Dutchess Energy Limited just won the last marginal oil field bid organised by the Department of Petroleum Resources (DPR). In this interview with some journalists, its managing director/CEO, Ms Olatimbo Ayinde, speaks on the bidding processes and other topical issues. BENJAMIN UMUTEME was there.
Your company emerged the successful bidder of the last oil marginal field. What were your experiences at going through the bid processes?
We went into the bid exactly a year ago. For us, the processes were quite exciting. Exciting because it was was guided by best international standards. We put in our application as stipulated by DPR. I think about 600 applicants expressed interest and that was the first phase of the processes where a technical and financial evaluation was carried out. Thereafter, upon rigorous evaluation by DPR, 540 companies were shortlisted. After that, we went through a more rigorous commercial and technical bid phase. We submitted the economics of our chosen field and also made known our plans for the host community in our chosen geographical location as well as our financial capabilities. Subsequently, 161 companies were shortlisted as potential awardees. At this point, it became even more exciting because you have to approach the banks to raise money, leverage on your financial capabilities and that was very daunting as there was a time limit of only 45 days. What that means is that you must have been prepared prior to the exercise. We were able to secure the necessary assistance from our banks, but many companies were not successful at this particular phase. As it turned out, the award was given to us exactly a year we entered the bid process, precisely on May 31, 2021.
You said the DPR followed due process. How would you estimate the role of DPR in the process?
Oh, for the first time, I would say we had a process where DPR was very transparent. We were expecting the usual kind of bids process we had seen in the past, but this was different. There was a time span that was designated for each process and there were no extension. The entire process was cast in stone, that means you had to be well-prepared. There were no cutting corners with this one, I mean you couldn’t just get any information outside of the usual as all information was available on the website and they followed everything and dates to the letter. It’s very unusual to see how this development happened in this industry. You see, a lot of people felt there would be an extension of the deadline as was done in the past. This was one of the many surprises with this bid. It seemed everything was computerized. Unfortunately, a number of applicants missed out because they could not submit after the day of submission. It was absolutely transparent. Also, remember this was done during the pandemic, so the automation was necessary, but because the process was computerized, there was no room for human error. DPR performed above expectations in quite unusual times, considering the Covid 19 pandemic. It was actually the very best standards that we have had in the industry and should be commended for this.
With the huge financial demand, how would you cope considering the fact that it is an enterprise that demands a lot of money?
Yes, in this sector, it is a lot of investment depending on your terrain. There are different terrains like land, swamp, shallow offshore and deep offshore. I’m almost certain for most of the fields, regardless of the terrain, one would be looking from $50 million to $200 million to hit the first oil. There are different ways of financing, for example, via the banks or private equity. If you take the bank route, you may look at reserve-based lending in which case you must have verifiable reserves or straight debt financing where you may be required to have other sources of income. Private equity on the other hand would look at private investors who could be interested in private equity or debt financing through the use of technical partners. Unfortunately, the banks are not really interested at this time to lend aggressively to the sector as they like to come in after you have hit the first oil. They may then consider reserve- based lending. So, most of us would be looking at private equity where we would get technical partners and give up some percentages. By law, we are not allowed to give anyone else more than 49% of the asset which means that you as an indigenous partner would hold onto 51% of the asset and would always be the majority. This is one good advantage of being a Nigerian in owning an asset.
Your company has been a key player in the downstream sector. What gives you the confidence that you can transit to the upstream sector?
We have been in the petroleum industry for over 15 years. We’ve participated actively in Marine Logistics sub-sector by moving large volumes of petroleum products from one place to the other. I’m someone who likes to say that I came from the sea to land. We have been able to go through the entire value chain and it has been a wonderful experience. Behind all that is the upstream which completes the entire value chain of the oil and gas sector. It is an area we had always wanted to go into. The last marginal fields bid rounds was in 2003, and that was 18 years ago. We have been waiting for this opportunity for 15 years.The world including Nigeria is moving into alternative energy and for Nigeria, we are looking more of a gas for cleaner energy. There is a huge opportunity in that sector that is untapped. These are areas that a lot of us in the downstream or even in other sectors are looking forward to as the next level as we would bring in some of this gas from the upstream to the domestic market as LPG. I believe that our strength in the downstream and mid-stream would give us an added advantage as we venture into the upstream. It is believed that there is a need to change the narrative in the petroleum sector. How do you want to achieve this worthy goal?
First of all, I would like to emphasise that there are few female professionals at my level in the industry. I want them to see that this is not to be ‘male-dominated-only’ business. There are few women players in the upstream, but with this exercise, hopefully there are more openings for women participation. I’m hoping that with my coming into this sector, it is showing that there is a lot of good prospects for women folks in the industry. This space is made for indigenous companies whether male or female. As I said earlier, this is a huge opportunity for anyone who is a Nigerian as it gives you an added advantage over the expatriates that would come into the sector. Moreover, it is exciting because I’m a woman in a male-dominated sector and we have been seriously embraced by the whole value chain. I feel there is a lot of encouragement for a lot of females to participate. So in changing the narrative, it would be that more Nigerians and particularly women can do this. If you consider the advantage offered by the Local Content Act on indigenous owners, there are certain aspects left exclusively for Nigerians only. So you would feel privileged to participate in something like this and be ‘Proudly Nigerian’.
A lot of people have expressed difficulty in raising finances in this sector. What is your take on this?
First of all, it is good for you to understand why people find it difficult to raise funds. Some unusual things have happened in this sector. For example, in the peak of the Covid-19 pandemic, the price of oil nosedived to $0 and then it went even lower to -$35 until it was pegged by the New York Stock Exchange. This is something terribly unusual that shook the entire industry. Prior to this time, oil traded at very low levels, WTI traded at $20 and Brent which affects us in Nigeria traded at $25. Before now, oil was seen as stable and unshakable, but during the pandemic, it became cheaper than McDonald’s happy meal. On that unfortunate day (April 20, 2020), the price of crude WTI crude oil nosedived to -$35 per barrel, which meant at some point, you were paying someone $35 per barrel to take your oil. Now, if you consider the cost of exploration, production and in places like Nigeria with community disruption & expenses, bringing production cost in most cases from between $18 – $25 per barrel, you would see that for quite a while they were trading at a huge loss and when the sector loses money, the banks are badly hit. This has left a dent in the banks considering that when they took up many of these investments, oil was trading at $100 per barrel. This has made banks extremely cautious of the oil and gas sector and their risks departments don’t forget easily. Even though oil is now trading at $70 per barrel, the low prices of oil in recent times has been a major obstacle in funding. Hopefully as time goes on, their wounds would heal and memories fade, provided oil remains stable and trades above $50 per barrel. I am optimistic that we would become the beautiful bride of the banking sector once again.
