African Business sat down with Ado Oseragbaje, ceo at GE Oil & Gas Sub-Saharan Africa division, where he discussed manufacturing Subsea Christmas Trees, adapting to lower oil prices and acquisitions.
You released an article on twitter where you talked about localisation. Can you tell us a little more about it and how it’s impacting your business at GE?
Localisation for me is really about capacity building. What it means in practice is being able to localise or regionalise as much as you can your supply chain, and not just the simple things but also starting to get into more complex products and services. And to do that you need to build the technical capacity in terms of the workforce that you have, again across the value chain that is the engineering arm of the business, the commercial arm, services and sales support.
If you manage to do this, and we are, you are also leaving a great legacy and a great footprint from a company perspective. And just as importantly this will have a positive impact on your bottom line as a company [through reduced costs]. So it’s one of those rare cases where doing the right thing actually pays dividends to your bottom line.
I’ve seen that in Onne, Nigeria you’re manufacturing Subsea Christmas Trees, It took two-and-a-half years to build this capability but you’re obviously quite proud and happy with the results from this new manufacturing plant in Nigeria.
Yes, absolutely, and in fact today I just received a picture of a Christmas tree that had been refurbished and they just completed a delivery to Shell today. So if you take that tree as an example in the past you would pull that tree (and they weigh 50 tonnes and are 12+ feet high), you would have to export it to the UK, have it go into the assembly line in the UK, get refurbished and then have to ship it back here in Nigeria. So you can imagine the additional cost of doing something like that and then the time that it takes just to find the right vessel that can get it to the UK and back, the customs process. So if you look at what that adds in terms of cost and the transit time, being able to do this in Nigeria brings massive cost savings.
Do you see this plant servicing your other regional clients, be it in Angola or in West Africa?
One of the challenges of Africa to regionalisation is actually in a lot of the countries we have very complex customs regulations and procedures, so this sometimes makes it difficult to move equipment and expertise in and out of the countries and to my mind is a barrier to regionalisation. But as we work through things like that I think that, yes, from Onne we are working to the point where we can actually have it support West and Northwest Africa.
What’s the oil and gas space been like in the past year for a company like GE where certain projects are possibly not advancing as quickly as some would like and where people are a little bit more cautious in terms of their investment decisions?
It’s been actually very challenging. If you look at the sub-Saharan African landscape in the past three to five years they are typified by, let’s say, about three customer groups. You have the traditional IOCs that have a footprint across most of the basins, and then you have the international independents that for the most part have been onshore in central Africa for the most part places like Chad, Congo, Gabon and also Cameroon to a lesser extent, and then you have the indigenous independent oil companies, primarily in Nigeria and a bit in Angola.
And so if you look at all of those companies the past previous three years up until 2014 was fantastic for most of them, and then you come across to 2014 and to date the situation has impacted them in different ways and they have also responded to it in a variety of ways.
I think one of the biggest impacts that we have seen has been around exploration. The exploration in East Africa, exploration in West Africa has completely disappeared, you’ll probably go from about 10/15 exploration wells a year to today you have at best one or two. There are some appraisal programmes that have continued but for the most part the exploration activity has kind of dried up, which has a longer term impact to everyone because if you don’t explore then there are no development projects.
So if you look at some of the excellent development projects that were green-lighted in the previous three years, or if you look at some of the exploration success of the previous three to five years, as there hasn’t been any exploration in the last two, and maybe the next two years, then you look at 2020 and beyond and then you see that there are going to be fewer development projects simply because of the time lag between when you actually explore and you go into production.
There has been a lot of change of focus as they’ve cut the actual new wells capex and so there’s been a lot of focus around production enhancement and optimisation of the existing resource space and so we have tried to support the customers through that.
If you look, as part of that cost optimisation, examples like the tree refurbishment we mentioned as opposed to a brand new manufacture, we are helping customers optimise the use of what they have. Also if you look in terms of what we are able to do from a production enhancement standpoint, as we look at how best to optimise some of our rotating equipment, how to better plan for outages with our manifold and our production infrastructure, that is also supporting the whole idea of cost optimisation and productivity enhancement. So depending on the client type the impact has been different and so our response is slightly different. However, the overriding theme has been one of trying to do more with less.
