- President Bola Ahmed Tinubu’s commitment to creating an investor-friendly environment is crucial, given the global focus on FDIs and economic growth across African countries. Nigeria’s size, dominant economy, and abundant opportunities position it well for attracting investments and bolstering economic growth.
- Seplat’s strategic focus centres on reducing energy costs within Nigeria through a three-pillar approach; efficient upstream oil and gas operations; gas processing; and gas-to-power conversion. All these are aimed at addressing Nigeria’s energy needs and promoting sustainability despite existing grid challenges.
- Seplat is not owned by any one person, but by a lot of people and the company’s mainstay is governance.
In a recent exclusive interview, Seplat Energy Chief Executive Officer, Roger Brown told Uade Ahimie, Nairametrics’ Head of Strategy and Public Affairs, that Nigeria needs access to reliable and affordable energy at a lower cost. He described this scenario as the driving force behind Seplat’s work in Nigeria.
Brown also addressed crude oil theft, Nigeria’s forex crisis, Seplat’s recent travails, the gas revolution, the Mobil-Producing deal status, as well as hydrocarbon investments in Nigeria.
Enjoy the conversation…
NAIRAMETRICS: Can you give us an introduction of who you are and your background, and let us know a bit more about you?
Roger Brown: Good afternoon, I am Roger Brown, and I am the Chief Executive Officer of Seplat Energy Plc. I joined Seplat in 2013 as Chief Financial Officer and initially focused on the company’s 2014 IPO on the main board listing of both the Nigerian Exchange and the London Stock Exchange.
Before joining Seplat, I was in the Banking industry and worked at Standard Bank for more than 10 years in the Oil and Gas team with a focus on the EMEA region. So, I have been coming to Nigeria for almost 25 years and I have been based here for much of the last 10 years.
I love Nigeria, it is never boring, and there is always something happening.
NAIRAMETRICS: Being in Nigeria, you have seen what has happened over the last 100 days in terms of the economy. When you assess the state of the economy and the impact on your operations today, how do you see the removal of fuel subsidy impacting Seplat and the Nigerian economy as a whole?
Roger Brown: A lot has happened, many positive developments; we have had the subsidy removal because the government was spending an awful lot of money sustaining the subsidy.
We also have one exchange rate and have seen the passage of the Electricity Act.
Following the ministerial appointments, we now await with interest the appointments to the boards of the parastatals.
Having multiple exchange rates did not really help anyone and now having one rate is very important. For us, the impact on our business is that we bring a lot of foreign direct investments (FDIs) into Nigeria and having multiple rates and an illiquid currency was a challenge.
Investors having their money locked up in naira was a real barrier to investment. Specifically, our business model is able to operate quite effectively because we have a dollar-denominated revenue from oil, and then in gas, we have dollar-denominated contracts paid in naira, but we have naira costs in our operations and as such we are able to match the two currencies quite effectively and manage our liquidity position.
Also, I think the president’s statement that Nigeria is a place for all is about trying to create an environment where business can be delivered and he mentioned certain things like foreign investments, etc.
The stance is putting up a flag around the world saying that Nigeria is open for business, it’s a place to come and invest, and I think it’s important to be very vocal about that now because of what we are seeing particularly about the African continent.
We can see other countries are really focused on FDIs and economic policies to drive growth, for example, Angola, Namibia, Mozambique, Kenya, and other countries. Ultimately, it’s about creating a place to invest on the continent and Nigeria is well positioned for that as the largest population on the continent with a dominant economy and so it’s important that we make a big statement to the world that we are open for business and there are lots of opportunities.
NAIRAMETRICS: When you think about all the opportunities, all you have said about the exchange rate finding its level, what kind of strategies do you think you want to put in place in the next 3 to 6 months towards managing the effects of the volatility of the exchange rate and then when you look at the medium term in terms of investments, do you think at the end of the day, you will be able to translate your short term strategies into medium and long term investments in other areas?
Roger Brown: If you look at Nigeria, the biggest barrier to growth, is access to energy. Without energy security, most industries are held back. Jobs are more difficult because everyone needs electricity – healthcare, education, and any sector you look at, all need affordable energy.
Energy security is critical, if you go back to the start of the Russia-Ukraine war, Europe was saying they were going into carbon reduction, then the war hits and Germany started to reignite coal plants, and the United Kingdom did as well.
So, everyone goes back to hydrocarbons because they need energy security. Energy security, I think, always trumps everything because when you look at Nigeria’s energy situation it’s like a triangle where you have access to energy/energy security, you have energy affordability and you have energy transition/sustainability, and presently the nation is in between access to energy and affordability.
