By Clara Nwachukwu

Indigenous marginal field operator, Waltersmith Petroleum Oil Limited, is currently musing setting up a 5,000 barrel per day capacity greenfield refinery, to be located in OhajiEgbema, Imo State.

The refinery, which is initially being estimated at $40million, is one of the measures the company is considering to take care of its crude production, in view of the challenges being encountered in evacuating the crude from the fields due to pipeline vandalism.

Unfoldingthe plans in Lagos last week at a press conference in Lagos, the Chairman/Chief Executive Officer, Waltersmith, Mr. Abdulrazaq Isa, said that although plans were still at the conception stage, management had gone ahead conduct the technical and commercial reviews of the project.

He explained, “If you know where we allocated we call it like a stranded location. We are the only ones there, we have access to some facilities. We connect our export through the Trans Niger Pipeline, which is Shell’s pipeline, and once that pipeline is vandalised then we have a problem with export and the vandalism has continued for some time now.

“I am sure you have heard about the Shell’s report on the vandalism of the Trans Niger Pipeline which we call it “TNP” and because of that we find ourselves shutting down operation for quite some time. Last year, we lost about 120 days of non production because of the continued vandalism of this pipeline. And so we have now been forced to begin to think about what else we can do with this crude oil we are producing. So instead of putting them in the ground or in the tank and waiting for it to be exported, why don’t we consider the possibility of refining it.

“Now we are therefore considering refining very strongly based on the economy in the market of what we can do with the crude, and before the end of the year, we will seriously take a decision on what we are going to do.

Project viability

Against the backdrop of downstream regulation and the issues that have trailed private refining in Nigeria, which make the business unattractive, Isa argued that based on the feasibility the project was very viable.

He explained that the refinery will be producing and focusing on the deregulated products – automotive gas oil, AGO or diesel, and aviation turbine kerosene, ATK or Jet/aviation fuel.

He said, “We are still evaluating it, however from a commercial point of view, our focus first isto look at two product streams, essentially jet fuel and AGO which is diesel.Those are the two product streams we are looking at, and we have done that because those two segments of the market are deregulated.”

Notwithstanding the fact that the production of premium motor spirit, PMS or petrol is the peak of refining, he noted that the focus on these segments of the downstream market was deliberate as Waltersmith wanted to avoid the hassles of a regulated product.

“We are not going to subject ourselves to going to collect subsidy or whatever; what we are looking at is once we are able to collect about 51% drills from our crude oil, the remaining will be available for export.But at this point in time, we are still evaluating it; we haven’t taken a firm decisionwhether to go ahead or not but we are strongly considering it,” Isa said.

Project funding

In view of high cost of funds in Nigeria and difficulties in accessing finance, the Waltersmith boss said he does not foresee any challenges in this regard, mainly because the refinery project is being used as a pilot one and will be used to test the waters.

“We want to test the ground with this and that is why you see that we are looking at the financing level of $40 million. Nigerian banks are in the position to provide that level of funding. Of course the banks want to see how much level of contribution you as a promoter is going to make. Again, our strategy is to focus on the segment of the product market that is deregulated. So there is no question of we are going to Abuja to collect subsidy, which becomes a challenge in the course of re-payment of your loan” he said.

Besides, he added, given that the company would be using its own crude to refine and selling whatever is produced locally, Isa argued that these would put the company on a good track with the banks. “We are going to put our own money to raise finances from the bank, and given our track record of what we have done to date, a number of them have shown interest to participate in this project, if indeed we do decide to proceed with it.”

10 years of operations

Waltersmith is the operator of the Ibigwe Field located in Oil Mining Lease, OML 16. The company said it has completed the first phase of the field development at a cost of $180million, with which it drilled five wells and one work-over campaign, plus the commissioning of a 15,000 barrel flow station.

The company acquired the field 10 years ago, during the Marginal Field licensing round of 2003, and subsequently signed a farm-in agreement with the Shell Petroleum Development Company in 2004.

First oil was struck four years later in March 2008, and the field currently produces about 4,000 barrels of oil equivalent daily, with cumulative production peaked at 2.5 million barrels by 2012

Going forward, the company said apart from bringing other fields to production, it is also looking to acquire other potential fields, as it wants to grow beyond marginal field production to becoming a full fledged exploration and production company by buying assets divested by the oil majors.