*Adenrele Afolabi, Chairman/MD, Dansaki Petroleum.
OpeOluwani Akintayo 07 August 2017, Sweetcrude, Lagos – The Chairman/Managing Director, Dansaki Petroleum, Engr. Adenrele Afolabi, is no stranger in the oil industry. A graduate of Mechanical Engineering in the I960s, registered engineer with the Council of Registered Engineers of Nigeria, two term Chairman, Society of Petroleum Engineers, Nigeria Council, Afolabi is also a fellow of the Nigerian Society of Engineers and the Nigerian Institution of Mechanical Engineers.
In this interview with OPEOLUWANI AKINTAYO, the former staff of Chevron Nigeria Limited, speaks about his journey into the oil industry, challenges and experiences, while also touching on some national and international issues in the oil and gas sector.
What led you into the oil business?
When I got out of the Nigerian Railway, I joined the oil company. I saw the need for more Nigerians to get involved in the business of oil and gas because not many people were aware of the importance of that industry. So, I got in there, and with the civil war on, I found out that I could do some work in the field. I got an opportunity to manage an oil field, and with the kind of work I was doing, I got so much encouragement from the Federal Government – that’s exactly why I decided to go into the business even after retirement. And that’s how Dansaki Petroleum was founded
You describe Dansaki Petroleum as an offshore company. Could you explain more about what you do?
We have three terrains in the oil industry: service, exploration and production. Then there is exploration and production on land. There are some in the shallow waters, offshore. Onshore exploration and exploration operates in the swamp. Producing in offshore requires special equipment and technology to be able to do all you want.
How was the Tom Shot Bank offshore oilfield in Akwa Ibom awarded to Dansaki Petroleum?
The idea of developing an oil field is, for retirees to take the abandoned fields, resuscitate the fields and move on. In this case, your technical and technological knowledge will help you to make headway with little amount of money. But when you look at some of the fields that were handed over to us, you would find out that it was not easy to access the location of oil let alone explore or produce it. So, that’s how we went looking for financial partners. But when we found financial partners, they said they also wanted to be technical partners.
So, what were the challenges before the company could locate oil on the field?
We are not on production yet. What we have done is to reenter the oil field and also reenter the discovery well, and tested a zone. We did that and found out that it was not conclusive. The test was not conclusive. So we suspended that well, and blocked it back the way we met it. Now, we have been allotted another field, and we are planning to go back in the fourth quarter of this year. We will be doing some drilling and production.
Again, the moment our financial and technical partners came on, they came on when crude oil price was like $120 per barrel. But when the price started dropping, they left. The crash in oil price affected the project.
Have you been able to get new technical partners?
Now, we had to go back and look for some other help. We now have other partners who took advantage of the studies we have done. That’s why we are planning to go back in the fourth quarters of the year.
Tell us more about the challenges?
The challenges are three: One is the fund. Some of our colleagues in the oil companies with the more expertise were lucky to have had it easy, but, we didn’t. The second challenge is logistics, involving the communities. Overall, the challenges has been funds, security and community relations.
All of these we are working through. For example, we have been able to get representatives of our host communities who are recognised by the state government. We are using those people well with the help of DPR and we were assured of going back
You talk like you have had issues with them (host community) in the past?
Yes. The issue was when the field was under Shell, it covered a big local government area. But when the local government were divided, we found that with the one closer to us, was not the same as the one closer to Shell. So, we had to start working with the new ones. The other people who were no longer closer to us felt left out and fomented trouble. And then on security, because of the militancy, we couldn’t get into the field. We tried to form a cluster group to address the security challenges, but, it didn’t work. Trying to work with another company next to us affected us and other companies. So, we had to look for a stand-alone security measure.
Why is it so hard to tackle security issues as a group? Why stand alone?
Like I said it was because militancy was out there and they had the idea that because we are in oil fields then, we are in gold mines. So they want their cut.
So what have been your experiences as a retiree working with other retirees to make a living out of the field but getting frustrated?
First of all, it wasn’t just retirees of oil companies who had access to marginal fields. The opportunities were given to other retirees in other fields. My experience working with the local communities since the field was awarded to us has not been all good because of the reason I explained already.
