A Review of the Nigerian Energy Industry

Afren expects 46,000/d from existing assets in 2012

03 April 2012, Sweetcrude, London – Afren Nigeria is the local arm of the UK-quoted Afren Plc, an oil and gas company engaged in various exploration and production activities in Africa, and with increasing assets in Nigeria. In this interview with Clara Nwachukwu, the Managing Director, Mr. Adebayo Ayorinde, tells Sweetcrude what attracted the company to Nigeria, at a time when it was a high risk venture in view of militancy and civil unrests in the oil-rich Niger Delta as well as how the company has weathered the storm.

What attracted Afren to Nigeria in spite of the perceived challenging business environment?
Afren was created in 2004 by a group of five founders, three of whom are Nigerian, so Nigeria has always been a key focus point and at the very heart of the Company.
On the most fundamental level, Nigeria is the most prolific oil and gas producing nation in sub Saharan Africa and accounts for around 80% of proved oil and gas reserves that have been discovered to date across the region. The sheer scale of the resource base and availability of numerous partnership opportunities, coupled with our strong ties and Nigerian management, meant that Nigeria held an instant appeal for us as a place to do business. Furthermore, a key early priority of Afren’s was to establish a solid platform of cash generative reserves and production that would enable us to build and grow the business on a sustainable basis. Nigeria lends itself perfectly to the achievement of this objective. In particular, Afren identified that there are a large number of discovered but undeveloped oil fields in Nigeria that have been licensed to indigenous operators, and that opportunities exist for an aligned partner that can assist in the effective development and monetisation of these assets through providing access to capital and the necessary technical and operational capacity. We have successfully forged strong partnerships in Nigeria that have yielded two Greenfield developments to date, the Okoro field in partnership with Amni and the Ebok field in partnership with Oriental, both of which are offshore Akwa Ibom. We have several other partnerships at assets across the exploration and appraisal stages that will be matured into the development projects of tomorrow and allow us and our partners to continue to realise some of Nigeria’s vast potential that resides in these undeveloped assets. It was a founding vision of the Afren’s to work in close partnership with indigenous companies and host governments. We like to think that we have demonstrated our business model to be a highly effective and productive partnership based approach for all concerned.
In 2009, Afren took its partnership model to the next level by supporting the establishment of First Hyrdocarbon Nigeria Limited, an indigenous company in which Afren holds a 45% interest, investing directly in the indigenous sector as well as providing technical and financial support. Afren also acts as Technical Services Provider to FHN, and will provide assistance and support to FHN as it seeks to grow its indigenous platform in Nigeria.

Were there assurances from government and in what ways if any, to convince Afren to come to Nigeria?
Afren’s decision to invest in Nigeria was driven by the business opportunities we knew to exist, rather than any specific assurance or communication from the government, but the government’s focus over the last ten years on trying to deepen indigenous production has contributed to the success of our business model.

Afren seems to have quite a large portfolio of assets in Africa but what is driving investment decisions in favour of Nigeria?
Our asset base across Africa is at different phases of maturity. Our East African portfolio of assets is largely focused on exploration and we will be drilling several wells in the region in 2012, investing a considerable amount of money. Our asset base in Nigeria is more mature and commercially advanced. We have existing production at Okoro and Ebok and we have strong technical knowledge of the surrounding areas where we are also investing in exploration and appraisal wells in 2012. We have seen early positive results from this work having recently made a new oil discovery with the Okoro East exploration well in partnership with Amni and look forward to drilling key wells at the Ebok/Okwok/OML 115 area in partnership with Oriental as the year progresses.
Fundamentally, we believe that the opportunity set in Nigeria for Afren remains exceptional. Having proven our partnership model with Amni and Oriental, and expect average daily production of between 42,000 to 46,000 boepd from our existing asset base in 2012 we are positioned as the ‘partner of choice’ for indigenous companies looking to realise value. When you consider that 37% of the oil and gas licences in Nigeria are held by indigenous companies, but only 4% of those are currently producing oil then the opportunity is clear for further growth.

