Frontier Oil: ‘We need more assets, improved gas pricing and equal opportunities to perform more’- Adefila
Mr. Wole Adefila is the Operations Director, Frontier Oil Limited. He started his career as a Seismologist while working with a number of international seismic acquisition companies like Shell. He spoke with Margaret Nongo-Okojokwu at the end of a facility tour to the company’s oil and gas fields in Eket, Akwa-Ibom State, on the impact of crude oil prices on marginal field operation and more. Excerpts…
A lot of people got licenses to operate marginal fields in Nigeria but not all of them are producing, some are not even operational right now. I’ll like you to tell us your experience so far as a Marginal field operator and what advice you would give to other operators who have not been able to come up or achieve as much as you have?
We got this field through a competitive bid in 2003; of course the journey has not been very easy. We didn’t start any appreciable development until 2005, effectively 2006/2008, and the reason is that as old field that has been abandoned by Shell for a long time, we had no information, if anything, minimal information about the field. So the first thing we had to do is to go back to Shell to collect as much information as we could from Shell and being an old field with the first well drilled in 1958, there was no real information about the field. What we did if I can recall in 2005, I championed collecting those data from Shell especially seismic data, and meter was not relatively useful, and we had to bring in Schlumberger to reprocess that data for us but of course we really couldn’t do much with the data and so we had to take a strong decision to come out to the field and acquire our own 3-D seismic data by ourselves in 2006/2007. Of course, some other companies were luckier than us in the sense that they had existing wells which were producing so they could just go out there and start pumping the crude and sell but we didn’t have that opportunity, it was a tough one that we got 3-D seismic data which we processed and from there we drilled 2 wells.
For marginal companies like us, it is always a tough one; it is always very difficult at the beginning. With all due respect, we know that most of the companies that won the bid in that round, I correct myself I won’t say most, some of them actually had no inkling about oil business, they didn’t, and that is why we read in the papers that some of these things were sold off then, and that is why most of these companies are not able to come on stream to live as we are living today. First you need people who understand the business, not only understanding, you need full commitment by the owners of that business. If I use Frontier for example, of course we have quite experienced number of people on the Frontier board who have been in the business, some of them for more than 40 years, and we were lucky also that they were very committed.
You can imagine people who used their lively savings to pay for these fields. And then, this is 2015, 14 years down the line we are still not making profits, it is not easy in Nigeria to find people like that who will put in their money and not withstanding that they are not making profits they are still committed to improving the business, most of them are old, most of the board members are actually very old and nothing stops them to have sold off these fields, make their money and then enjoy their money in the Caribbean’s. But they have been committed so it is not the usual buy and selling stuff, you want to sell this today, you want to make your profit the following day in lips – No, so that is why the commitment comes in. If they don’t have the interest and the commitment I don’t think we will be here today.
When you look at it we started this company with Engr. Dada Thomas and myself, just the 2 of us in 2005 when serious business started and of course, when we moved to Eket in 2006, it was myself, a driver and a youth Corp member, but I can tell you today we have senior staff at the range of 95, and if we have now put everybody together we are looking at about 150 staff, and those board members are still not making money, because we are not making profit but they stood by us all the way. Throughout 2008, this company did nothing, we were just coming to this office to come and close and do little things, why because we didn’t have fund, and that is another important thing – funding – it is a very important and a key aspect in developing marginal fields, if you don’t have the fund to do it of course you cannot come up to where we are today. That is the challenge of funding; we had our own challenge too, for instance in 2008 that we did nothing, it was all because we had no funds.
So for the up and coming marginal field operators we need that commitment from management, and like I said earlier on we need sound expertise, people who understands the business, commitment in the sense that you don’t just want to make your profit tomorrow. So those are the major things – the commitment, expertise and then you need funding. And if the fund is there then the management of that fund is very important because if you don’t manage your fund properly then of course it doesn’t take much to filter away.
This Central processing plant has achieved one year of production after being commissioned by former President Goodluck Jonathan, what has it achieved so far and what has been your challenges?