So, how do we really transition effectively without getting the basics in the first place? What Seplat is really focused on in its strategy is to lower the cost of energy within Nigeria. We have a clear three-pillar strategy, The first is Upstream oil and gas and that’s really the engine for our business, we have seven blocks in which we operate.
Out of the seven, we operate four of them. What we are really focused on is doing that efficiently, trying to lower carbon impact where we can.
For instance, in upstream flaring, we are trying to flare out, we have the flare-out program which will take non-routine flaring out by the end of 2024.
We are also trying to be more efficient by lowering the cost of our drilling. We are also trying to fix leaks and be the lowest quartile cost operator, which means when you have a low cycle in the oil price, you can continue to supply oil and gas.
Pillar two is our gas processing business and today, we have a gas plant at Oben and Oben is the hub that supplies Lagos and Abuja where the demand is. In these places, you need pressure in the gas system to take gas from the Delta to the demand point as a last-mile injector.
At ANOH, which is in the East, we are completing a gas plant alongside the government and AGPC (ANOH Gas Processing Company), that gas will come through the Obiafu-Obrikom-Oben (OB3) pipeline which connects Oben to the East.
We are also upgrading the smaller Sapele gas plant, by the middle to the end of next year, we will have three gas plants running.
The new gas plants will not just do dry gas but also provide liquefied petroleum gas (LPG), and we are looking at compressed natural gas (CNG) options.
What does LPG do under our pillar 2 business? LPG is cooking gas and is displacing firewood being used today which is probably about 80% of energy in Nigeria and Africa.
Half a million people die a year because of pollution from firewood and those are predominantly women and children and that’s the reality today.
So, LPG avoids cutting down trees which are carbon sinks and is a healthier option for cooking.
The pillar 3 business is new energy and that is going to be gas-to-power, converting that gas molecule to an electron, and renewable energy which is going to be mostly solar in Nigeria.
The problem with solar right now is that we don’t have a functioning grid, it’s very hard to build solar power onto the grid because Nigeria hasn’t got that base load.
Our gas business in pillar two, creates the baseload through gas-to-power, which then can feed that grid system which means we can then add solar.
What we are saying is if we don’t accelerate growth in the gas business, it is unlikely that we will be able to distribute solar power across Nigeria.
If you see Europe, the US, and elsewhere, they have a great system that works as they have a base load of power, so it is very critical that if you’re going through a transition, you do it in the right order.
NAIRAMETRICS: What are your thoughts on the Nigerian energy transition agenda and how will Seplat play a part in shaping that narrative from hydrocarbons into gas and then fully into renewable energy, when you consider the fact that you need up to a trillion dollars a year in investments over the next 60 years?
Roger Brown: What is clear is that an isolated solution is not the right solution, and so you’re getting quite a big divide between the developed and developing world.
The reality is that CO2 is going into the atmosphere irrespective of geography, and therefore we need a worldwide connected solution to the problem.
Now, Africa is not a massive polluter at all, it’s about 3% of worldwide CO2 emissions, so, the debate is how do you execute that transition sustainably?
How does Africa grow and rightfully harvest its right to energy security at the same time as addressing the world’s issues around climate change?
Nigeria signed up to the Paris Agreement, is current with the climate policy, and is doing things to sort it out, so we have got to have social improvement and use energy to create social gains such as job creation.
We are lucky because if we didn’t have gas, we would be struggling to find that transition fuel, I don’t think the nuclear powers are going to permit the world to use nuclear for power generation, so nuclear as a base load is off the table.
We are very fortunate here because Nigeria is a gas province with more gas than oil, We must first displace all the diesel and premium motor spirit (PMS)-generated power, and replace them with gas, taking them out is a massive CO2 saving today and will lessen the cost of fuel.
I think what I can say as a last note on this question is that we can rightfully tell the world that we are reducing CO2 today, and we are fully on board with the transition agenda, while being mindful of achieving a balance with the development of energy security and the social benefits that come with all of that.
We can say that we are already on this journey and tell the developed world that we need to build access to our hydrocarbons efficiently to allow us to have enough money coming back in to fund that transition.
We can’t keep speaking about a “just transition” without helping people understand what that means the need for energy security. I think we have got a really good story about the abundance of natural energy in the country.
NAIRAMETRICS: Subsidy removal should not really be a major issue to upstream businesses, but it is an issue when it comes to people and the social impact from the removal of the subsidy because, without people and talent, businesses won’t grow.
One of the things you’ve seen in terms of that is the fact that the Petroleum Industry Act (PIA) is going to fully kick in now. How does Seplat look at that what kind of impact will it have on your business and how will it transition into ensuring that you have the right talent at every point in time?
