TBY talks to the Group MD of Vatex Engineering Services, on two years of achievements, servicing IOCs, and Petroleum Industry Bill (PIB).

What have been some of Vatex Engineering Services’s milestones and achievements over the past two years?

Over the past two years, we have commissioned our flagship projects, including the Utorogu NAG2, a 150 million standard cubic feet (MMscfd) natural gas handling facility. It is fully commissioned and is supplying gas according to the West African Gas Pipeline specification into the Excravos Lagos Pipeline System (ELPS). In electricity terms, this quantity of gas will generate close to 600MW of electricity and equals between 10-15% of the national generation capacity for electricity, which hovers around 4,000-6,000MW. We started the project from scratch and carried out detailed engineering, designed the plant, procured the equipment, and installed it. It was a major undertaking for us. On flare-out projects, we are currently in the commissioning phase for Adibawa AG. Its capacity is 5MMscfd, though is an Associated Gas (AG) solution gas project. We take the gas that is produced with the oil, we compress it and sell it back for further processing through the gas pipeline network. We are working on a number of other gas-related projects, such as the Egbema AG and NAG gas processing facility for gas supply to Egbema power plant and the 3Us, which will remove flares from different flow stations around Utorogu and Ughelli east node. We have done all this with zero lost-time injuries (LTI). Those who work on our sites returns safely to their families; no one has even lost a limb. That is a key achievement for organization.

What is Vatex Engineering Services’s edge over the many international companies that service IOCs?

When I started the company, it was because I saw a niche in the market. I was working as a field engineer on an ExxonMobil site, will receive request for a certified expatriate engineer to fix certain problems and I would in turn send that requisition to my company’s head office in Lagos, who in turn would send to it’s associates office in the US. Bottomline, ExxonMobil would have to wait up to four weeks to have an engineer on-site in Nigeria and then pay an international rate through transit and on site here. I therefore approached my company’s management and asked to be sent on certification training that could be used to solve the above problem. It would have created a win win situation across the value chain as I would be based in-country and ExxonMobil or any client for that matter would not need to wait four weeks to have the needed support. Second, the company could afford to charge my services out at half the international rate. We still have the same edge today utilizing my model solution to the above; we use highly trained and certified local workforce combined with few expats. Furthermore, we can mobilize rapidly because our resources are in-country. We also deploy technology to support our operations. Whatever data or information or resources the international players have access to, we can leverage as well. Our price competitiveness is one definite advantage, as well as the local knowledge of the environment. Over time, expatriates companies get to know the environment as well, but not as in depth.

What is your ultimate ambition for Vatex Engineering Services?

My ultimate ambition is to have an organization that can be benchmarked to international standards. I also want Makon to be the company of choice when people talk about project delivery in this corner of the world. In the past, when ExxonMobil was looking for a company to assist with automation and control scope, our name came up. I hope in the future this happens even more. In Cameroon or Chad, we went in there to work without any advantage and we competed well with international companies. That is why we must benchmark our operations such that if we compete regionally, we can hold our own. There are companies from South Africa that are seeking opportunities in this region as well so we have to be ready to compete as we want to be in all Gulf of Guinea markets from Mauritania to Angola, if possible. However, it has to make sense and be profitable for us.

Now that the Petroleum Industry Bill (PIB) has been passed and is currently in the House of Representatives, what is your vision for how the industry will change?

There have been honest efforts to make a dent in the progress to pass the bill; however, there is still a great deal of work to be done. It has been passed by Senate, though not yet by the House of Representatives. It has not been to the executive for approval, either. Thus, we still have quite a way to go. I still feel positive about the potential impact of the PIB on the industry. We have been doing things the same way for several years, and any practitioner in the industry would agree that things must change. There has been progress, though but very slow. Oil and gas activities is the heart of our being as a country. Once we see changes in the oil and gas industry, it will visibly affect all the other sectors of the economy. People are unsure; they do not know how it will affect them personally. However, we are on the right track; we just need to move faster and with greater determination.

Have you witnessed increasing interest toward gas projects?

It depends on how we look at gas. The most profitable entity in the country currently, I would say is the Nigeria LNG (NLNG). As a company, they are our best client today. We do not have to chase them for payments; sometimes, they even pay us in advance. When people say it takes time before companies earn decent return on their gas investment projects, I sincerely disagree. We do have issues when it comes to payment for gas that is directed to electricity because the chain from gas supply to electricity to homes still suffers from misalignment. Until that is resolved, people will continue thinking it takes time to get returns on investment from gas projects. There is a significant increase in gas projects because Nigeria is more of a gas region than oil. The earlier we monetize our gas resources, the better for us all.

What is your outlook for 2018?

