ENERGY TRANSITION: The untold story of Seplat’s transformation

Transitioning from fossil to green energy remains the global target but it can be asserted without fear of contradiction that Africa lags behind. But in recent times, the Nigerian government and stakeholders in the carbohydrate industry appear to have concluded that Africa’s transition is anchored on natural gas. In this interview, the Chief Operating Officer (COO) of Seplat Energies Plc, Mr. Samson Ezugworie, at the OTC 2024, speaks on efforts to actualise the decade of gas policy and sundry issues

Excerpt:

Tell us more about Gas development and how it’s aligned with the global climate change initiative?

Yes, gas exploration actually aligns very well with climate or is responsive to climate change. And why do I say so? In Nigeria, we are coming from a situation where in the oil and gas industry, hydrocarbon extraction, initially gas was deemed to be a bad business. And because all the oil and gas installations in the past did not have a way of harnessing the associated gas from our oil production, the associated gas is flared and that is why it has impacted negatively on environmental stewardship.

Now, what has changed for us is that Seplat, has now made conscious efforts to harness the associated gas by putting in place gas solutions in all our operating facilities, which we never had before. And that is why we say that by the second half of next year, we will bring an end to routine flaring in all aspects of our operations.

That is how gas begins to align with the strategy for climate change because we are now collecting the gas, using it to meet our domestic needs and local economy. It will interest you to know that with all the gas that we talk about at the session, that Seplat produces, we now have an installed capacity of 850 million scf per day, when Assa North project comes on stream, and Sapele gas plant comes on stream later this year.

With those two projects coming, and 850 million scf of gas per day capacity, the gas will be used 100% within Nigeria for domestic use and not for export. 

Why do we still have gas-to-power challenges?

We are now solving the problem of gas to power because the gas that we produce today out of the turbine is actually going into the national grid. 

On Monday, we were supposed to do a three-day shutdown of the turbine gas plant to fix some asset issues and change out the generators.

But because our other partners that supply gas into the domestic line were not ready with their gas, we made a conscious decision not to take the three-day shutdown, doing it would have put Nigeria in total darkness. So that is just one thing. And that decision that we took not to take the shutdown, when we had mobilized all the contractors to side, is costing us about 30 million Naira.

So it doesn’t come for free. But we took the pain of 30 million Naira on Sapele gas plant, instead of putting Nigeria in total darkness. I don’t know if I have answered your question.

Well, looking towards August, again, we have another statutory shutdown planned for August this year. And because we just have to continuously manage disruptions into the national grid, because every day that we do not supply gas into the domestic grid for Nigeria, we are depriving people of electricity. And we are very conscious of that.

In view of this, we will not potentially take another shutdown until August, when we have another planned shutdown. So that we can align that, and make sure that we minimise disruptions of power to Nigeria.

Can you tell us about issues around gas pricing, debts and how they affect your operation?

This is a very fundamental question. And that is the primary reason why most of the international oil companies never invested in domestic gas.

Because they needed to get the pricing right, and then also with the continual debt, and you know, piling debts in the sector, that was the reason most people didn’t see it as a profitable business.

Now, what has happened and played out for Seplat is the issue around foresight and strategy. We clearly know that even if you are owing today, there is a chance that you’ll pay tomorrow.

And the issue of debt is clearing. And now we are working ourselves into where we have the interruptible gas supply contracts, and then also the willing buyer, willing seller contracts. 

So with these what we are also doing now is that most of the people that offtake our gas, we have a payment structure that ensures that going forward, we are not going to be having the debt piling up, but then they have a structured way of paying the outstanding debts. 

So it’s a delicate balance, but for the fact that this is something that we have to do to contribute to the growth of the country, you will see that the profit margin is not that significant. 

Now, in a situation where we say that gas was 40% of our production at the end of 2023 and then liquids was 60%, in terms of revenue, revenue from the 40% is 11%. 

So what does that tell you. Indeed, the revenue margin, is very little, but it is not a waste. Now, we see that as a good vehicle that we also need to have leverage in running the oil business. Why is it so?

If you want to run the oil business in a very responsible manner, it goes back to the ESG considerations. We have to be a very good environmentalist, environmental stewards, for the world, and for the country. And because of that, we have associated gas with our oil production, which we cannot flare. We then have to find a very commercial way of monetizing the associated gas.