By 2024, the full effect of the PIA will be knocking down everyone with the dichotomy of the midstream and upstream, how will Seplat manage this?
Roger Brown: We waited two decades for the PIA, and it is good we have the legislation. I think the PIA is really a roadmap for us, we decided to go along with the PIA terms and the issues we are facing now are more around the schedules and conversion contracts, and other elements of the PIA that need to be fully sorted out. Seplat is in Nigeria to stay so we are ready to commit irrespective of any issues that may arise.
The uncertainty around the schedules to the PIA, decommissioning, and abandonment etc, results in clauses put in the PIA that not everyone is going to agree with.
The uncertainty has resulted in some of the IOCs not being able to finalize the conversions – some have but others haven’t.
I think as an industry with the PIA, we want everyone to feel comfortable so they can convert, I know the PIA is being looked at for some changes that can be made, which we welcome as it’s important for the industry that the uncertainties are being sorted out.
It is important that we have legislation that is very clear on how we go about investing and relinquishing, so if something isn’t working, it’s better to go back to the basket of the government.
There are some issues like requiring you to identify the areas you’re not going to develop, and we have communities in these areas, and they trust us to what works effectively for them and as such we must be mindful of our actions in relinquishing areas where host communities depend on us.
We spend a lot of time thinking about those communities and what impact it has on them today, especially if those blocks take time to come back into future use.
We are mindful of the fact that it takes time to restart operations in a community, and in the meantime, who ensures that these communities are developed and properly engaged?
These are some of the issues that legislation should investigate, and we are positive that it will be done right.
As regards the subsidy removal, our business is upstream oil and gas, Wwe are not in the downstream sector, so we are not materially affected on a day-to-day basis, but I think certainly, the subsidy removal is affecting everyone in some way and the government needs to review some sort of palliative system to assist people.
In private industry, employees and labour are really pushing hard to have employees compensated for the weakness of the naira and the impact of high fuel costs.
We are looking to see what the industry is going to do.
NAIRAMETRICS: The big elephant in the upstream sector is oil theft, how is Seplat protecting its assets because it is important that you are not losing, and the money comes back to the company?
It is a huge issue when in the last two or three years we have not been able to do 1.4 million barrels per day continuously and this is a country that used to do 2 million barrels per day even when the quota was much less than that. Nigeria can do 2 to 2.4 million barrels per day but has not reached that in the last 8 years, how has that affected business It is telling a lot.
As you said, to position yourself for transition to gas, you need the hydrocarbon cash to invest in.
Roger Brown: If you think of our assets together, we probably have over a thousand kilometres of pipes and we have been relatively fine in our areas of operations with the pipelines that we control because we have a very good community engagement model, we are very clear on what that means in terms of shared prosperity. If you look at our western assets, we have four blocks in the West that export through Forcados, which is the Shell-operated terminal.
The pipelines going to Forcados and the terminal itself have experienced some level of theft but there are security contracts in place and some quick wins have been made there but it’s not the entire solution. We also evacuate our product through a pipeline to the Escravos terminal which is the Chevron terminal in the West, and we have seen better throughput through that, though we still get some theft.
Crude oil theft needs a government solution, we need the security forces and the industry to work together to stop this because any country that can’t control its primary dollar earner is crippling the country as we have seen. Our national output should be above 2 million barrels per day (bpd), but if we solve the theft we will not immediately achieve 2 million bpd because we do need to spend money and invest in fixing things in the sector and also due to theft, investment has been reduced in drilling wells, so you have to increase investment in drilling wells to bring the production up to and above 2 million bpd.
I think it’s going to be a concerted effort and it needs a universally derived solution, an industry-government solution. In the East, we see a much worse situation, it is a difficult place with the compulsory sit-at-home orders, and I think the security forces need to do some more work in the East, we are collaborating with Waltersmith refinery in the East, so we are utilizing some and not all our resources there.
Another opportunity is Nigeria LNG which is not at full capacity because there is not enough gas fed into the six trains that we have, due to interruptions, so, the government needs to come forward and address it, and I believe this is work in progress.
So, is the situation fixable? Yes, and I believe this government is focused on getting production up but it’s not going to be an overnight success. It will take time.
We have been working closely with the government and our partners to try to solve the issue. We are looking at multiple export routes, it’s been our way to mitigate some of that downtime and losses.
NAIRAMETRICS: You said something about refineries, so, in the upstream, you produce crude that needs to go into refining, and subsidies are gone, Nigeria imports more than it refines that is if it refines anything at all, what do you think will be the best kind of partnerships with the upstream and midstream in terms of capacity – do you require just one big refinery like the Dangote refinery, or do you require smaller or zonal refineries that would help boost crude production output?