We started operating that plant before the commissioning, we are proud to tell you that this is the first of its kind in Sub-Sahara Africa that will be operated by an indigenous company; I think the only companies that can beat us to it are the IOCs are the likes of Shell, Agip and the rest of them. If I tell you it’s been easy, it is not; but with the doggedness and commitment of Frontier’s management we have been able to ride the rough waters and we are here today, even though we are not making money, but we are proud of what we have achieved so far because we have contributed immensely at least to improve power supply in the country.
In terms of operating the plant, we are also proud to tell the whole world that yes, we have very experienced hands and what we have done in this case is to prove to the whole world that Nigerians can manage complicated processes like this in the oil and gas industry, when you went out there yesterday did you see any expatriates? No, in Frontier we don’t have a single expatriate, we are all Nigerians and that is one step we have taken to prove to the whole world and Nigerians too, that yes, when properly sourced, Nigerians are capable of delivering good and effective results from plants like this and that is what we have done. So through that plant we have managed to improve the local content, bring our people together to also develop them, because we are sure that if we have another asset today of course we have the capacity to also develop that asset from within us. It has not been an easy journey but I think we have done quite pretty well as a local company.
Ok, just a follow up on that question, for me this is the first time am seeing two indigenous companies coming together – Frontier Oil and Seven Energy for a JV of this magnitude and achieving this kind of feat, I want you to tell us about going into Joint ventures with an indigenous company and then the FUN (Frontier, Universal and Network) group also. How has that been for you?
What makes a joint venture works? If you have – let’s keep it simple, if you have just two partners, first there must be mutual trust and respect between the two parties once that is established it will be easier to get other things done. Once the two parties are also able to fulfill their obligations, for example, if Seven Energy is able to fulfill its obligation as the funding partner and it’s the meeting cash call requirement as at when do, then you expect that joint venture to succeed, but if Seven Energy have difficulties in sourcing for fund then of course it becomes difficult. Funding is important but what is much more important is mutual trust and respect, the two bodies must be able to work collaboratively because it is a symbiotic relationship. If one party keeps to his own agreement and the other doesn’t, the JV will definitely fail if it is not carefully handled. Once you have that mutual respect, truth and proper funding, and of course you have personnel that are well trained and are committed to giving out their best, you will definitely get the best out of that JV.
Having gone through all these difficulties in handling your marginal field and all that, given another opportunity, would you take up another marginal field?
We are ready to, but we don’t want to be a one asset company, we are looking at taking up other fields available and we are really working towards that. It’s not just taking up other assets on our own, we know that there are other assets that has not been developed probably because the owner doesn’t may be have the expertise, we are ready to partner such bodies in a joint venture to provide the technical capability which we know we are having now to help them develop that field and make the best out of them.
Does this mean that Frontier Energy will go into joint ventures as an operator? And going with the operation of the local plant and what you have said, how long does it take before you see a break-even period, that is if for instance someone wants to come into the gas industry and wants to take a clue from you; how long should they be looking at before they break-even?
That is a very fluid word, you can’t put a figure to it because there are a number of factors that can control that, and how long do you think you can breakeven? A number of factors – when you start from the operations, you as the operator of that field, let’s assume you have done your own job well and your field is producing like we are doing now; the question is ‘do we have the customers, if we take the Nigerian environment for example, ‘do we have enough customers to take the gas off us? Of course, if you do not have enough customers you cannot make money to pay your bills, to pay your credits and then breakeven quickly. Am sure when you went out yesterday you saw that we still have enough space to expand that plant even to the fourth train, that is only possible if we have off-takers – customers, and not only off takers, the pricing too is very important. If the gas pricing is not right, of course it takes you a longer period to break even, and with what is happening in Nigerian now, I won’t say we have enough consumers, right now the focus is on power generation but we need a lot more than that, we need industries that can actually take a lot more of this gas to power their machineries, how much of that we have I can’t give you any figure but we need more than power generating companies to take our gas, with that we can make more money. If we have them like we have in the middle-east, off course we can expand the plant to as many as 6 trench or 10 depending on the demand. So if the demand is there and the pricing is right, of course you breakeven quickly. But if you don’t have the off takers and the pricing is poor, it will take you quite a long time to breakeven, so it is a combination of a number of factors, so if i tell you ‘you can breakeven in 2 to 5 years but you need to take all those factors into consideration.