What has been Afren’s experience since investing in Nigeria and what value added apart from funding has it brought into the stable?
Given the success of our operations our experience has generally been very positive. Afren was founded with the objective of supporting the indigenous sector and so the value add that we bring to Nigeria can be quantified in a number of ways.
Firstly, simply by providing the access to finance and technical support required for indigenous companies to achieve production we are supporting the growth of the indigenous sector in the upstream oil and gas sector in Nigeria. Increasing the countries reserves base and developing the indigenous sector both significantly increase the value from the oil and gas sector that remains in Nigeria and enhances long term sustainability.
Secondly, Afren has had a clear policy since it was founded to build capacity in the countries where we operate. We do this in a number of ways. Internally, 95% of our permanent staff in Nigeria, are Nigerian and we are very proud of this. Of the 95% of the Nigerian staff on our facilities, about 40% are local indigenes of those communities.
We provide our partners with the training and exposure they require to grow into strong indigenous producers in their own right. We have deliberately focused on building a strong network of indigenous contractors in support of our operations, and work closely with companies including Century Energy Services, Intels and Amazon. These contractors directly or indirectly provide several thousand jobs to Nigerians within the Nigerian upstream sector. As a result, a substantial portion of our procurement and staffing costs are spent locally and form a core component of our local content policy.
Finally, Encouraging entrepreneurship and developing the capacity of youths in our host communities and the surrounding areas is at the centre of our approach to community development. We have focused our CSR programmes on capacity development programmes in the Niger Delta, from establishing skills development programmes for youths and building a youth empowerment centre, to working closely with universities in the region to educate and train the next generation of Nigerian oil and gas professionals. The skills acquisition programme is designed to provide youths with intensive training to acquire vocational skills like welding and fabrication, mechanic and auto repairs, crane operatorship, auto electrical and electronics repairs, computer information and office management, fashion designing and hair dressing. Cash grant and the relevant tools and equipment required to open a workshop or business in their area of specialisation is provided.
The youth empowerment centre will have the capacity to host training classes for youths and includes facilities such as internet access, autocad software, a printing press and a photographic studio amongst others, with the hope that youths can gather to learn new and productive skills which can be translated into future careers, allowing them to make a clear and positive economic contribution to their communities and the state as a whole.

Having been in Nigeria for a while, how would Afren describe its experiences so far in terms of value for money, oil and gas production, the business environment and future prospects?
Since we were established in 2004 Afren has successfully completed two world class projects in Ebok and Okoro, grown an asset base across the country, extended our partnership model into direct investment into the indigenous sector through FHN and are now positioned for strong production and reserves growth from our existing portfolio in 2012. We are already the leading independent upstream oil and gas company operating in Nigeria and Nigeria remains at the centre of our development plans. With the government’s new drive to pass the Petroleum Industry Bill likely to unleash a new wave of investment into the sector and the potential I have already described inherent within the indigenous sector I think the future prospects are extremely bright.

What challenges did Afren face, how was it able to overcome them, and going forward, what are your expectations from operating in Nigeria’s oil and gas sector?
Nigeria can sometimes be a challenging place to do business, but the combination of our local knowledge, access to finance and strong technical team have allowed us to overcome any challenges that we have faced. Our business model means that we secure assets often overlooked by the majors and implement innovative and fast developments to deliver value as quickly as possible. Both the Okoro and Ebok projects were technically challenging, but in both cases we delivered production approximately two years after initial appraisal drilling. The model that we used at Ebok was a first for Nigeria, deciding to significantly increase operational flexibility and reduce both project costs and de-commissioning costs by using the combination of a Mobile Offshore Production Unit, MOPU, and Floating Storage Offloading, FSO vessel, as opposed to a more conventional, but expensive, development concept utilising a Floating Production Storage Offloading vessel, FPSO.
As we move into 2012 we expect to continue to increase production from our Ebok project, continue to develop the rest of our asset base and to continue to grow our partnership model and work with other indigenous producers.

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