Mr. Austin Avuru is the Managing Director/Chief Executive Officer of Seplat Petroleum Development Company Plc. He is a veteran in the oil and gas industry. At the company’s facts-behind-the-figures platform, on the floor of the Nigerian Stock Exchange last week, he shared the success story of the company, following the seizure of hostilities in restive Niger Delta communities. Excerpts:
Is Seplat thinking of establishing an oil refinery in the nearest future, to enhance fuel supply in the country and the entire West African region?
Establishing a refinery is not our core business; our core business is to develop and produce natural gas and crude oil. In the case of the natural gas, before we deliver it to the market, we have to process it because we are operating in the domestic market. So, we do not have any immediate plan to go into the refinery business for now. However, if there is any refining investment opportunity close to where we produce crude oil, we will be interested in the refinery to the extent that it will help to provide evacuation to our crude oil solution.
What exactly is Seplat doing to address the problems in the Niger Delta, especially in the areas of environmental degradation and locals’ poor economic conditions within the context of your corporate social responsibility or strategic investment?
On the Niger Delta issue, as a corporate body, we are very responsible. We are aware of the dynamics of Nigeria’s political system, and so we are not part of the groups that will say that ‘we are not part of what is happening in the Niger Delta’. We believe that we have a primary responsibility to the area where we operate. In fact, we have four stakeholders in the line of our business – our shareholders that provide us the capital must get returns on their investment; we have the government that gives us the licence to operate; our staff members that provide us with all the resources to generate this wealth that is being shared, and the fourth level of our stakeholders are the communities where we operate. We have relationships with the communities that are of the win-win formula. We must be able to demonstrate in real measurable terms, what we give back to the communities, not just a token. So we do a lot to complement what the government is doing.
What are your future plans on gas, in terms of expanding to new markets?
The domestic demand for gas, right now, is outpacing supply. We are struggling to catch up with supply. As I said, the pricing is not as much as we want it, but it is still good enough for us to make investments. Two things are driving our gas business. We are working hard to achieve the target we set for ourselves for 2018. As a company, we want to be known to be a critical support base to the domestic energy sufficiency drive. We want to be proud, to beat our chest and say we are a major contributor, in terms of domestic energy security. When we get to The Point whereby 20 per cent of gas delivery in the economy comes from us, then it doesn’t matter who is in charge; people will take us seriously.
Relating the volatility in the price of crude oil to the debt that you incurred, and realising that the debts are largely foreign denominated, what impact would that have been if you had raised money in the local market?
We try to strike a critical balance between how much debt we owe, and how much cash we own. And when we design our work programme each year, we make assumptions of crude oil, and try to hedge to protect the lower end. Our crude oil is easy because we produce. Organic growth will remain the immediate focus of our business’ expansion and we will look at increasing production and profit at its existing assets.
The domestic demand for gas, right now, is outpacing supply. We are struggling to catch up with supply. As I said, the pricing is not as much as we want it, but it is still good enough for us to make investments. Two things are driving our gas business. We are working hard to achieve the target we set for ourselves for 2018. As a company, we want to be known to be a critical support base to the domestic energy sufficiency drive
How has the nation’s macroeconomic challenges impacted on your business and how have you been able to sustain operations?
The biggest challenge to our operations is the impact of the Niger-Delta crisis on the production and evacuation of our products. You saw within 16 months of minimal production, when the Trans-Forcados was down, and how it impacted on us. That is our highest risk. We are hedging against that by having multiple avenues or routes for evacuation of our products. We are working with neighbours and other stakeholders to put the escravos pipeline in place, to complete and commission it and we still have an option in Warri Refinery, if we are pushed to the wall. Here, we consciously established three options of evacuating our products. In the East of the country, we are trying to develop our OM 53 from the scratch. We would develop this along with two other options of evacuation. We try to build redundancy in evacuation, to hedge against that
risk.
Following Seplat’s recent bond issuance, what possible investments will the company be making?
For the bond, we have two tranches of debts – $700 million from Nigerian banks and $300 million from foreign banks – and both debts were $1 billion. By the end of 2017, we had paid off about $400m in capital repayment and not just interest. So, debts combined, we are down to $650m, but we also have cash in hand. Our gross debt consists of $350m of bond and $200m that we withdrew out of the $300m revolver. We also have cash in hand of about $350m. Really, our net debt is down to under $200m/
$250m.
All of that translate to the fact that our balance sheet has been restructured from a very difficult situation. We have cash to invest and that is one key result of this exercise of borrowing. Secondly, we will be in a good position if we see opportunity for any acquisition; we
will be in a good position to participate. Where we are today is a far cry from where we were three
years ago. We were first struggling to survive, following the crises in the Niger Delta. Now, we have a strong balance sheet and cash
flow.