That is why we continuously invest in gas as a vehicle for running an environmentally friendly and compliant business. 

You have just celebrated 10 years of listing. So we want to know, what is the next big thing? Also, what is the future of the industry?

Yes, we celebrated our 10th anniversary of listing in both Nigeria and London stock exchanges . And we are very happy and pleased with what we have done for the country, for the community, we operate and for the shareholders, so, I think if I look back we would say it’s been a very good 10 years and your question is also very apt going forward that what will happen in the next 10 years so at the moment we have determination to supplant projected growth, both organic and inorganic growth

If you look at the resource volume that we have today at Seplat our reserve production ratio still keeps us , giving us about 25 years ahead of us, 25 years’ right and this excludes the exam mobile acquisition so with the exam mobile acquisition coming in, we have almost three times of our current production promise  to the market.

So that is bringing very significant growth, in our portfolio now if you look at that again Seplat business has clearly and strategically divided into three key pillars – the upstream pillar which we call pillar one, focusing on the oil and oil development which generates the major revenue that we need to fund the energy transition.

We have the midstream business which focuses on gas and also with the Exxon mobile acquisition that is underway it also comes with significant gas resources so you will see that our midstream business will begin to grow and expand. 

Also, the third pillar that we have developed and worked on very assiduously in the last two years is our new energy business. The new energy business is now where we are looking at expanding into gas to power the renewables, and that is where we intend to create the next value and strive towards the energy transition in a very strategic manner.

So in terms of our growth agenda and way forward is already been structured and like I said, ESG did not come to Seplat as a surprise. It’s what we have embedded and ESG is our way of doing business and that is just one way of demonstrating how to run a very responsible business because you have to get your governance right; you have to get your environmental stewardship right and you have to make sure that whatever you’re doing is socially compliant through a sustainable money. 

On Energy transition and Africa perspective?

It is so because we are saying in Africa that energy transition has to be just and fair. But for the big oil companies and players, their biggest challenge is how to return some money to their shareholders. 

And if they say you are not investing in fossil fuel, believe you me, returns, as we just discussed, from gas alone, are not as good as returns from oil to shareholders.

Then just pause for a moment and ask yourself the question, what does returns in gas to power; In solar, look like?

Imagine an international oil company today taking shareholders’ money and going to invest in solar. Where the margin and return is small, the shareholder will not be happy with you.

And that is why you have seen some big IOCs make a U-turn because their shareholders are asking them questions. Where is my money; where are my returns?

Okay, so the energy transition is evolving. Even the people that shelter the most, the people that have been in the industry for five years and supported it like the NGOs in the world.

NGOs that invested in oil and gas, the person’s money is going this way because there are no returns. Shale price is going down. And then all of a sudden they are speaking a different grammar.

So then, coming back to Africa, we have said this again and again, my poor mother in the village still cooks with firewood. And that is the truth.

There is an electric cable running into my village house. But I don’t know how many hours and months in a year that power gets into the house.

So there is energy scarcity. Infact, it doesn’t exist in some places in Africa. And we just heard the number has gone up from 600 million people to 700 million people living in darkness in Africa.

And we have enormous hydrocarbon and fossil fuel resources. Now, again, colleagues and friends, let’s be practical about these things.

We transited from coal to fossil fuel at a point in time. But did coal go away from the world? the answer is no. So energy transition, we are transiting from fossil fuel to renewables and clean energy. And that will happen, no doubt.

But what I see at the end is a different energy mix. And not a phasing out. So, that been said, I will say, there is a clarion call.

And that is where I bring it back to Seplat’s agenda. There is a clarion call on anybody who is extracting hydrocarbon. To do it in a very sensible manner, environmentally compliant manner, and in a reduced carbon manner. So, we need to reduce our carbon footprint to the barest minimum.

And that is why Seplat, as a company, embarked on this journey to bring to an end that mess in the oil and gas extraction, which is the flaring of gas. And we said to ourselves, lying in the sand, by the second half of next year, we will end routine flaring in oil and gas operations that SEPLAT is looking after in Nigeria.

