Thursday, February 09, 2006

Addax Boss Interviewed By Nigeria's The Guardian

A wide-ranging, lengthy interview with someone identified as the "top boss" of Addax Petroleum's Nigerian operations appeared on Jan. 17, 2005 in the Guardian of Nigeria, a daily that is generally regarded as the leading paper in the country. The name of the "top boss" is never provided in the interview, probably due to someone's oversight.

Although the interview yields little information that is new or particularly relevant to ERHC Energy, it does give us all an invaluable insight to the level of access and acceptance Addax enjoys in Nigeria, and indeed, in all of Africa.

In the intervening year, Addax Petroleum has been successful in gaining a major stake in the Nigeria-Sao Tome and Principe Joint Development Zone's Block 3, where it will share ERHC's 30 percent equity, and Block 4, where it is operator and enjoys a 65 percent interest with ERHC.

More timely is the news that the oversubscribed $407-million Addax IPO launched on the Toronto Stock Exchange this morning, where the initial price was over $19, much higher than the $15-and-change at which it was earlier slated to open.

Once the funds are raised and Production Sharing Contracts are signed - on Feb. 28, per the current scuttlebutt - ERHC Energhy will get an $18 million lump-sum payment from Addax for rights in Block 4, where it also offers us a full carry to first oil and more than 26 percent of the eventual income.

It is unknown what arrangements will prevail in Block 3, where the partners share a smaller pot.

Here is the Jan. 2005 interview:

Interview with Nigeria's Addax Petroleum boss
by Yakubu Lawal

17-01-05 His impressive career in the oil industry has taken him back to the country he has come to love and appreciate as his own. In the early nineties, he worked some three years in Warri and Lagos with SPDC. Since 2003, he has presided over the fast growing independent oil company, Addax Petroleum, which is strongly focused on Africa and whose principal upstream operations are in Nigeria.
Interestingly, the company chose to launch the vessel in a rather quiet but impressive ceremony witnessed by the top management of the Ministry of Petroleum Resources, NNPC, DPR, NAPIMS and Addax Petroleum. Here follow excerpts of an interview.

Question: As a major Nigerian oil producer, we want you to look at the investment potential in Nigeria from the Addax experience against the background of the world oil and gas industry?

Answer: As a largely Nigerian upstream company, we naturally regard Nigeria as a great country to invest in. The prevailing environment in Nigeria demands that to besuccessful, you have to work very hard, but the attraction to us is that the Niger Delta is a prolific oil basin. From that viewpoint, it is a great place to be. Crude oil produced in Nigeria also has a ready export market with immediate access to the Atlantic shipping lanes and this favours the Nigerian oil industry
We are a contract operator to NNPC under a PSC where NNPC, i.e. the national oil company is the owner of the assets and we accept all financial and technical risks. In return we share the production that results from the investment according to the terms of the contract. Our PSC contract encourages investment in oil exploration and development, and this is good for Addax Petroleum and good for Nigeria.

The current drive in NNPC for transparency in the oil and gas industry is something we strongly support and we are working closely with NNPC to make it successful. In itself this initiative will encourage further investment into the country. We also see a positive development in the recentlyissued national Gas Policy, where gas in the past was being flared and was seen as a waste product. Gas is now being turned into a commercial opportunity and NNPC has specified in clear terms, the commercial and fiscal regime for gas monetisation that is expected to be brought into law during 2005.

A potentially sensitive point about the Nigerian oil industry is the issue of production quota where, Nigeria, as a member of OPEC, has to comply with OPEC rules. When a company makes investments in oil development and then cannot produce oil because of a quota restriction, well, that is not so positive.

Question: Talking about fiscal regime, are you saying that the current PSC is favourable to your operations in Nigeria?

Answer: I am talking about the PSC framework in general, where we as an oil company work under a Production Sharing Contract whereas traditionally the multinationals' that operate in Nigeria are under a Joint Venture (JV) arrangement.

We are happy with the PSC model that is currentlyin force as it provides commercial clarity and promotes investment in the development of oil reserves.

Question: Do you have any idea or intention to renegotiate the PSC?

Answer: We have absolutely no reason to renegotiate the PSC. I would like to repeat that the PSC that we operate under is a transparent and commercially acceptable document for the mature fields that we presently operate.

In the future we expect to apply for new concessions in Nigeria for which new PSC terms and conditions will be negotiated, taking into account the new fiscal regime for gas. Any new venture has to be looked at in its entirety, and this must include PSC terms. The more difficult the development of oil and gas is, the more marginal the economics, the more favourable the PSC terms need to be.

Question: The tempo of activities of Addax Petroleum Company in Nigeria has increased over the years, what is responsible for this positive growth and your expansion programme in Nigeria?