And in terms of the African continent, obviously the picture is very nuanced. In East Africa we saw massive gas finds; are you involved there at all?
We remain cautiously optimistic. As the broader GE we’ve been involved in East Africa for about 70 years, in one form or the other, through our different businesses, whether that’s in transportation, in power or healthcare. We’ve recently made actually quite a bit of investment in Mozambique. We are involved in the transportation sector there. We’ve made quite a bit of investment from a pure oil and gas perspective both in terms of personnel and infrastructure and we remain cautiously optimistic to participate quite heavily in the gas story there with the variety of customers that are looking towards their development projects in the next few years, so it’s really a case of watch this space for some exciting news.
And where else do you see opportunities? Anything in West Africa?
Yes, I think of course there was a reduction in activity due to the oil price and some of the impact, the hangover, of the health crisis with Ebola. If you look at some of the countries around the Gulf of Guinea some exploration activity will return. Some of the plans around North West Africa, Senegal and Mauritania will definitely continue in ’17 and beyond. And Cote d’Ivoire has immense potential; it’s probably where Ghana was 10 or 15 years ago. There’s a lot of willingness from the government and from the regulator to expand their industry, the geology just has to give them a lucky break and I think that they’ll continue to be interest along there.
You spoke earlier on about how the companies were improving and strengthening their efficiency. I think there’s been a big emphasis, in terms of GE, to be a digital industrial company, so not just to offer the physical advantages but also using technology for companies to be more efficient in the way they utilise machinery. So how is that changing the space in which you operate in particular?
Very much so. I think if you look at where we sit today in SSA, both in oil and gas, there’s a lot of aging infrastructure. And so if you then look at the cost of replacing this infrastructure in a traditional sense, it will not be affordable. And so, I think where a key component of that cost reduction and optimization has to be through the digital thread because that is the way that we will be able to design and define a smarter infrastructure that will be lighter, will be smaller in terms of the amount of, let’s say, the equipment that you need for throughput.
And some of the pilots that we have been able to implement, we can already see some of the impact of that. Having said that, I think it’s still very much a journey that we’re just embarking upon. We have a leadership position at this point but as an industry and also, within the region, we’re really just starting on this journey.
And how is your, I want to say partnership, but how’s the merger with Baker Hughes, how’s that going to affect your business? I mean are you excited about this in terms of the opportunity that this creates?
I think for me this is probably without stealing any of the thunder from everything that we have done previously within GE Oil and Gas but this is probably the most significant action that we have taken since we decided to get, as GE, into the oil and gas business. So I’m very much excited about this. It changes the oil and gas industry landscape. I think it’s that important. And if you look at what it represents potentially for our customers, to be able to have a partner that they can engage with right from the dual science space all the way through to the hydrocarbon transfer point, within the oil and gas space, I don’t think that there’s any other company, or any other single company that can do that. In terms of truly being able to go end-to-end. I think a lot of the industry talks about this but it’s more PowerPoint than something physical or real. And I think with this merger, GE Oil and Gas or the new Baker Hughes company, are probably the only entity in the industry that is able to do that.
And then when you look at the story, how it ties into our wider GE portfolio, then it has a significant impact for Africa, where as you know, energy and access to power is a critical development issue. So again, when you look at from the molecule to the megawatt, GE then becomes the only entity that is able to play in that entire value chain. So excited doesn’t begin to describe how I feel about it.
Okay, so you think that the contribution that putting these two behemoths together will be massive to the oil industry and also for the power sector?
For sure. I think in this case, it is a case where one plus one will equal three and a half.
Is there any particular achievement or any particular project, that you’re very proud of, that GE has been involved in 2016 in the oil and gas space?
I think there are several. We just discussed probably the one that will capture the headlines for the years to come, which is the merger with Baker Hughes.
I think if I look here locally the fact that the tree delivery that I mentioned to Shell, this is actually going to be the third tree delivery in the series, which has been on time. So that we’re particularly proud of. We’re working towards, even though it hasn’t happened as yet, we’re working towards being able to deliver our first trees for the Eni OCTP project in Ghana, which again, within the region, for us will be another first.
And we’ve had several good wins, without going into the details, we’ve several good project wins within the region that I feel particularly proud of and the team has done well to be able to still have an impact on the business within very, very challenging times. And some of these wins, what makes them particularly important or consequential, is that we’ve been able to do things differently both to the benefit of the customer and to ourselves. So being able to partner in different ways with our customer is something that I’m particularly proud of.