Roger Brown: The Dangote Refinery will be transformative, we as a country should not be importing any product at all and so, the Dangote Refinery once it’s up and running, will aid in managing that challenge.
However, I also think there is space for smaller and regional refineries and there are quite a few of them like Waltersmith refinery.
If you look at our Eastern production, we will find it difficult to supply that production to the Dangote Refinery because you don’t have pipeline connections, so we supply to Bonny, which is in the Southeast.
For us, supplying the Waltersmith refinery makes complete sense, and what we like about it is we then have our crude refined in the areas where we operate and sold into those areas because I think it’s very good for the states to see the product and benefit as well.
If you are extracting and you put it around the world, you should be utilizing some of that in that state. I really am a big supporter of this approach. I know that Waltersmith wants to expand that refinery and we are open to supplying the increased volumes, we are also open to other refineries.
But it is not something that Seplat is going to do as a core business i.e., refining products, we leave that to others while we focus on processing gas and upstream oil production that can supply these other businesses.
NAIRAMETRICS: You have been with Seplat since 2013 in Nigeria, first CFO, now, CEO, in terms of publications going around left, right, and center, how has it been in leadership, first as a CFO and now as a CEO been for you?
Roger Brown: Before I joined Seplat, I was in Banking, advising Seplat on the stock exchange listing and everything else, so I have been in Seplat right from the start, and at time, Seplat was clear on the intent to have the highest level of governance and when you sign up for the highest level of governance, your life changes, and when you list a business, effectively, you sell that business to the market, and you open those shares for other people to own them.
So, we have almost 4,000 shareholders today, combining Lagos and London, we have a range of shareholders, local pension funds, retail shareholders, high net-worth individuals here, African funds, and international funds, we have got a broad range. They own a stake in the business and what they have signed up to, and the reason why they bought that stake in the business, is because of what Seplat has done, what it is trying to achieve, and its governance.
When you sign up for governance, you must get the governance right, and what we have seen in the last couple of years at Seplat is an evolution from a founder-led business into a more traditional public plc business. So, you’re seeing that change, as the two founders stepped down from the Board, we moved to an independent Chairman. There is a process ongoing now to identify a new independent Chairman who will be announced soon and there will also be new Directors, so there is constant movement around this.
But our mainstay remains Governance, Seplat adheres to it and must stick by it, and we are trying to do things the best we can. You can get bumps in the road, and you can get issues if you call it that, we have just gone through the last four months going through some things, but I am incredibly passionate about this business.
I have complete confidence we will continue this journey and grow bigger and better and demonstrate that when all the IOCs leave the onshore business and eventually maybe leave the offshore in the future, you need the emergence of big Nigerian companies that will take their place.
At Seplat we want to be leading that charge and I think we are leading it; this is a company that is for everyone, no one person owns it, lots of people own it. So, at Seplat, we have a very strong leadership team, we have diversity on that team, whether it be female and male, Nigerian, and non-Nigerian, Igbo, Yoruba and other tribes.
What we are trying to do is create a team for everyone and that governance, we hold on to and adhere to very carefully. I think we can put the last four months, let’s say from Q2, behind us, I am back in the seat, Immigration has reinstated my residency card, and I am delighted to be back.
In fact, funny enough, the day I got back into Nigeria was Democracy Day, a wonderful time to get back into it and there were cheers all around the place. I think employees and all stakeholders want certainty, they don’t like uncertainty around things and so, Seplat came through the challenge and that’s what life is all about, challenges.
Now we find ourselves poised, we are focused on getting our ANOH gas plant up and running and this year, we are pushing hard to get the Mobil-Producing transaction approved by the government that is going to be a game-changing transaction and we are doing a lot of other things.
NAIRAMETRICS: Could you just explain that a little bit and throw more light on it?
Roger Brown: The Mobil-Producing sale purchase agreement was signed on February 25, 2022, and then we went through the last administration to get it approved.
It was approved on the 8th of August, there was a notification that it was approved and then there was a disagreement with NNPCL, Exxon, and the regulator as to whether it had to be approved under the PIA, or the Petroleum Act of 1969.
Anyway, that didn’t materialize in the deal being closed under President Buhari, and now under President Tinubu, we are engaging to try to get it approved and resolve the issue of preemption.
This is important for Nigeria because what is happening is that when an asset is sold you don’t continue to invest heavily as you divest.
With the majors exiting some of these assets, you want it transferred quickly.
What we want to do is invest, we want to drill oil wells, and we want to access oil but more importantly, gas and this asset is one of the biggest gas plays in the country.
