Cost Management Key To Seplat’s Success – Chairman

December 22, 2014 Ehidiamhen Okpamen Leaders, Leadership, Leadership Tips

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VENTURES AFRICA – “We keep our eyes on cost,” said Dr ABC Orjiako, chairman and founder of Seplat Petroleum Development Company – the biggest African oil and gas concern to have ever listed on the London Stock Exchange – in a recent interview with the world Oil Council. Mr Orjiako believes the company’s success has stemmed from its ability to keep costs down.
Seplat raised $500 million through an initial public offering, giving it a market value of $1.9 billion. It listed in April.
In the interview, Orjiako revealed that Seplat was able remain profitable with a break-even point of only $30 a barrel. As a result, many multinational oil companies based in the West have begun to take a real interest in the company’s business model.
“First of all, in our choice of acquisitions we don’t overpay. We say that the acquisitions we do are very price-dependent. We keep our eyes on oil prices, knowing that oil prices go up and down, therefore we pitch our operations on profitability, making sure our operations are
very cost controlled and disciplined.
“In doing that, we make sure that our break-even point for production is way below where the oil prices are going.”
Orjiako said because of ongoing problems with theft and corruption in the Niger Delta, onshore prices could be as low as $10 a barrel. However, because Seplat was in a growth phase a lot of aggressive investments were being made, which is why the company’s break-even was in the 30s.
“What that means for us as a company is that when the oil price is falling we still remain profitable. However, that doesn’t mean that overall revenue will continue to be as high as expected.
“But one of the strong mitigations we have is our gas development. In gas we saw it way ahead of time. Given the gas revolution programmes in Nigeria, we immediately made it clear that we would develop gas to support the reform agenda in the administration – gas to power, gas to industrial and gas to agriculture. When you do this, you find with the increasing demand for gas in Nigeria you fetch higher prices.
“The domestic market is growing, so from a company standpoint it is a major contributor to our bottom line. So in terms of aggregate profit, oil remains profitable; even if the revenue falls we compensate with our gas developments. That’s the way we’ve done it.”
Despite the company’s considerable success, Orjiako was quick to point out that Seplat would certainly not be resting on its laurels.
Always at the back of our minds are the promises that we made. We promised that we’ll keep our eyes on the fundamentals for growth which includes acquisitions of new assets, organic growth, increasing production, increasing the reserves and looking at exploration all in one,” he said.
“All of this ensures we have a robust balance sheet, good cash flows, a very culturistic company and dividend paying. We promised investors that we will not only have capital gains, but dividend payments allotted to them. That’s what we have to keep our eyes on.