On your second question, of course I told you that Frontier Oil Limited is looking for additional opportunities, we don’t want to be a one asset company so if you have other assets that we can operate on our own, manage on our own, then of course as Frontier we are ready to do that and we are working towards that. However, if there are owners of other marginal fields like our own but are unable to develop it on their own we have the expertise to partner with them and help develop those fields, in that case we will be the operator, so we are ready to do that and we are looking forward to that.
How is your equity partnership structure like?
You mean in Uquo?
Of course we are the operators of that field, Frontier own 60 percent equity while Seven Energy has 40 percent.
Oil price has been dropping from less than 100 dollars to less than 40 dollars as at Tuesday this week and the gas pricing is not becoming too friendly to indigenous operators; how has this situation affected your operations?
Well, oil price, gas price, maybe we are lucky now that we are not fully into oil even though that we need it, like I said that we need the oil but what has happened now has not affected the gas price as such, so our gas price still remain as it is; remember that the gas business is not like the oil where you wake up today and you say that tomorrow and one week down the line the price drops, in gas business you have an agreement with your customers that lasts for 10 to 15 and sometimes 20 years. As at when you have that agreement the price is fixed so you don’t expect any change except if the 2 parties come together to say ‘let’s take it up or bring it down,’ otherwise I don’t see any change. The oil price has gone down but that has not affected the gas price as such.
What about its effect on your operations?
Of course it has affected us, I will give you an example; the operation is not only based on the gas price, there are other things we do that are affected by the fluctuating oil price, we have been affected and we are still being affected; for instance, last year our budget for this year was premised on 80 – 100 dollars per barrel and here we are today, we are looking at 40 dollars. The question is how ‘do you manage your budget and operation that was based on 80/100 dollars by the reality of the day of less than 40 dollars’? It becomes very difficult but what we have to do is to re-jiggle and do those activities that are a must and of course we have to drop some because the money is not there, the fund is not there to manage them, so we have been affected not only internally but the oil drop also has affected us in our relationship with our service providers, because you know funding is not easy now because of the oil price drop, we are having difficulties meeting up with agreements in terms of payments to our contractors and that has affected us. You saw Well 9 yesterday, we finished drilling that Well in March this year and because we do not have enough fund we had to suspend it, so you can imagine if we had fund then, if we had completed that well then between March and August, you can see that we would have made quite some money but as it is now the oil and gas in that Well are all just knock down, so that is one of the losses we have suffered this year, but we have been unable to make money because we haven’t completed that Well, so once you don’t have fund it is difficult to achieve your goal.
What are your expectations from the new administration?
We need to revisit the gas pricing, the pricing we have now is not really encouraging, there is need for the government to help and encourage the indigenous companies, not only by improving on the pricing but by also giving us equal opportunities and more opportunities to perform more. We have the capability to go out and do more, we need more assets from the government, we (Frontier) have proven that Nigerians can do it and we can do a lot more but the government needs to encourage companies like us who are in the marginal field and the local companies, they have given us the encouragement to go out for assets and of course other Phases that come with that, so our hope is that the government of the day will smile at us and give us equal opportunities like the IOCs to do more.
FRONTIER VS. HOST COMMUNITIES
Mr. Samuel Atara, Community relations manager for Frontier Oil Limited, speaks on his company’s relationship with her host communities.
How does Frontier relate with her host communities having in mind that it is an indigenous company?
Our relationship with the host community is cordial and this is because we have been able to gain their goodwill and confidence, and that has to do with how we started. We got a development consultant that has worked in the Niger-Delta for more than 13 years to engage the community and then create a profile, he was able to identify potential conflict issues, the governing structures of each community and that report was submitted to us, based on that report we were able to get the community development plan, and we have intervention areas of skill acquisition, micro credit and income generation, improve access to community, improve access to health, and then improved access to basic education, the plan was built on that, and then to help us articulate and implement the plan, they came up with a model called community development foundation which is a community based organisation. We have members drawn from our immediate host communities that are working there; we have 14 graduates and 6 support staff that have helped us.