We signed it in 2022, it is now August 2023, a year and a half later and if you’re not drilling, you’re declining and because drilling is not happening, by the time we get this, we have to spend more money to rectify the problem. It is in the best interest of Nigeria to get this resolved quickly and allow companies hungry to invest here for the long term, to come in and grow production and access the gas which is going to be very critical for Nigeria.
NAIRAMETRICS: From a governance perspective, based on what has happened in the last four months, what are the things you need to put in place in terms of dealing with issues relating to conflict of interests, going forward?
Roger Brown: It is not about writing the policy – that’s the easybit, it’s all about executing, implementing, and making sure that is been done.
We have a policy now related to third-party transactions, we have reviewed our contracting processes via our supply chain management processes to ensure we manage conflict of interest.
We have in place declarations for all staff whether there is a conflict or not and then when we find that there has been a conflict that has not been disclosed, we act speedily on it, and there are consequences for non complicance.
So, it’s an evolving process but it is very important that you do it because the staff need to understand and importantly, so do the people you contract with.
In our engagements with stakeholders and investors, we reiterate our policies in this regard, and we demonstrate how we are abiding by it and our zero-tolerance policy for those who flout them.
People really invest on the back of that honest statement.
NAIRAMETRICS: Now let’s come to the numbers, 3.8% revenue increase, 23.2% growth in gross profits, based on our analysis, the half year 2023, 3 cents dividend, is it sustainable, and what makes it so?
Roger Brown: The short answer is yes, it is quite sustainable, If you look at us, we publish naira accounts and dollar accounts, you should look at both because it is quite interesting.
In the dollar account, it is flat, on the naira account you will see profits grow because obviously there was a devaluation of the currency you have then the benefit of doing naira reporting.
I think generally if I compare H1 this year 2023 to H1 last year, we were sitting on a $107 average oil price last year, and we are $80 or thereabouts this year, so, the impact is quite massive.
If you isolate it, the business I think is performing better this year than last year for the period because the oil price is lower.
The margins are still strong and everything else, the G&A (general and administrative) costs are higher than they should be, and we reported that we had a lot of legal costs with the defence of the company.
It is important that we make the statement that we have had a lot of costs, due to a lot of court cases, I think over 10 in total, so, it is important that we defend the company because the implications of us not defending was much higher than the legal costs.
Seplat must be successful, it is very important for Nigeria that there are very strong corporates that will demonstrate that you can do it properly.
NAIRAMETRICS: Let’s talk about the exchange rate, the market is volatile, as I speak to you, we just published an article saying the parallel market is N900 to $1, the I&E window floating between N760 to N780, that’s an N120 margin, who is going to bail us out? When will Seplat and other big players start to bring back money to bring some level of comparability between parallel markets and the official market?
Roger Brown: As a company, we are Nigerian, we are not overseas, and we are investing heavily locally, all our investments are here, we do not have operations elsewhere, I think it’s unlikely we will have any time soon. We want to make Nigeria work; we are bringing those dollars back in and investing in the country.
With the Mobil-Producing deal, for instance, we are investing billions of dollars and we will be drilling wells quite quickly. In terms of what Nigeria needs, it needs that stable exchange rate, so much money has been locked up in Nigeria, that money needs to feel like it can leave.
You can’t get money into a country unless the money can leave the country.
There are ways and means of getting dollar liquidity back into the system and that’s a trust game that needs to happen. Certainly, from our perspective, we want to get oil production up because this means we will pay more royalties, and taxes in dollars.
So, if oil production comes back up, there will be more dollars coming back into the system, unfortunately, there is no short-term panacea to this, the reality is it is tough, but what I can say is that from a foreign investor-in-Nigeria perspective, they are excited about Nigeria and they see massive opportunities, so I see a longer-term inflow of capital.
NAIRAMETRICS: Simply put, what is the vision for Seplat and how does that tie into that quality excellence in terms of health, safety, and environmental activities?
Roger Brown: Access to affordable, reliable energy, that’s what we are about, we are trying to lower the cost of energy for Nigerians, because the country needs to grow, and it can’t do that with this level of cost of electricity.
That’s what Seplat is trying to achieve, it’s also about growing the oil sector, to reinvest in the energy transition. In terms of things like health and safety, it’s not an afterthought, we live and breathe it.
It goes to the entire workforce, the way we run it at Seplat is we have an individual scorecard for everyone and one scorecard for the entire company, so whether you’re on the front desk or the top floor, we are all focused on the same targets.
Within that scorecard, 30% of the scorecard is related to ESG and safety. The only way to incentivize people to take it seriously is to put it in their overall scorecard.
