Etete: More Local Oil Firms Required to Drive Growth

Mr. Ken Etete is the Chief Operating Officer of Century Group, a company that offers a range of services to the oil and gas industry. He speaks on several issues on how the industry can performance better. Goddy Egene presents the excerpts:

How will you assess the Nigerian oil market?
Well, the Nigeria’s oil industry is what we call the ideal model. It is the ideal model in the sense that you have the oil on land and in the sea. You don’t find that in many places. So, Nigeria, to an oil expert, is a perfect place. Though everybody is not happy, that doesn’t mean we are not doing well. The men, who started this great country were responsible for this industry also. They were very kind people.

They were patriotic people because they put in place ideal plans. How have we improved on this plan? It is simply different. The country has outgrown the development. You could get caught in that process. If you want to learn about oil, this is the place to be. As you are aware the industry became stagnant for many years because we have been talking about the Petroleum Industry Bill and all that for so long. Investors are not willing to come on board because of the uncertainty about the bill.

Besides the local policies that drive the industry, the international forces of demand and supply that drive prices have been very favourable to us. Even though we have had an interesting price rally in the beginning of this year, we cannot just increase volumes like that because you don’t need to make investment and all that. The other good thing is that in the previous quarter because oil prices were down, a lot needed to be done in cutting back on cost. With improved price the cost was also reasonable down, so it is a good thing by and large.

It is important to add that the entire administrative framework has been reasonably predictable. The leadership of NNPC, the supervisory agency, has been pretty much clear, so the partners can predict what will happen. That is a good thing. The Department of Petroleum resources (DPR) has been very consistent and the local content has been very supportive in ensuring that a lot of these things are domiciled locally. That is also a good development that has happened this year.

I am not looking for us to have a sudden jump in price; it is easy for people to say price should go up. I am hoping that in the remaining part of the year, price does not create unnecessary challenges. We will like the price to be where it is, which is reasonably good, because I believe it is good for the government and also the economy as it helps with the so desperately needed foreign exchange.

I think the fundamental issue is that we have not witnessed a long period of high oil price. Some element of indiscipline came into play, which is normal with any team. If you are so blessed with so much resource, sometimes you think you are invincible. We saw in 2007/2008 a drop in price, which we later recovered from. But the current drop has been on since 2014 till 2018 when it began to grow up. It was a long period of price drop and it is very good because people are beginning to look for different ways of doing business mostly on the cost side.

This has brought discipline into play. More importantly, we are now aggressively looking into the downstream, which is a fundamental for a country like Nigeria. If we have a well developed downstream sector at the back of the oil, most of our industries would benefit a lot. We are not getting a lot of money from upstream; the industries relying on downstream petroleum products and petrochemicals make a lot of money as their cost of production go down, while consumers also benefit from low prices. The government has put in place programmes to rehabilitate the refineries, so the private sector can see clearly the opportunities that exist internally, and not offshore, in addition to the huge market.

I think we are still looking at the PIB clearly. It shows that determination on the part of government and the lawmakers to ensure that this can be addressed, so investors are happy to say finally there is a clear movement to address the PIB. The part of the law that is straight forward for all parties to understand has been dealt with. It is now easy to ask what the meaning of this part is and so on. It is a good thing for investments.

Are you satisfied with the level of advancement in this area?
I am not satisfied at all. The government is making a lot of efforts; however, we need to have some fundamentals right; there is very minimal funds available. Most of the people who have made efforts did so under tough financing conditions, and that is a major limitation. The other limitation is the exposure to technology and the willingness to invest in technology. Capacity is still not a priority, so we have to differentiate and make some sacrifice by looking towards local involvement.

We have to now move away from thinking of easy money and business to making sacrifices and commitment. It is really not happening the way it should and it’s a combination of factors, including the amount of money available to support investments. Relying on foreign money to do all of these is tough because not every foreign investor can understand some of the things that you and I can relate to. For example, if a foreign investor hears that there was an incident somewhere in the country he wouldn’t want to go there. But the local fund provider understands these things.