So for me, you can go and check how many companies operating in Nigeria have set that kind of agenda, which is very ambitious, and far ahead of Nigerian transition agenda as a country. Because we are ahead, what we have chosen to do is to set ourselves that very ambitious agenda.

And we are driving all the projects that are expected to bring to an end routine flaring in our operations. Now we go into the little ones. Minor leaks.

Leaks that are not visible to the eyes in our facilities. We have tools that we use to pass around our oil and gas installations.

We have the program, we call it leak detection and repair. Minor leaks. Leaks that are not visible to the eyes. And that is what we call fugitive emissions.

We have a comprehensive plan to make sure that we also eliminate those fugitive emissions from our operations, because, some leaks are not very visible to the eyes.

Because if you didn’t tighten the bolts you might still have some small smudging. But we have a tool that we use to measure that.

In that sense, Seplat is well positioned towards achieving energy transition because of our dual estate nature.

As your next big thing, do you intend to look into gas exports. Because in terms of building, we have so much movement around pricing in Nigeria?

Gas export, given our operations today in the seven blocks that we run in Nigeria, gas export is not on our agenda.

We solely dedicate the gas we produce today for the domestic consumption of Nigeria.

Then if you ask me shortly, when we complete the ExxonMobil acquisition, we will have more significant gas resources in our portfolio. And at that point, we will consider export. 

On health and safety? 

All right, HSC and community. HSC and community. Indeed, health, safety and environment are very key performance indices for SEPLAT. Performance indices for us are every day. Each day we monitor and ensure that we run very safe operations for the people and the environment.

Before then, we talk about the asset. Those are the three things you need to protect when you’re talking about health, safety and the environment. It’s the people who you put in the front line who run this asset.

It’s the environment and then this asset itself. So happy to say that SEPLAT, the last major incident we had was in October 2022. And that what we call a major incident is not an incident. It’s somebody who was involved in a campaign. We were running a campaign against encroachment.

So we make sure that we capture every incident, no matter how small it is in our operations. We investigate it, get to the root cause of it and learn aswell as ensure that it doesn’t happen again.

So we have consistently run very safe operations for many years without lost time injuries. And we measure spills, tier one down to tier three spills in our environment. And what we do is to ensure that we don’t also spill into the environment. And how do we do this?

A team section alone has over 20 million US dollars this year for running asset integrity. So, that is one thing we do because we recognize the fact that we are managing brownfields, old fields. We proactively change out things before they break down. And there are technologies that we also deploy.

We have predictive analytic tools that help us to manage our installed facilities that tell us that you need to proactively maintain them and change out some parts before they break down.

So in that way, we minimize any environmental impact or spill that may arise from poor maintenance. If they have 20 million US dollars this year to run asset integrity alone, then you can imagine that he can actually, buy me out. But the intent is not to spend the money on anything else.

And then every two weeks, every two weeks, I sit down with him and his team to review the progress being made on asset integrity activities just to ensure that everything is safe and we are not taken by surprise. Because asset and safety is a show-me thing. It’s not believe me or trust me. If you tell me trust me, then I will be worried about you. It’s show me.

So that is the way we run the safety. Then coming back to communities. I think communities are our good neighbor. Good neighbor.

Something happened some months ago. The chief of Assa in Imo State called me and said that he got a call from his chief in Ogoni land who asked him that he knew we were working very closely in Assa because of the Assa North project and they want SEPLAT to come and take over Ogoni oil fields and run them. When he asked why, they said that he has seen how SEPLAT works and relates with the communities where they operate.

Again for me, that unsolicited invitation to come and take over a federal government asset, which I politely told them, sorry, that is not how oil blocks are given to companies to run. But we will be glad to come and work in Ogoni land.

So again, that for me is a clear testament to how SEPLAT has endeared herself to the communities where we operate.

We call them our neighbors and we deliberately call them that. And people will tell you that, oh, there is crisis in Niger Delta. There is insecurity in Niger- Delta and all of that, but we haven’t had a security incident in God knows how many years. But that is for me credit to the way we have related with the communities where we operate.

We have some significant freedom to operate. Good freedom to operate. Because we empower them. We make them feel part of the business.

In our area of operations. Which then the teachers are educated and equipped with different sets of skills and then they will go and pass on these skills to the students, to the children. Because again, we are mindful of the future.