Answer: Addax Petroleum has been in Nigeria since May 1998, and yes we have increased our activity level and production significantly. We have always been aware that if we are to be taken seriously in terms of new licence awards, then we have to prove that we are up to the task. Our initial success in the shallow water environment of OML 123 has given us the confidence to expand and accelerate our oil development program in Nigeria. In order to sustain our future as a successful independent oil company we will continue to be fast in accepting our responsibilities, in accepting risks and investing in our Nigerian staff.

As an independent oil company, we have been able to prove that we can turn under-exploited or under-valued fields into commercial ventures. That is our cutting edge and we have demonstrated how effective we can be in our work in OML 123 and 124. I often tell our people that if we cannot commercially successful develop some of the small and mature oil fields, no one can, therefore let's find a way and accept the risk.

Question: What about your expansion programme?

Answer: We have invested over $ 500 mm in new capital projects alone in Nigeria in the last six years and yes, Nigeria is absolutely number one in terms of our future plans and as I just explained, we are in the right position in terms of people and our business model of developing under-exploited fields. We are a strong united family where over 90 % of our staff is Nigerian.

Our relationship with NNPC/DPR we believe is good, and it is something we deliberately foster by aligning our objectives with those of the Federal Government. We are pro-active in our communication with the Authorities in order to quickly address and resolve business dilemmas.

We see tremendous business opportunities for growth in Nigeria. We, as an independent oil company, would like to take advantage of those opportunities, especially onshore, and in shallow and semi deep waters. Ironically, these are the areas that some operators are shying away from but we believe we have the capability and we certainly have the appetite for such opportunities.

In our community relations' policy, we are also doing things that are new and novel. Our philosophy is such that we make our host communities' stakeholders and partners in our operations. We relate with them, identify with their needs and problems and try as much as possible to solve these problems together.

Question: Looking at your track record in the last six years, growing from 7000 to 45-60,000 bpd and the acquisition of Sendje Berge FPSO, has it been all smooth sailing without any hiccups?

Answer: Certainly not. Shortly after Addax Petroleum was created the oil price collapsed and we dipped into the red. Also, we experienced serious drilling problems in 2002 that could only be resolved by taking drastic measures and a few of our projects could have been managed better in terms of time and resources. Upstream business comes with considerable risk!

The success story of Addax is our people, they made it work. We in Addax regard ourselves as a family company; that is a big factor in our success. Furthermore, as an independent oil company, there is also our ability to make decisions quickly for achieving fit-for-purpose solutions, and our willingness to take measured risk. No doubt, our acceptance of new technology in many of our projects is another factor.

Question: As part of technology transfer, I was expecting to see on board the FPSO, some Nigerian staff working with Jurong Shipyard staff?

Answer: The FPSO business is still an international shipping business, however the conversion of the FPSO has been done in close consultation and collaboration with NNPC. NNPC assigned staff to the project in Singapore in the same way that they are active in our operations. Bergesen consultants put the project together under Addax supervision.

Neither Addax nor NNPC are in the business of building FPSOs. Technology transfer for Addax relates more to the subsurface, well engineering, well technologies etc. That is where wecan grow and repeat the story time after time.

Question: Recently in Nigeria, the Joint Venture operators handed over some marginal fields in their concession over to the Federal Government; given your track record do you think you can convince the Federal Government to give Addax some of these fields?

Answer: Like I said earlier, Addax is an oil company. We are a commercial business, we are not in politics. We want to make money for the stakeholders and grow by creating wealth for the nation: we will take suitable opportunities that are open to us.

Marginal fields are reserved primarily for the indigenous operators, where we focus on small and mature fields. However, we are very receptive to participation with indigenous operators with their development plans and operations.

Question: The vessel (Sendje Berge) has a storage capacity for 2 mm barrels; but I do know your company, Addax produces about 50,000 barrels; does it really makes economic sense to have a 2 mm barrels vessel when your production is 50,000 barrels. What is the significance of this to your operations in Nigeria?

Answer: The bulk of our current oil production of 50,000 bpd is produced to our existing FPSO in OML123. The Sendje Berge will receive the production from our new Okwori field. It is in a remote location further offshore that provides still some upside to oil reserves and incremental production in the future.
Also, from the oil trading perspective large parcels are attractive, hence a large FPSO. Furthermore, its gas handling capacity makes the Sendje Berge a good choice.

Question: Last year at Cape Town in South Africa, during a conference one of your managers said Addax was looking for technical partners for the development of some of your fields. But the impression we have here in Nigeria is that you want to go it alone; how capable are you in carrying the load alone in the development of your fields, particularly the financial aspect?