We have a governance structure and also a BOT. What the BOT does is to access fund so that they are not only depended on Frontier, so we built that confidence and that has helped us. We did not stop at that, we also have a functional Memorandum of Understanding -MOU, which has every expectations of the host communities, we have an understanding so the MOU is not just there as a document, we have an implementation committee, and we have regular meetings with the implementation committee selected from the host community, and we also have a third party, the government is also part of the MOU implementation committee, and members of the company, so we have regular communications and what could be conflict issues are discussed and are handled, with that we are able to maintain a good relationship with our host communities. When we did the completion of, it was without any crisis, only when we went to the first completion of that Uquo 9, that was the first time they saw a rig in their community so their expectations were high even though we tried to bring them in, they were like No, so we just had one incidence, apart from that we have not had any issue, why we don’t have is that confidence we have established.
Was it the same Uquo 9 where you had an incident with a security operative?
No, that is Uquo 3 and 8.
How do you resolve issues like that?
We engage them, we have done the same thing for our drivers and it was hitch free but to a security man he has no skill, his belief is that we want to relieve him but that is not the case here, so to ensure that we resolve that amicably, we are going to meet with stakeholders of the host communities and the meeting is arranged between us and the traditional rulers, the traditional council is the apex traditional institution here, so all of them will come and we will explain to them, though we have done that on a one on hand, but this time, we will explain to all of them and these are the respective sponsors of those people you saw yesterday. Now giving information to the sponsors directly in a public forum, making them get back to their people will enable them embrace it, but in natural situation you must have a resolutions like that, it is normal.
Mr. Wole Speaking: Going back to when we started, our source that we have today is premised on a different approach that Frontier adopted from the word go, different approach from what we were all used to as a way it was done by the IOCs. Right from the word go we told ourselves that we would do it differently, we only had what the practice was like in those days of Shell and the rest, it used to be a divide and rule approach, those you called the High Chiefs that had the control, the belief is that they can carry their people along but things has changed and that was why there were so much problems in the Niger-Delta because the youths’ and the rest of the people’s eyes got opened and they saw that the big people were just cheating them. In our own case, we said we would do it differently, we would involve the people in taking decisions in things that will benefit them, and because we didn’t have the capacity that was why we had to source for a community expert to help us develop that model, in our own case we don’t impose things on our host communities, we don’t say we will give you a block of classroom or maternity ward and at the end of the day they end up not being managed, we went out and said ‘decide what you want by yourself’, we challenged them and said ‘decide what is beneficial to you’, that is why we came up with this idea that they could identify areas that they would want us to address in terms of schools, health, good road or skill. So it was the people that actually decided what they wanted for themselves, then we said ‘Ok, let us look into our purse to see how much can we solve of this’. That was what has helped us and really by building the confidence of our host communities, it has been working for us.
You talked about technical development and you said when you came here you came with a corp member. Over the years that the Frontier Gas has been running, have you continued that plan of bringing in a Nigerian youth Corp member especially those ones that studied engineering and how many have you brought in to Frontier Oil Ltd?
You saw it down there in the field when they said about 90 to 100 senior staff that we have are all Nigerians. Let me tell you how we started, what we did at the initial stage was to look for capable hands that can lead a team of operators in that field, I think initially we employed about 6 people, they were those we called team lead; what we did when that plant was not ready was to send these 6 men out to Singapore on 3 weeks training in a plant which is comparable to what we would eventually build, that site was still under civil construction then, so we took that step, notwithstanding that we are not making money, sent people out and let them gain experience from live plants and then come back and use that experience to help us run our plants. Not only that we don’t believe in you having expertise only in this fields, we believe in our skilled staff, and that is why when that plant was being built we went further to recruit those that will operate the plant, the people you saw there. About 50 percent of the people you saw there were recruited when that plant was being built, the idea was that they should be part of that construction phase right from the start until the plant was completed so that way they will be exposed to how the plant was built and every part of it how it functions because you were part of the construction too, and that has helped us today, these are couples of steps we have taken to actually integrate our people to train them into the expatriates that we have today and can handle the plant, and that is why we don’t have expatriates in there, so having done that, others come in we just train them up.