The oil and gas sector has not been an easy one to operate in these last three years. A number of local companies have suffered from overpaying for assets when the price of oil was much higher, with a number of banks burnt by overexposure to the sector.
Excess supply driven largely by the rise in shale production in the US has led to a fall from the giddy heights of $140/barrel a decade ago. The advent of electric cars and a general shift to renewable energy, experts predict, will also make its use less and less likely.
However this is not the view held by Segun Adebutu, founder and chairman of Petrolex who has plans of investing over $5bn to build a fully integrated oil and gas operation in Ogun state, some 150 miles east of Lagos. His rationale is simple.
Right now Nigeria – and the rest of sub-Saharan Africa – imports most of the refined products it consumes and the transition to renewables will take a lot longer than we expect it to. “Oil and gas are cheaper than every other option at this moment,” he says, “and I don’t see anything drastically changing for the next quarter century as a cycle.”
Ambition runs in the family
Adebutu comes from a well-to-do family in Nigeria, a family of businessmen with entrepreneurship at its very heart.
Adebutu’s older brother has one of the largest oil palm plantations in West Africa and another brother runs a pig farm. His father, Kensington Adebutu, founded the country’s most successful lottery and opened its first casino.
He had competitors but his business stood the test of time. He was renowned for having built a business on strong fundamentals that would outlast a generation. Those are the values he passed on to his children and the ambitions of his son Segun: to build an oil and gas company to compete with the global international oil companies and outlive him.
Largest of its kind
Adebutu has invested over $330m (a hybrid of equity and debt) in the tank farm, a 300m litre storage facility, the largest of its kind in sub-Saharan Africa. The investment was in local currency, which was his saving grace.
Unlike the upstream business that is linked to the global price of the commodity, the tank farm and his planned mid and downstream operations are less exposed to the price of oil. It’s a margins business he says.
He has secured an agreement with the NNPC (Nigeria’s state owned oil company) for distribution and storage, and given his own needs (he will have 50 petrol stations by the end of the year with a target of 350 by 2022) he knows that he will have to build more capacity. In any case for him it’s a no-brainer.
He grew up in the Apapa port area which handles an estimated 50% of all Nigeria’s imports. The port was built to handle 34,000 tonnes monthly, and today it is congested and the infrastructure dilapidated he says. The strategic location of his tank farm will enable transporters to come and load their goods without having to deal with the congestion around Apapa, and the ensuing waiting times.
The tank farms will store PMS and DPK (the petrol we pump into our cars and the kerosene for household use and also airplanes), two products that are currently imported solely by the NNPC. He is targeting storage facilities of 1.2bn litres: 600m litres for ‘clean’ products (refined goods) and 600m litres of crude (that he’ll either buy from international suppliers or local crude).
The plan is to build a local refinery that will be able to refine 250,000 barrels a day. On top of this, he is building a fertiliser plant and a power station to power these operations but also with an option to sell the excess to the national grid. All this requires developing infrastructure such as building the roads to this “city”, a 13,000 hectare facility, as well as building a port terminal for the barges to berth and reload. Timeline for all this: everything should be up and running by the end of 2019, except the refinery, which will take two years longer.
Financing the project
This greater plan will bring total investments in the region of $5.7bn. The first part of the project he says was financed using local banks. The second part will require international financing, most likely through an Asian partner – an announcement will be made in March, he says.
As many of the banks in Nigeria have suffered losses because of their exposure in the oil and gas sector, were they still willing to lend to the project? First of all, he explains, his business is not directly linked to the price of oil.
He may have started off trading oil like many of the entrepreneurs that operate in the sector, but what he is investing in is in mid and downstream, that is storing, refining and petrol stations. For him the maths are simple: “South Korea has a population of 52m and they refine 3m barrels a day,” he says “of which they consume 1m and export 2m. We are 183m growing at 7% a year. Today there are 15m vehicles and this is only going to increase.”
And he is confident that the feasibility studies around his whole business, conducted by a number of consultants such as Wood Mackenzie and others, are conservative if anything when you look at the growth figures both in terms of local consumption and population growth.
The numbers stack up
When asked about Dangote’s own refinery which plans to process 650,000 barrels a day, he says that the West African market is big enough to absorb much more than what their combined refineries will produce. Given that a barrel is some 160 litres and he estimates that Nigeria consumes some 53m litres of PMS and 120m of gasoil (for generators) daily, the numbers do start to stack up.
What about his outlook for Nigeria? He thinks that confidence is returning. He feels that, despite what one reads in the press, the current administration has made it easier to do business, reducing red tape and bureaucracy. “You stop the rot and then you build,” he says.
With his plans being completed around 2022, what next for him? He thinks he’ll have his hands full for the next 5–10 years with these projects. He anticipates an IPO in the next “four to five years” and in any case that this project is all about building a legacy: “You find most businesses in Nigeria have a lifespan of 15–20 years. My [father’s] brand is the only brand of his set of friends that’s still existing today. That’s what I want with Petrolex. I want to do it properly; I want to do it right.”