Orjiako: Why renewable energy transition is important now

Dr. ABC Orjiako is the Chairman of Seplat Petroleum Development Company Plc, an indigenous oil and gas firm. He spoke to journalists on the importance of shifting from fossil fuels to cleaner energy, and other issues. HELEN OJI was there. Excerpt

Why is energy transitioning so important at this point in time?
The world as a whole is in a transition and that transition started from combustion by airlines, cars and ships, all of which consume almost 60 per cent of the demand for oil in the world.

That transition is now moving from that combustion of fossil fuels to electricity, and, to an extent, gas. And so, we are now beginning to see a lot of countries that are, by legislation, going the cleaner energy way for electricity. Being an energy company, there is need for us to align ourselves with this development. Also, being a carbon footprint company, this is very important to us.

Seplat has aligned with the government’s gas-to-power initiative. Could you shed light on what the company is doing?
We are ahead when it comes to reducing gas flares, as we flare out and convert the gas to petro-dollar or gas-dollar for our shareholders. When this is done, what is the impact? It is good aligning with the government’s gas-to-power supply evolution. The industry can create jobs, it will create real socio-economic impact in various ways.

In a country with over 33 per cent unemployment rate, we are contributing towards reducing the level of joblessness. Apart from providing gas- to-power, we are also in the process of driving the Liquefied Petroleum Gas (LPG) production because it will play a major role in empowering the economy and preserving Nigerian forests, as deforestation and desert encroachment can be arrested by making the people to use LPG rather than firewood in their homes.

This would not only mean that they are using cleaner energy, but that they are also protecting the environment. So, it is not just that we are changing our name, we are doing that because we have embraced cleaner energy and we are providing cleaner energy solutions to the society. Going forward, we will make sure that our Environment, Social and Governance (ESG) scores are high.

Seplat has successfully concluded its 8th annual general meeting. How would you rate the performance of the company in 2020?
The year under consideration was a good one for Seplat. During that period, our Turn Around Maintenance (TAM) was successful and we had a well- controlled cost. Despite the impact of COVID-19 pandemic, we remained very resilient in supplying gas to the domestic market. About 30 per cent of Nigeria’s gas comes from us and we are very happy being the dominant company in that space.

With respect to our growth, the performance stems from our prudential policy to compliance with the International Financial Reporting Standards (IFRS).

Globally, all businesses were heavily impacted by the COVID-19 pandemic and we saw an unprecedented low in oil prices in the second quarter of 2020, which has never been seen before.

Last year, we showed the resilience of our business and also showed the counterbalance of our gas business, which is linked to oil prices.

Our operational and financial performances reflect the very challenging conditions described above. Our average Working Interest Production (WIP) was 51,183boepd, including 33,714boepd of liquids and 101MMscfd gas (17,469boepd). Of this, our Eland assets contributed 8,855bopd, or 26 percent of total liquid volumes.

The performance of our oil business was affected by falling demand, the quotas imposed upon Nigeria by OPEC+, problems with the Trans Forcados Pipeline, suspension of production resulting from an accident at OML 40 in July and a further suspension following problems with a storage vessel at the same site.

Turn Around Maintenance affected our gas business at Oben Gas Plant. This is besides our gas wells ceasing production earlier than anticipated and the impact of COVID-19-related lockdowns on the Nigerian economy. We drilled six oil wells and three gas wells during the year, focusing on higher-margin oil wells in the first six months of 2020 and the development of gas fields in the second half of the year.

Furthermore, we redoubled our efforts to drive a strong safety culture throughout the organisation. Our financial performance was as good as could be achieved in such a difficult year. Revenue of $530 million reflected the lower demand.

At the AGM, shareholders voted for change of the company’s name. What is the reason?
When we started Seplat, environmental stewardship resonated very strongly in our core values. Today, our core values are Value creation, Integrity and Partnership (VIP).

When we started business, obviously, oil was making revenue, but over time, things started to change. Today, the world is transiting from combustion-driven economies to electricity-driven economies.

That comes with a real strong impact on demand for oil and gas and as this happens, you then come back to what happens in the environment. From the beginning, we knew that we would have carbon footprints, therefore, we committed to making sure that environmental stewardship remains constant in our core values.

Today, when you see those core values coming down to the three things I mentioned earlier, there is partnership, not just with people and communities, but also with the environment. Looking at businesses globally, you will find that a lot of things have to do with protecting the environment, especially in the era of climate change.

In 2015, the Paris conference came alongside its agreement where there was commitment towards reducing carbon emission. Shortly after that, there were a lot of climate change advocates who have continued to make very strong statements, demanding that the environment must be protected.

