The Managing Director of Seplat Austin Avuru has been having some press coverage of late as he tries to take control of the narrative regarding the prospects of his company. It’s not a coincidence that his company’s share price has been rising in the last one month. In a recent interview with THISDAY he explains how the fall in price of oil has affected Seplat. Here is what he had to say regarding that and the future price of oil.
In what ways has the drop in the price of crude oil from $115 in June 2014 to below $60 affect SEPLAT in particular and the entire industry in general in the areas of investment and staffing? Do you envisage layoffs?
Whenever you see a sharp fall in prices, a few things happen almost immediately, especially with companies that are properly run. Companies that are properly run will tend to take another look at their work programme and cut the work programme to a size that fits what their overall revenue will be in the light of diminished oil prices. So, that is why you have, across the world, companies, whether it is Total, Shell, Mobil – they are all cutting their capital expenditure (CAPEX) outlay. For us, we are doing exactly the same thing. So, we have slashed our capital spend considerably. We have been at growth phase since 2010. Our capital spend has been quite huge during these past four years. To put it in context, the total spend on these three blocks in the 10 years before we took over amounted to not more than $40 million each year. Our total spend as a joint venture for 2014 was in excess of $800 million; just to tell you the kind of investment we have been making in the four years get to where we are. So, now the current realities of the low oil price are such that we had to cut down on both our operational expenditure (OPEX) and then our CAPEX. As I said a little earlier in another forum, some companies are even cutting jobs; we are not cutting jobs; we are just a lot more prudent in our deployment of human resources. So, we have to task our staff a little more without having to cut jobs. But certainly we are cutting down on both our OPEX and CAPEX.
Do you see oil price recovering to $100 per barrel this year?
My personal view has always been that on a long term basis, if you make provision for slight inflation, oil prices will always almost settle in the $70 – $80 bracket. So, anytime you see the kind of sharp dip that we saw recently, just as we did in 2008/2009; it was exactly like this. There is a sharp dip from $147 in 2008 to $42 or $46. When you see a sharp slump like that the reaction such I have just explained, will follow – a rash of reductions in CAPEX spend and you know that future production will come from today’s CAPEX spend. So, when you see a rash of reductions in CAPEX spend today, it can only mean that production profile that is anticipated in the future will no longer be sustained, which means that at a certain point in the future, you are going to see an imbalance in production, which is supply and demand. So, in turn, that imbalance will lead to another rise in prices. This is no difference. The price went low, that is, it bottomed out and with all these rash of reductions in CAPEX spend, you are going to see a recovery of the price. How far up it will go, I cannot predict, okay. If you see a spike that goes too high as you saw in 2008 at $147, it is also going to self-correct. So, my view is that overall, in the next four years, for instance, between now and 2019, we will still be in that overall average of about $80 per barrel. The overall average will be in the region of $70 to $80 per barrel. It is my personal prediction.
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