Answer: Okwori will increase our production capacity by about 50 %. It is a geologically very complex field. Through the application of some state of the art technology, the employment of a dependable workforce and a host of other strategies we believe that we can develop Okwori successfully.

As long as we do our work well, coupled with a compelling Strategy and commercially acceptable business model we will be able to fund our operations and expansion plans. Over time we have certainly grown in confidence to "go it alone", although we keep our options open.

Question: The Nigerian government has decided to enforce a local content policy to ensure that Nigerians play key roles in the oil industry. What plan does Addax have to meet the objectives and expectations of this policy?

Answer: In many oil-producing countries of the world similar policies exist and I think it is completely natural to promote and build local industry and advance national staff. In line with government objectives, Addax has created a local Content Development Unit charged with the implementation of this policy.

Specifically, the Local Content Development Unit ensures the realization of the following policy thrust: identifying areas of operation with high potential for increasing participation of local companies; encouraging foreign contractors to partner with local companies to further develop their business; promoting technology transfer and increasing current level of participation of local companies in terms of value of contracts.

Considering the low per capital income level of most local companies and the difficulties in raising funds for project execution, the unit is also charged with the responsibility of evolving measures that will facilitate the performance of local firms handling our jobs. All these initiatives are designed to encourage local firms to participate in our operations as part of our local content development programme.

A key factor in the company's strategy for local content implementation is transparency in the award of contracts, which is aligned with the Federal Government's policies. In this regard, all contracts to be awarded by the company pass through a Tender Board, which scrutinizes the bids before award.

Also, in Addax, some 18 months ago we created the NICO, a Nigerianisation Committee which is steering and implementing our Nigerianisation policy and I am pleased with the fast and visible progress that we are making with an increasing the number of Nigerians in technical, business support, and management positions. Part of the programme is a firm commitment to national staff training, domestically and internationally.

Our regular management meetings with NNPC discuss quality, local content and Nigerianisation in our operations. NNPC has commended us for our efforts. There are some limitations, but I think so far, we have made appreciable progress.

Question: Let's look at the issue of the Niger Delta; in the course of this interview, you did mention that you do not have any problem with your host communities; so what are the selling points for Addax operations in the Niger Delta of Nigeria especially at a time when other oil companies are planning to leave the area?

Answer: We see ourselves as a company strongly connected with the future of the country. We are largely a Nigerian organization with a low expatriate content. We will try to find ways to develop the oil in the Delta for the benefit of all stakeholders in the country! I am positive that we find ways to operate peacefully in the Delta in the coming years.

I told you earlier, that Addax has developed a new community relation's policy with some novel ideas. We want to see our host communities as partners in progress, joint stakeholders who should benefit from our operations. The remaining hydrocarbon reserves cannot remain in the ground; Addax is ready to develop them! We accept the challenge.

Question: Can you give us an insight into your corporate social responsibilities since you commenced business in Nigeria?

Answer: Addax is committed to a long-term presence in Nigeria. That is reflected in our Corporate philosophy, upstream and downstream. In the last six years, we have evolved and implemented policies and projects that promote sustainable social economic development and guarantee safety and security in our host communities.

We have an integrated human capital development policy committed to the development of our Nigerian employees through regular intensive training. Let me add that Addax has consistently met its statutory obligation in the funding of the NDDC. With our new community relation's policy, we plan to spend millions of dollars in the years to come to further improve the social conditions and empower the indigenes of our host communities.

Question: What plans does Addax have for gas development and compliance with the government's flare out target of 2008?

Answer: We see the government's policy as a truly welcome step and we will turn it into an opportunity. We are working actively on the commercialisation of gas. A year ago we have established a Gas Commercialisation Team in Addax Petroleum. They have developed a Gas Master Plan that contains various scenarios to monetise gas in our concessions.

We have identified a feasible opportunity with an indigenous company to develop an LPG plant near our onshore concession. The project is at the stage of detailed definition and we could possibly go ahead with the LPG plant in 2005.

We have also seriously looked at developing GTL -- that is, Gas-to-Liquids conversion using the associated gas from our oil production. This work is ongoing.

An inventory is nearing conclusion and the moment the viability of the new technology is confirmed, the project implementation will commence. We are also liasing with neighbouring oil companies, to look for opportunities for them to use our gas. This could lead to the construction of pipelines from our own to their concessions and if this comes to fruition, we shall build pipelines from our own concessions to sell them the associated gas at their LNG infrastructure and plants.

The strategy now is to store the gas in some of our reservoirs in order to commercialise the gas when the technology or commercially acceptable opportunities are available. So the main achievement of Addax in 2004 is the identification of a number of opportunities in order to build gas into the mainstream core of the company's business.

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