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Q&A — Planning for the future

I truly feel that we have made a positive difference for our host communities and will continue to do so long into the future.

Roger Thompson Brown Seplat CEO

You took leadership of a healthy business surviving a pandemic, what were your initial priorities?

A: It’s very challenging to take on the role of CEO when your staff are all working from home, so visibility and communication were essential to motivating staff and reassuring them about the future.

For the business itself, priority number one was to increase operational efficiency as well as reducing costs, not simply as a response to the lower oil price but because I believe that a constant focus on improving efficiency will drive us to become a better and more sustainable business. Part of this cultural shift was about motivating our people, breaking down hierarchies and promoting more creativity and innovation. We have an extremely skilled and experienced workforce and I want to harness that potential. Seplat’s staff responded magnificently to the challenge of keeping the business running from home and I commend their efforts in what was an unprecedented and challenging year.

As to our longer-term priorities, it is clear that the oil and gas industry is changing rapidly, and the Covid-19 pandemic may have accelerated the drive for energy transition in Nigeria. As the country’s largest indigenous independent energy producer, Seplat will play a major role in that transition, helping Nigeria forge ahead with the development of its existing resources and developing new ways to produce energy at low economic cost and at low cost to the environment. Assessing those new opportunities and preparing Seplat to be at the forefront of implementing them is my major focus going forwards.

Seplat turned in a robust performance against a very challenging year, to what do you attribute this success?

A: We have faced challenging years before and survived because we had a strong balance sheet that was sustained through prudent financial management and this disciplined approach helped us through 2020, which had the twin shocks of reduced demand and lower prices.

We responded by negotiating deeper cost reductions, focusing on efficiency, and adjusting our production and operations to reflect the realities of the pandemic and its impact on demand. Much of that is down to the Seplat team who responded quickly to the changes required by Covid-19, ensuring we could remain safe and continue operations throughout.

Despite these very considerable challenges we maintained our dividend, voluntarily repaid debt, invested for growth and still managed to progress our key projects. That sets us apart from many of our peers.

How will you build on the integration of  Eland?

A: The steps we have taken already will deliver long-term benefits. We have reduced barging costs, improving the profitability of the Eland production, and we have created a Centre of Excellence at what was Eland’s technical centre in Aberdeen, Scotland. This team in Aberdeen will also support the recently created New Energy unit and it is in a great location for access to industry and academic expertise in all kinds of energy technologies including renewables.

If the oil price remains stable, we will allocate capital to drill more production wells at Gbetiokun and Opuama as well as replacing the barging operation at Gbetiokun with a dedicated oil pipeline.

In the longer term, there is potential to significantly upgrade our reserves by drilling the high-potential Sibiri (formerly Amobe) exploration prospect at OML 40.

Nexant forecasts Nigeria’s gas demand to grow by c.20 Bcm by 2035, with most growth in the power sector.

 How does oil remain relevant in today’s climate-conscious world?

 A: There is much debate on whether global demand for oil may have peaked and whether it will reduce over the coming decades as transport is fuelled by electricity instead of oil. That said, the EIA forecasts that demand will still be 96.9 million barrels per day in 2021, only slightly lower than in 2019 before the disruption caused by the pandemic.

Of course, there is pressure to reduce oil extraction and the carbon emissions it creates, but that depends on the rest of the world adopting less oil-intensive ways to travel and generate power. Nigeria’s per-capita energy consumption and carbon emissions are actually very low, and its national electricity grid is still very poorly developed. This is why the country is so reliant on small-scale diesel generation to satisfy its energy needs and this is the problem we need to address most urgently. It’s important to recognise that Nigeria is a developing country with low access to energy and a rapidly growing young population. Hydrocarbons are the country’s main resource and provide significant help for its economy. The proceeds from the oil industry fund a wide range of Sustainable Development Goals (SDGs) and are crucial to the country’s societal development. Nigeria needs to achieve significant growth in its capacity to deliver education and health services, food production and energy security. Without the development of its indigenous oil and gas industry these goals will become very difficult to achieve and so in Nigeria, the industry remains not just relevant but essential.

Since oil and gas was first discovered in Nigeria in 1956, the country has struggled to fully capture and share with the population the benefits of its abundant natural resources. Finding a way to do so now, even as the world responds to the threat of climate change, is essential for a just transition.

What opportunities does the imperative of climate change hold for Seplat?

A: Seplat is embracing climate change opportunities on two fronts. Firstly, we continue to invest heavily in expanding our domestic gas business in line with the Government’s strategy to achieve universal access to electricity, and to make that energy cheaper and cleaner by replacing diesel generation, which is very damaging to the environment and the economy. Gas is clearly the next step for Nigeria, and we have a leading position domestically with the Nigerian Government declaring the ANOH project as one of the seven critical gas development projects for the country.

Secondly, we have created a New Energy unit to focus on lower carbon to zero carbon fuel sources and the natural extension beyond gas is for Seplat to participate in renewable energy, such as solar power, and in emerging technologies such as carbon capture and storage. Our view is that Nigeria will benefit from being able to deploy renewable energy on its electricity grid rather than solely developing an off grid renewable solution. By providing a base load of cheaper, lower carbon gas on the grid, the acceleration of grid-based renewables will be possible, which is why we are currently focusing on accelerating our midstream gas business and additionally expanding into LPG, which is a good fuel source for cooking, preventing deforestation.

The priority for 2021 is to address our responsibilities as part of the global energy transition and to set realistic targets for how we as a company evolve to drive that transition along.

Government policy is also focused on addressing the undersupply of gas and extending access to electricity.

What progress did Seplat make with sustainability in 2020? What future inactivities can we expect?

A: We already support most of the UN’s 17 SDGs through the taxes and royalties we pay to government, which support things like health, education, and infrastructure, and through our own community support programmes.

On a practical front, we retained a leading ESG consultancy, Critical Resource, to undertake a ‘gap analysis’ and identify where our efforts in sustainability could be improved, and not just in the domain of emissions. The result of this analysis is enabling us to undertake scenario planning to forecast the impact of climate change on an asset-by-asset basis.

The analysis will also enable us to align our reporting with best practice for ESG disclosure and we aim to be TCFD and IPIECA compliant as soon as possible.

On a practical front, it was our responsibility to provide whatever help we could for local communities hit by the pandemic and its restrictions, and we were involved in several initiatives, both on our own and with industry and government partners.

How do you build on success into 2021? What initiatives can we expect?

A: The oil price has started to recover and thanks to our cost-saving initiatives I believe we will translate this into higher cash generation this year, which will enable us to invest more for the future.

In the second half, the long-delayed Amukpe-Escravos Pipeline is expected to come onstream and reduce downtime, reconciliation and other losses, which will provide a further boost to Seplat’s cash flow. It will provide a reliable, secure alternative to the Trans Forcados route that has frequently shut in our production because of maintenance and other problems.

We continue to focus on the ANOH Gas Processing Plant, and although this has experienced some inevitable delays because of the pandemic, it will be transformational for Seplat and for Nigeria when it opens in 2022.

In addition to these two key factors, a number of other planned initiatives will provide further operating and financial benefits. Exploration drilling and new gas wells are likely to increase production and reserves whilst an increased focus on operational improvements will improve production uptime.

Having survived the worst year in the history of the oil and gas industry, the actions we’ve taken before and during 2020 have left us in a position of strength and I am confident that as demand recovers and the imperative for gas increases, Seplat will exit 2021 a larger, stronger, more profitable company and strengthen its position as Nigeria’s indigenous energy leader.