Interview

Interview with Austin Avuru, CEO, Seplat Petroleum Development Company

On the impact of Covid-19 and falling oil prices on Nigeria’s economy

Source: OBG

How is Nigeria’s oil and gas industry faring in the face of the current pandemic?

AUSTIN AVURU: The combination of the current pandemic and the rapid decline in demand for crude oil globally is reflected in current oil prices. In real terms, we are expecting to end 2020 with an aggregate price that is half of what our original budget price was. The immediate result is a revision of the 2020 budget and cuts of 30-40%. Therefore, the aggressive budget spending initially allocated to fuel development and facilities has been scaled back. 

However, we are not scaling back a large amount of our spending on gas. We are also looking at our operating expenses and reducing them as much as possible. Overall, our target is get close to a neutral cash flow position in 2020. So the main target of our budget restructuring is to be able to survive FY 2020, with the hope that during 2021 prices will climb back to the $40 mark and we will manage to resume our planned investments. Meanwhile, in 2020 the key word is survival.

To what extent will the current situation affect supply chains in the oil and gas industry?

AVURU: As lockdown rules are being lifted around the world, supply chains are gradually being restored. We encountered a few weeks of disruption in terms of vendors that were building some parts for us in Italy and China, but these are now back to normal. For those that are not, we are hopeful that it will be a matter of weeks before they are also able to resume operations. 

The supply chain in oil and gas remains highly contingent on the global supply chain, with the US, Europe and China providing services, equipment and materials for our work sites. Most of these activities are still ongoing. Even during the lockdown period, we managed to maintain supply chain efficiency, and continued all drilling and production operations. With lockdowns now being lifted, this network is being reinforced in a way that will not affect our operations going forward.

In what ways in the oil and gas sector supporting national efforts to fight the current pandemic?

AVURU: There has been a joint industry effort coordinated by the Nigeria National Petroleum Corporation since the beginning of the outbreak, which raised around $30m. This has been directed to the procurement of materials and support services to fight the pandemic. 

Which major changes can we expect to see in the oil and gas industry moving forward?

AVURU: I think that one of the major changes will be the way that we work and conduct business. Many people believe that after the pandemic it will be possible to run our businesses without coming to the office. However, we will still need people to physically go to work, as the core of our industry is in the field. 

Our business is to produce crude and natural gas, and that is the bottom line. Everything we do is to ensure that, in the field, we are able to produce the volume of crude oil and natural gas that we promised to the markets. Therefore, field activities will continue in the traditional manner, and the coordination and management support will continue to take place from the office and from home. However, a number of tasks that were previously conducted in person, such as meetings and training sessions, will still need to be carried out remotely for the foreseeable future. 

What are some of the measures that Nigeria could take in order to minimise the impact of the pandemic on the economy in the medium to long term?

AVURU: I think that it has become imperative for the economy to broaden in scope. The overreliance on oil receipts is no longer sustainable. The 2020 budget is now being restructured by the federal government in line with the expected drop in oil receipts. The shortfall is expected to be around $17bn in 2020, which is significantly more than the $3.5bn that was recently borrowed from the IMF. 

As a result, there is going to be a drastic reduction in government expenditure. A lot of the subsidies will also have to be cut back because the government will no longer be able to afford them. 

Remittances, which have been quite a strong measure of foreign exchange, are also likely to take a hit. This means that both oil revenue and diaspora remittances will be affected, which are the two main sources of dollar earnings by the economy. In the long term, there will be an emphasis on gas, especially domestic gas that will go towards supporting industrialisation and electricity generation.

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