But the oil and gas space ultimately in terms of African development and in terms of being a foreign exchange contributor for governments to be able to invest in infrastructure, the oil and gas sector is still critical for many countries and for the foreseeable future, would you agree with that?
I see that the oil and gas business, in itself, creates a platform because of the revenue generation. It can be a positive enabler but in of itself, it doesn’t necessarily address some of the most important, or the most critical needs, to my mind, in Sub-Saharan Africa. One of the biggest challenges to development is power and this is a space where, again, GE is at the forefront in Sub-Saharan Africa. So if I were to link the two, I would say part of the uniqueness of GE is that we’re able to play in the enabling environment, which is to support the revenue that is generated by the hydrocarbon gas sales themselves. But then we are then able to play in the developmental sector, which is the power and the power grid improvement because I think that probably will have a bigger impact in Sub-Saharan Africa than being able to sell more oil let’s say.
And in terms of the solutions that GE is providing, I know that gas to power was one of the big solutions that GE was proud to be involved in Ghana, for example, last year.
And is still very much at the forefront of our thinking and we have quite a few projects in the pipeline all the way back from the concept or project development phase to things that are coming closer to financial close. So it’s still very much on the radar screen for us and success begets success. So as we are able to close some of these deals in one part of West Africa, then other parts on the continent, or other governments of the continent, become more interested and we become more credible because again we’re not just talking PowerPoint, we can show projects and demonstrate the impact that we’ve had on other projects elsewhere.
And would you say that, I mean the end-to-end solution or being part of the whole supply chain, as you mentioned in terms of Baker Hughes but you would say that it’s the fact that you operate throughout different verticals you can then offer holistic solutions to certain problems, as opposed to just looking at them from one particular sector, or in a silo, so to speak?
Absolutely. And that’s where most of GE Store concept comes in and its very exciting then to make Baker Hughes part of the GE Store and part of the digital threat.
So can you just elaborate on the GE Store?
So the GE Store has gone from a concept to something that is reality and it is really looking at how we’re able to leverage the expertise, the R&D catalogue and the footprint and infrastructure of the various GE businesses to address particular problems or issues that either our customers face or internally we face. And gas to power, where we connecting the oil and gas business, we are connecting our energy connection business and we are connecting our part services business all within the same framework, is a fantastic example of that. And then if I look on the R&D side, where we can take some of the learning from our aviation business and some of the material science from aviation and apply that to production solutions in terms of artificial life equipment in the oil and gas business is another very good example of how you are able to pool the knowhow from one GE business into another.
You’ve been in the business for 20 years, in many ways the business is the same as it was 20 years ago, it’s about finding natural resources and extracting them. How similar is it and how different is it in terms of the solution that you need to offer clients?
If you look at a lot of other industries in industrial space, there has been a complete revolution either in terms of some of the business models or in terms of some of the technologies that are applied. If you look at aviation, if you look at automotive industry, there’s been a lot of revolutionary breakthroughs over the past hundred years. Whereas in the oil and gas space, we are able to do things better, don’t get me wrong but we haven’t evolved. And what I mean by that is as an example, a very simple example, we still drill oil and gas wells by having a roller… turning to the right, our contractor operator relationships are still very similar to how they were 30 years ago. So I think there is the opportunity to revolutionise the business models to revolutionise the business relationships between the service sector and the operating companies and in terms of having technological breakthrough, when you look at something as what we’re talking about in the digital space, I think this represents something that’s something revolutionary as compared to how things were done even three years ago.
So I think the best is still yet to come for us because we’ve not had that kind of revolutionary disruption that some of the other industrial businesses have had in the past 30, 50, 100 years.
Okay. But how do you see this disruption? How’s that going to change what you’re doing?
I think when you look at what we talk about in the digital space, I think field development and the way in which we actually whether it’s the design concepts, whether it’s the types of platforms that we have, whether it’s the materials that we use or even the types of wells that we drill, and how we drill those wells, are going to change fundamentally in the next 20 years. If I had exactly the formula, I probably wouldn’t be sitting here and that’s the beauty of disruption, it’s really about being able to create something that nobody sees coming.