The second challenge is from the technical and financial partners who come up with smaller money and they want huge returns. The maximum that government asked to be given as equity was 40 percent but they wanted to take 48 percent. Because of the small money they brought, we were not able to go far with the work. We spent a lot of money on offshore operations.
The third experience has been with militants who won’t allow us work. But after the first term elapsed, DPR extended it. The extension again expired and now they want us to pay a large sum of money to get back to the field which is a start-up one for us.
What’s your target once you start drilling?
When we go this time and drill one well, and again reenter the first one that we have entered, making two, we are looking at a production of 5,000 barrel per day from the test we did, and this will come up early 2018.
When you start producing, where will you produce into?
Addax has terminals around there. But right now, the economics supports more of production into storage tanks and then we can make decisions of what to do with it afterwards.
What would you do with the crude oil you produce?
The way we are structured now, we will be exporting our crude. The best thing would have been to get into the business of modular refinery, but, we are not matured enough for it.
You don’t think there is market for it in Nigeria?
Yes, there is market for it in Nigeria but the issue we fear here is militancy. We have to work with our partners who prefer exports. But if we can put it into a storage tank and then decide where to take it or we would take it to ExxonMobil’s depot. When we produce in three phase, we would have our security facilities out there and be able to take it to local refineries out there.
What is Nigeria’s solution to crash oil price?
The solution is to move away from production-oriented market to a refining one. When we refine, the value comes up and you can then get it into the market. But if you are not able to sell the crude oil because of the low price, then you refine because when refined, the value comes up. Another way is to be competitive. Let our cost per barrel go down so that we can have more markers. We can also talk to non-OPEC countries to see how we can reduce the glut from the market.
But OPEC is already cutting while US shale producers are busy pumping more. Now, the world is asking OPEC to cut some more. At whose expense?
While we were enjoying a high price per barrel, the US was using that to develop their shale industry. But when the price came down, they had that oil and they had to use it in their own market which is closer to them.
Shale coming into the market should make OPEC think about the way forward for their oil industry rather than complaining. If you find out that you are not making money from the crude oil you produce, go into refining. For now, OPEC isn’t looking at what you refine in your country. It’s not part of the count.
But, some people are saying OPEC should start investing in shale. Does it make sense?
Shale isn’t cheap at all because producing it is more expensive that our own barrel of crude oil. The oil we have in Nigeria is better produce with minimal cost but with shale, it’s too much. What we should do is focus on refining our own crude
Shouldn’t US also cut instead of putting pressure on OPEC?
Yes, but the problem is that US refused to be part of the group. They had stated their stand a long time ago
What about the likes of Russia who are joining the cut but aren’t part of OPEC?
That’s because the likes of Russia is approachable. Indonesia didn’t join too but later agreed.
What do you think about the PGIB?
It’s a good step. I like how it has been cut into smaller parts. This will help us see the government focus more on each bit of it instead of putting everything into one and then it’s so complicated.
But the locals are saying the PGIB focuses on how the government will make more money from crude oil, leaving them out
That is why it’s a good initiative that government is planning to go into modular refinery. The economy of Lagos is based on attracting investors, that’s why they are able to expand. But if you are limiting yourself and saying you don’t want people to come, then that’s bad. But they can be part of it. If they go through the process, they would be able to get their own oil fields too.
Like when we were going in, part of the requirement was that we must have people from south-south as part of the directors of the company. Dansaki Petroleum has two directors from the south-south. Apart from south-south, we also have from south-east, and others. So, they should want to be part of it instead of not wanting people to go there.
The militants are presently threatening to go back to the creeks because they said government is not keeping to it promises
They should not do that. Look at the effect the bombings had on our economy. We did not have oil to export and refine. We were at a standstill.
But is government keeping to their promises to them?
The government, IOCs and investors are doing the best we can. What is new is the promise that the government will clean up Ogoni and they have told them that the cleanup will takes years. But if you look at the NDDC, a lot of money is going in there, royalties keep increasing
So if NDDC gets so much money and royalties keep increasing, why do you think they keep complaining?
That is why you can see what is going on with corruption. With the level of money that is being paid into NDDC, they are not using the money for what they promised to use it for. And then the royalties get paid to the state government instead of land owners. There should be a separate funds that will be managed not by NDDC, and should be tied to the safe passage of production of oil and gas in the Delta, and make sure people don’t tamper with it.