As a company, we are well aligned with that and today, I am happy to say that Seplat aligns with corporate governance and best practices. As a company that has carbon footprints and also reiterates its commitment towards reducing carbon emissions, we have aligned with moves to provide energy solutions in the energy-transition environment.

This means that Seplat is committed to providing solutions that will facilitate access to energy and provision of electricity in Nigeria at an affordable rate, as well as ensuring that gas is made cheaper than diesel.

This means that you have set a roadmap to reducing your emission. This is also part of the company’s plans to develop its oil and gas business, as well as carry out its intended diversification into renewable energy.

When we say we are providing energy solutions, what we are intending to do is to balance the demand for power and make sure we provide cleaner energy which means that carbon emission is much reduced.

How did the outbreak of COVID-19 affect the ANOH Gas project?
It is indeed one of the biggest investments in Nigeria and we are happy to be part of it, as a major force in our gas strategy. It is the processing plant that we are developing in a joint venture with the Nigerian Gas Company (NGC).

We have completed equity funding of the project at the end of 2020, and in February 2021, we announced that our AGPC joint venture had successfully raised $260 million in debt, to complete the project funding.

The fact that a consortium of Nigerian and international banks was prepared to commit up to $450 million was a strong sign of confidence in ANOH, which is one of the most important strategic infrastructure projects in the country.

Although its completion has experienced some inevitable delays because of restrictions on imports due to COVID-19, the ANOH project woulds significantly enhance Seplat’s position as Nigeria’s leading supplier of processed gas for the domestic energy market.

Driving Nigeria’s transition to gas remains our priority; it is essential that we transit ourselves to the future in which renewables would constitute an important part of Nigeria’s energy mix.

Seplat raised $650 million bond recently. How has this impacted the business?
We are sitting on good cash flows, as we just raised the $650 million, which is one of the largest bonds raised in the Nigerian capital market, particularly for an oil company.

It is safe to say that leverage wise and cash flow wise, we are fine. It is also safe to say that we have headroom on our debt facilities today and we do not see any need to raise equity or go to shareholders to raise money for our business.

We are organic, we are growing and widening our business as we are in the gas space and going into potential renewables in the future, which is part of our organic business.

The inorganic is also part of it and in the next 12 to 24 months, we would witness an unprecedented shift from the onshore, to focus on the deeper water. We are sensible and have some high criteria at the board to make sure that any M&A done is profitable.

Seplat is embarking on a share buy-back, tell us more about it.
This addresses the overall value creation for our shareholders and anything we do in our strategy, we have our investors and shareholders in mind.

We are not going to do share buy-back if it will not bring value. If we are going to do share buy-back that will bring value and re-rate our securities, then it is something for shareholders and other stakeholders.

If it is in tender offer, it means that through the process, we are putting cash in the pockets of our shareholders and so it is a value-creating tool for us. We are not just going to do that for doing sake, we want to do it for value creation.

You have decided to pay dividends four times every year. What does this entail?
Our financial performance enables us to maintain our commitment to paying dividends. While other companies were cutting back or cancelling payments for the 2019 financial year, because of the prevailing uncertainties, we honoured our commitment and paid an interim dividend of $0.05, for a total dividend of $0.10 for 2019.

In October 2020, we announced an interim dividend of $0.05 and the board has since approved an additional top-up of $0.05, maintaining our $0.10 dividend for the 2020 financial year.

Since we raised $535 million at our initial public offering in May 2014, we have returned $344 million to shareholders in the form of dividends.

For our dividend policy, which obviously changed, if a shareholder received dividend in the same amount once in a year, the fund might not go a long way in meeting needs, especially when inflation is on the rise. The ability of the shareholder to purchase will reduce whereas if you spread this revenue, you will get your money at different times in the year. This will improve the cash flow of shareholders.

What is your outlook for 2021?
Having proven our resilience again, and in the most challenging and unprecedented environment we have ever experienced, I am confident that Seplat will build on its strong foundations to become a larger, more diverse and more sustainable energy company in the years to come. Given Nigeria’s need to improve access to energy and the potential for significant market growth, we are very well positioned to consolidate and strengthen our position as the nation’s energy champion.

I believe that the move to change our brand to Seplat Energy Plc reflects our intention to be at the forefront of Nigeria’s energy transition in the next decade of our journey. We will continue to build value for our shareholders, either through organic growth or through carefully selected acquisitions that will deliver the scale or expertise we will need in the coming years.

As the pandemic and its impact recede, demand for oil and gas is already recovering, thanks to the cost-cutting initiatives we implemented in 2020, as well as our prudent financial management. We are positioned very strongly to take advantage of the global recovery we are beginning to see.