CNS Marine is involved in various segments of the offshore space. Which are the most important revenue-wise?
Subsea solutions are the most important in terms of revenue. We support international companies that are currently producing or exploring in Nigeria's offshore waters. We do not have many local clients. However, there are some indigenous companies that participate in offshore, like Amni, Oriental and Lekoil. Periodically we have requirements to support their offshore operations. There is a shortage of indigenous companies working offshore or on the service side, therefore, we have been successful in this space by focusing on finding the best partners that provide us with technical support and the capacity to participate in these spaces. We are constantly looking for ways to develop and bring in new technologies that will support our clients. We have become a trusted partner for quite a number of companies. We work together with them to deliver services offshore. As for why IOCs would choose an indigenous company such as CNS Marine, the reason lies in our ability to deliver the service with the proven track record of success. Going through the technical process and being evaluated properly is how we get to participate. This is a capital-intensive industry, which makes it a challenge to retain access to opportunities. Interest rates right now are high, sometimes at greater than 20% so to fund an offshore operation, access to capital becomes a priority. We deal with this by running a lean organization. We bootstrap and reinvest revenues to ensure we can support our projects. We have developed relationships with finance houses as well but in a oerfect world, access to international capital with close to zero interest rate is why multinational services companies will always stay ahead of Nigerian service. This is still an area where the whole sector needs help. We have been able to survive and run lean operations while delivering the services needed. We are constantly looking for new opportunities in asset acquisition can capacity building. Our current model is to find partners of like-mind to share assets and maximize asset utilization. Coming out of the market downturn, there is still a lot of assets out there that are underutilized.
What is your financial engineering strategy?
It really depends on what is the opportunity and what are the terms of the project we are entering. To be more specific, we are currently looking at long-term opportunities for more offshore works. We must decide what type of investment is needed to be able to participate. We found a partner locally that has the assets we need. Those types of strategies come on an individual basis. We make decisions based on the terms, client requirements, and types of investments that will be needed. Traditionally we fund growth from internally generated revenue and through local banks that show keen interest in growing with us. During the drop off in oil prices a couple of years back, we had to adapt. We were lucky because we are a lean organization. On the service side of the business, we have a lot of contracted staff; therefore, when we go offshore, we ramp up our personnel to meet the requirements. When the downturn came, what we had left were administrative and operational staff on some specific projects. There was no room for expansion during that period. What we could do was to use the time and find new solutions coming out of the downturn that we could then offer our clients. As the oil prices dropped, that affected the Oil companies' ability to fund projects greatly so there was a major pull back in offshore work. That directly impacted us, so we had to wait out the downturn. We have seen a turnaround in the last 12 or 18 months. We anticipate that this will continue. In the energy market, the trend is usually a five to seven-year cycle. On managing cashflow, the payment split between Naira and US dollars helps us to maintain our local infrastructure. We keep our resources and revenues here, as opposed to international competitors that are keen to move their money overseas. This allows us to reinvest.
What benefits has the Local Content Act brought to the organization?
It has forced local companies to invest and provide better services. If you are going to use local content completely, then you need to ensure you provide the same standards as a multinational competitor. For example, in our sector, your company needs to be certified to ensure you have the proper management systems and qualified delivery of services. In the past, maybe five years ago, there was no such requirement. Now there is. It puts you on the same level playing field, so that an IOC cannot say an indigenous company is missing certifications that an international company has. We are currently in the process of acquiring all those certifications to ensure that our clients get the comfort needed that we meet international standards.
As new oil and gas markets in Africa emerge, how competitive is still Nigeria compared to its fellow African countries and what should be done to attract more investment?
Nigeria has been forced to look at other industries to generate revenue. The attention to the oil and gas sector has declined. Overall, we need to increase exploration. If we do that, then we can develop those large infrastructure projects like other up an coming emerging markets. We are part of OPEC, so there is only so much that we can produce. At least on the exploration side you can you're your reserves so its imperative that this remains a priority in Nigeria's Oil and Gas sector. That will keep people like us busy, since we provide some of the services needed in the exploratory stage before production. That is the only thing that can really bring back the activity. We have only explored 10% of the Gulf of Guinea. There are still huge opportunities. The global markets also control the exploration. As demand goes up, then you have to find new supplies. Nigeria is not a huge gas consumption country, so we export most of the gas we have but as our domestic consumption rises and the thirst for clean energy grows, Nigeria will get its share of the pie. The government's commitment to increase our output is evident in the recent green light for a large scale project like NLNG's Train 7.
What is your outlook for 2020?
We hope and expect that 2020 will be a better year than 2019. There are several projects in the pipeline. We anticipate that oil prices, which are going up today, will drive the industry. A stable and high price for oil will keep everyone happy.