These are local challenges and how we provide local solutions to them may look abnormal. To that extent, I am not satisfied. We can do a lot better. Our corporates are still too small to really make that impact that we need to make. We need to replicate what happened in the banking sector. Whether good or bad, the fact remains that we saw the consolidation of banks and that gave birth to bigger banks with bigger war chest. We can’t do any other way in the oil industry, we need capacity.

So, are you saying what happened in the banking sector should be replicated in the oil industry?
That has to be. It is fundamental for Nigeria to really take advantage. We have seen some individual successes. Can you imagine the impact of those individual successes if they were aggregated into a major corporation? There would be no other choice than to up governance and automatically more money and investors will come in. Anything short of this, we are always going to be celebrating individual successes. Government has to take some deliberate actions to drive this local content by identifying the key components, bring them together and provide the structure and the right funding.

But in your opinion why do you think players are not considering mergers and acquisition?
Nigeria has her own unique culture. That is not to say Nigeria has not seen models that have been locally trained. In Nigeria’s energy business, government is a shareholder and it is strong just like any other business. That is a clear example of how aggregating more resources and more capacity can produce a big success. I think the thing there is that we have our unique culture of saying “look at me, I am the man, praise me, applaud me and so on”. It is a Nigerian thing and it has its advantages and disadvantages. But if there is a clear target for all of these people to gravitate towards successful models, we would have super models.

So that means merger in this industry is going to be a tough venture?
Seplat Petroleum Development Company Plc is an example. It is a merger of Nigerian companies. Because of that merger, now Seplat is a pride not just to Nigeria but also to the whole of Africa. These were individuals who were doing their own businesses here and there but decided to come together as Seplat. They have now built more capacity than most of the indigenous companies that were there before they arrived. Now how many jobs has Seplat created? We have enough to prove that the people that want success in the form of Seplat, Shell and type are more than few individuals who say “I want to run my own thing.”
Maybe, the initial people in Seplat may not even be friends before but the business case is clear, the role that an individual has to play is also clear, so success is inevitable.

Local content is still a huge challenge in the sector, what is your take?
We explore the use of local resource. Our people are our major success factor and I wish we could do more. We recognise the real value in Nigeria whether you look at the supply side or the consumer side. We are a major beneficiary of that. So, that is really what we are focused on. More than anything else, we do not approach the business first and foremost from making profit off the clients. Our attitude is that a project needs to be executed; we look at how transparent we can approach this project such that the clients and all the stakeholders and investors can see the bottom line.

It is a lot easier to predict and to be supported. So, when a client is struggling through a phase, we understand and figure out what do we do differently to ensure that this problem can be solved. Most of our clients are our best friends. In the past couple of years that the prices dropped, we have had more business because the clients looked at the companies that are prepared to sacrifice with them through the difficult seasons. The same applies to our suppliers, a lot of them are working with us as partners, so it’s open. We do not emphasise on huge margin; the focus is really on volumes because our fundamental is that for every barrel of oil we support and every activity we carry out, how many people can we put to work and that is really working. We also feel the pressure because as an outfit in the oil industry people have the perception that we are making money. So, all these have been key surviving factors for us.

Now let’s talk about Century Energy, what is your focus in the industry?
For every enterprise, the dream is to be in the market. You have to decide what kind of market you want to play in and how you want to go to the market. Do you want to go to the market to create value for investors or you want to go to the market to tell a tale that is not supported. We need to build enough skills to be in the market and that is our focus because if we are convinced today that we have the skills that the market needs it will reduce the personal involvement of managing a business because under the market structures you have regulations that you abide by, it’s a lot easier.

Another challenge is succession, how do you manage it here?
The issue of succession is not a problem. We have modelled ourselves against the best companies around today. Most of them were started by individuals, but why have they succeeded even though the individuals that started the business are long retired or some of them are late? It is because there was solid business foundation laid, inclusive of succession arrangement, promotions and movement of personnel. Everybody is desirous of protecting the solid business foundation.

Do you look forward to going into the market in the future, listing on the Nigerian Stock Exchange?
Of course, the first place any company should list is the country in which it operates. So, if this market will be able to absorb what we will bring to the market, then, we would do that. But if the market is not able to absorb us then we will have to explore other markets. And again, we will take the best professional advice this regard.