We have seen positive movement, especially with the current price of oil at USD60 per barrel. I suspect it will be in the range of USD55-65 in 2018. That should allow certain projects to go on. Most of the indigenous operators that bought diversified assets from the IOC’s are negotiating with banks on how to restructure their loans as they bought the assets when oil price was high. Once they finish that exercise, funding should be available to many of them. Some of the projects that were stalled will come back onstream. I see a positive outlook for 2018. I would be shocked if we return to USD35 per barrel. To that extent, I see positive things on the horizon.

NB: This interview was conducted in 2018

Note: This interview was conducted in 2015

In this interview, the Group Managing Director of Vatex Engineering Services talks on the Nigerian Content Act, collaborating with partners, and the transforming regulatory landscape.

What is the core of your business, and how do you differentiate yourselves from the competition in those fields of activity?

The core of the business is actually engineering and technical services for the oil, gas, LNG, and petrochemical industries. We started the business on the back of providing Nigerian content. In the past, an adequate level of expertise was not available in the country, whereby most of the qualified work was undertaken by foreign employees. We started thinking about how to make local workers productive, and get them the exposure they needed. The government understood that goal and officially signed the Nigerian Content Act. So the major differentiator for us is that ours is a Nigerian company playing in an environment that is mostly a domain for multinationals. Of course, we offer more competitive pricing, and we add value by training local engineers. At the end of the day, we see the development of a hub of expertise that can actually serve the Gulf of Guinea region, which stretches from Mauritania to Mozambique.

How has the Nigerian Content Act changed the industry, and what has changed for your business?

The Act has changed the industry considerably. Yet, we are still not where we are supposed to be in terms of the economic activities coming out of the Nigeria. We are still low on capacity. We do have enough engineers, but some so-called engineers are not trainable. In some cases, this is because the education system is still focused on theory, as opposed to practice. However over time, the Act will generate the desired effect. We have multiplied our turnover by almost 30 over the past five to six years, simply because we were given the opportunity to do things locally. It was easier for us to key into that opportunity and drive it forward.

How can the government support you in terms of training people for the future?

You cannot leave this to the government alone. We, as private entities, also need to play a role. As a matter of fact, we knew just recently that there is an industrial training fund set up by the government to ensure that, when you train your workers, you can either assess them or else have some money reimbursed for training and development. I think there is a need for government awareness, so that companies know that training is not just going to come from the bottom line. In the end, there is going to be a partnership between the private sector and the government.

What kind of model do you operate for collaboration with partners?

Our model is truly simple, and based on understanding where the markets are. There is no problem setting up a facility closer to the region that we are trying to sell to. But if the market is predominantly Nigeria, then I really think that the best option is to sell our product in Nigeria. What we will not do is to simply be an agent collecting a commission. We feel that if we know there is value to be added by Nigerians, and there are projects going on here in Nigeria, we want to go into partnership. What we also saw was that, with very good engineers coming out of Nigeria, potential partners were even coming to us to work together in the region. We did work on the Chad-Cameroon pipeline project. Makon also worked on the West African Gas Pipeline Project, with our engineers in Benin, Togo, and Ghana. It has been a successful model for our partners, because when they have issues, suddenly there are engineers who know how to address them. Our engineers are predominantly from here, so they do not go to other regions. For clients, they have been able to have resources closer at hand. They can call us and we are just a couple of miles away. Also, it is cheaper for them. For an engineer in Nigeria, in this locality, we are not going to charge you the expert rate prevailing in Houston or Calgary. We charge local rates, but the staff is nonetheless well trained. Meanwhile, we add value for our stakeholders as well: the country, the shareholders, and individuals.

Are you actively looking for partnerships or collaborations?

In the oil industry, technology is not stagnant. Companies are always developing new models. I think that building trust is important, and it is also good for our partners to see that value is being created here. Makon has been working with Rockwell Automation for a long time, and the same thing goes for ABB Nigeria.

Where do you see the next opportunities in the gas industry?

There is great potential for growth, and Nigeria remains low on gas. We see growth in that area, and feel that if the Petroleum Industry Bill (PIB) is passed appropriately, it could open up the playing field. Also, the energy sector has huge potential if you look at how many Nigerians are still lacking a sufficient energy supply. And with a population of approximately 170 million people, if you develop a middle class, that represents a huge market in itself. We observed this in the telecoms sector. That market opened up slowly, but eventually Nigeria became a magnet for innovation when the momentum picked up. We believe wholeheartedly in this environment. I have been abroad to observe the industry, but we feel that there is huge local potential. And we will also have the opportunity to transform the country into the hub for the Gulf of Guinea.

What would you change in the regulatory framework for the oil and gas sector?

Passing the PIB would change the landscape. And if you take the electricity sector, for example, I believe this government has done the hard work, by ensuring that the distribution and generating companies have been privatized. What I have seen over the past year and a half is that an entity such as the Nigerian Gas Company would perpetually owe something for its gas supply. Today, they pay for gas supply, because the end customer is no longer the government, but private entities. That act in itself has removed the dislocation in that sector. Once the PIB passes many elements will fall into place.