Ebiaho EMAFO, Managing Director and CEO of EROTON EXPLORATION & PRODUCTION

Indigenous companies have been able to show that they have the right capacities to operate their assets.

Ebiaho EMAFO Managing Director and CEO EROTON EXPLORATION & PRODUCTION

Nigerian upstream CEO on finance and development

October 2, 2018

Ebiaho Emafo, the managing director and CEO of Eroton Exploration & Production, talks to TOGY about the challenges of Nigeria’s cautious investment environment, the resilience of indigenous E&P companies, opportunities within the gas space and the benefits of working with local communities. Eroton is an indigenous Nigerian upstream company.

• On local operators: “Indigenous companies have been able to prove they know how to operate onshore assets and actually would appear to do it better than the former operators. It is expected that the growth trajectory would continue.”

• On financing: “The challenge is that further growth and acquisition involving indigenous operators would revolve around the appetite for financing that the banks, particularly the indigenous banks, have for investment in the oil and gas industry, as a result of the fluctuation of oil prices and the risks inherent in operations at some of the land assets.”

• On gas offtakers: “The problem with the power sector is the recovery of debt – and that is also the challenge that we have. It’s an area that we are going to look into. Everything will also be determined by the contract guarantees that we are able to put in place to ensure that we get recovery from the gas that we sell. Infrastructure also poses a significant challenge, which needs to be addressed by the government.”

• On investment: “The appetite for oil and gas deals within the country still remains conservative, but in the medium term there will be an increased appetite due to the increase in oil prices, still with a conservative, cautious approach. Banks will always want to work with people who have a proven capacity and who have respected the loan agreements they have signed.”

Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find an abridged version of our interview with Ebiaho Emafo below.

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What has been the evolution of the role indigenous E&P companies play in Nigeria?
Indigenous companies have been able to show that they have the right capacities to operate their assets. They contribute possibly as much as 20% of current production nationally. Hence, indigenous companies are here to stay. Indigenous companies have been able to prove that they know how to operate onshore assets and actually would appear to do it better than the former operators. It is expected that the growth trajectory would continue.
Indigenous operators have also been able to show that they have the competence, both onshore and offshore, majorly due to the competence of their workforce. It is pertinent to note that a lot of the indigenous operators have recruited staff with a wealth of prior experience from the IOCs and other multinational companies.
The challenge is that further growth and acquisition involving indigenous operators would revolve around the appetite for financing that the banks, particularly the indigenous banks, have for investment in the oil and gas industry, as a result of the fluctuation of oil prices and the risks inherent in operations at some of the land assets.

What are the key funding challenges that indigenous oil and gas companies face?
In the past years, a few of banks may have gotten themselves burnt, so there may be some reluctance to finance projects, and there is still a bit more scrutiny about the deals they are trying to get into. They are certainly are more conservative rather than bullish in their approach to lending. However if there is a good business case, I believe they would remain interested
However, for us at Eroton E&P, we have had no problems so far because we have been able to meet our loan obligations, and we are not behind in any of our payments. The appetite for oil and gas deals within the country still remains conservative, but in the medium term there will be an increased appetite due to the increase in oil prices, still with a conservative, cautious approach. Banks will always want to work with people who have a proven capacity and who have respected the loan agreements they have signed.

What have been Eroton’s biggest developments over the past few years?
Since 2016, we have been working on rigless activities that have allowed us to grow our production to about 65,000 barrels per day at peak. When we took over the asset, production was at about 10,000 barrels per day, and currently we are at about 57,000-59,000 barrels per day. We recently completed a workover intervention using a hydraulic workover unit on two wells, and now we are trying to do gas lifting within those wells to see if we can derive more volumes.
A new drilling campaign will take place in September, with the intention of adding at least another 8,000 to 10,000 bopd to our production from about two to four wells in 2018, and subsequently in 2019. Regarding the challenges we have faced, we have had issues with increased water content, as well as with our wellhead integrity, a fairly typical challenge in the context of swamp operations.
We intend to implement an infield dehydration project in 2019. Initial design has commenced on this project, which will reduce the cost of transportation of crude by reducing its water content. On top of an increased push for improved security around our areas of operation, we are also working to put in place lease automatic custody transfer units, which will enhance the accountability for the value of the oil we receive at the terminal. As of July 2018, we have put two in place, and the intention is to have five in total for our flow stations by the end of the year.
We are currently working on cement packer operations with the objective of bringing our weakest and oldest wells into play as well. All these activities have enabled us to recruit a considerable number of staff, as activities have been progressively ramping up.

What are the opportunities in natural gas?
I think there is a huge opportunity for growth within the gas space. We have over 5 tcf [119 mcm] of 2P gas reserves; there is huge potential for growth.
We are also looking for opportunities to grow our gas supply, but we are restricted by our own capacity. Thus, we are working on a programme to increase our gas processing capacity in the next one to five years. At the same time, we are looking for other opportunities to sell our gas to potential offtakers. We still only have one major client, Notore, a fertiliser company based in Rivers state.
We are in the market for additional gas buyers, but it is a bit tricky because we are trying to be careful who we engage, due to the inherent risk of being able to recover revenue for gas sold. There is a challenge in securing payment from gas offtakers, something other oil and gas companies have experienced. Thus, we are being a bit more careful, a bit more prudent, in our decision-making process to ensure gas is sold to commercially viable businesses.
In terms of potential offtakers, we are looking into small-scale power generation as well as the Nigerian Gas Company. We are currently in discussion with a few possible partners
The problem with the power sector is the recovery of debt – and that is also the challenge that we have. It’s an area that we are going to look into. Everything will also be determined by the contract guarantees that we are able to put in place to ensure that we get recovery from the gas that we sell. Infrastructure also poses a significant challenge, which needs to be addressed by the government.

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