NewsWest AfricaDossier Oil & gas: Keeping it local

Tue,20Nov2018

Posted on Friday, 26 October 2018 11:44

Dossier Oil & gas: Keeping it local

By Nicholas Norbrook in Lagos
George Osodi/Bloomberg via Getty imagesTotal’s commitment to its Egina project despite uncertainty over the Petroleum Industry Bill could change the narrative on investing in Nigerian deep offshore oil deposits. For LADOL logistics base and its local suppliers the opportunities are huge
 
There is a special joy for passengers aboard a Lagos water taxi – the freedom of the water, slipping underneath the wretched traffic on the bridge that links Lagos Island to Victoria Island. Before long, the Egina vessel comes into view, a hulking presence. Lit up like a Christmas tree at night, it is bright green by day. Samsung built the bulk of this floating production, storage and offloading (FPSO) unit in South Korea before towing it quayside to the Lagos Deep Offshore Logistics Base (LADOL) free zone, where we arrive, landlubbers once more.
 
It is early July, and the final preparations are being made before this 330m-long giant is towed 130km off the coast of Nigeria to Total’s Egina deep offshore field. It departed in late August, and once it is plugged into 44 subsea wells, it will draw up 200,000 barrels per day of crude. That is a million barrels every five days, and some $70m at today’s prices. Egina will add 10-12% to national oil output. 
 
percentage
 
 
 For the scale of engineering done in Nigeria, it is a first. Africa’s largest crane was delivered in more than 100 containers to the LADOL quay, and Egina is the largest   FPSO in Nigeria. And, crucially, around six of the 18 modules that make up the vessel were manufactured in Nigeria by local companies. Nigerdock, for example,     built  the helipad. A huge manufacturing facility jointly run by Samsung Heavy Industries and LADOL’s engineering wing, Mega Construction Industry, lies   perpendicular on the shore by the Egina vessel, almost as big as the ship itself. 
 
 This required the vision of LADOL’s founder, Oladipo Jadesimi. He saw the direction of travel of Nigeria’s oil industry, says Jide Jadesimi, his son, now an executive   director and head of business development at LADOL. “[Oladipo] saw that Nigeria’s deep offshore would best be serviced out of Lagos,” says Jide. “So he acquired a   piece of land inside of Apapa port. And over the last decade, $500m has been invested into the industrial free zone to create Nigeria’s only fully integrated logistics   base.” When the oil majors like ExxonMobil, Shell and Total sold off their swamp and shallow-­water fields several years ago, they expanded their offshore assets. 
 
 
But it also required the advent of Nigeria’s Local Content Act in 2010. This increased the amount of engineering and development of energy projects done in Nigeria. It was critical, says Jide Jadesimi. “And it’s about legislation but also enforceability,” he adds, pointing to the work done by Nigeria’s Content Development and Monitoring Board.
 
Total’s gamble
 
But projects like Egina are currently scarce because of Nigeria’s failure to pass the reforms of the oft-delayed Petroleum Industry Bill. France’s Total, in effect, took a gamble on the project without knowing the terms of the new legislation. In so doing, it has changed the narrative that Nigeria is not worth the investment risks, argues Jadesimi, who recounts the number of oil executives from other companies who visited the facility – a unique marketing moment for LADOL as it pitches for new business.
 
“There are a steady stream of these projects over the next 10-15 years,” says Jadesimi. “The estimates are of around $20bn being spent in Nigeria’s deep offshore.” These include Shell’s Bonga South West project and Eni’s Zabazaba field. Jadesimi also points to other heavy engineering projects that LADOL’s base is set up for, including rails for the Nigerian Railway Corporation and steel bridges for road infrastructure. But the bread and butter of the business plan remains servicing the fleets that work in Nigeria’s offshore oil and gas industry. 
 
The main business unit is LADOL Integrated Logistics Free Zone Enterprise (LILE), “which executes much of the rig-repair work we do,” says Jadesimi. Companies such as Transocean and Noble use the base for regular maintenance work, with LILE providing manpower and project management. LADOL is building new workshops and chemical storage facilities, in addition to preparing ‘lay down’ areas for the complex drill lines and pipes that subsea work requires.
 
Jadesimi is most proud of the ‘liquid mud’ plant that LADOL is building, another first for Lagos. Drilling through rock requires lubrication, and each drilling company has its own requirements for different combinations of drilling fluids. “When there was a downturn in the market, there were lots of redundant assets. Many of these mud plants got sold off because there was no drilling,” says Jadesimi. “So by investing in the mud plant, LILE is actually relieving a lot of these companies of the capital expenditure [when the cycle returns].”
 
Educative role
 
LADOL is also seeking to relieve the skills shortage that affects Nigeria’s engineering and constructions sectors. Jadesimi points to the 9% growth estimates for the construction sector and says that the roadblock to achieving that growth is a lack of skilled workers, including carpenters, painters and electricians. “At the moment, we still import a lot of workers to take on those jobs for the majority of the big jobs in construction,” he says.
 
To meet that need, LADOL is investing $1.5m in its Upskilling Academy within the zone, with a first cohort of 500 students. LADOL has the ambition to train 5,000 workers per year by 2022. “There will be oil and gas training, subsea drilling and welding training,” says Jadesimi, who hopes to build the skills component into the company’s push for work in the subregion, attracting students and hopefully contracts from across West Africa.
 
It will also link into the Lagos State government’s ambitions to improve its own education system. Currently, Lagos State has eight technical and vocational training colleges, “but they are underfunded, the teachers need upskilling, the curricula need to be updated and so on,” explains Jadesimi. “We would set up ‘train the trainer’ programmes within the LADOL Upskilling Academy, and then those trainers would return back to the existing vocational colleges.”
 
It has not all been smooth sailing for LADOL. Back in 2014, it took its partner Samsung to court, fearing that it was going to be kicked off the Egina contract. And though there was a period of calm while the project was completed, the day after the vessel was towed away, Samsung Heavy Industries employees found they were un­able to access the worksite.
 
One energy sector source says that Samsung managers believe they have been “royally ripped off, with extra commissions appearing, and even on rent. LADOL is renting space from the Nigerian Ports Authority at less than a dollar a square metre and then subletting to Samsung at more than 10 times that amount on a 20-year lease.” LADOL executives now appear to be pitching the zone to Chinese investors.
 
War of words
 
Samsung officials have attacked LADOL in the local media, telling reporters that they believe the first oil from Egina will be delayed: “Many materials that are supposed to be put into use for the commissioning of Egina have been trapped at LADOL. Our subcontractors cannot also work because they cannot access the dockyard,” an official told Vanguard newspaper.
 
LADOL management hit back in a statement, saying “Samsung’s dealings in Nigeria in the past four years have been fraught with mischief and reckless disregard for all stakeholders: LADOL as business partners; Nigerian regulators; Nigerian workers and citizens. Samsung has brazenly and persistently flouted Nigerian laws and breached contracts it duly signed with LADOL and its affiliates.”
 
Nigeria specialist Antony Goldman of Promedia Consulting tells The Africa Report: “It was always a somewhat awkward marriage, and the prospect of a falling out between the partners will only confirm what many in the services industry in Nigeria had anticipated.”
 
With elections arriving in February 2019, and vice-­president Yemi Osinbajo recently visiting the facility, the danger of the affair becoming a political football increases. Those with a stake in burnishing the reputation of Nigeria’s domestic energy industry will have a busy few months.
 
This article first appeared in the October 2018 print edition of The Africa Report magazine
 
 


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