place, we can only see this per barrel going down and the more we reduce this is the more resilient we will become and make our business still profitable at very low oil prices and when compared to our gas business, you would see that we will grow stronger by the end of 2020.