Oilserv is one the companies that is constructing the strategic West –East gas pipeline which is expected to deliver gas to a lot of the power plants both within the Niger Delta and beyond. During one of the panel sessions organised by the petroleum Technology Association of Nigeria (PETAN) at the just concluded Offshore Technology Conference OTC held in Houston, Olusola Bello was able to talk to Emeka Okwuosa, managing director of Oilserv Limited, to further throw more light on the level of works that have been done as regards the construction of the pipeline which would evacuate gas from the eastern Niger Delta to the west and other industry issues. Excerpt:
Q. Your company was one of the companies that won the East-West gas pipeline contract. What is the situation of the contract, considering the dwindling crude price and financial challenges of the government?
Ans: I understand your east west pipeline to be OBB pipeline- the project is ongoing and we are looking at completion in 2017. The schedule completion is July 2017. The project has faced quite a few challenges, like you would expect of any project. Projects come with plans, based on scope and as you progress with the project, you may have changes in scope depending on what
you intend to achieve. We also have challenges that come with community management and security issues. There are several other challenges also, but at the end of it all, we have to reduce the recalibration of the schedule.
Currently we are looking at July 2017. In terms of how it is being affected by the current situation in oil and gas industry, not really. This is a gas pipeline and I know there is a focus to try and get gas distribution come in top gear and this means clearly that this has been programmed overtime and the funding is also being kept up by the Nigerian National Petroleum Corporation (NNPC) and the Federal Government. So, clearly the funding is on stream and I believe by next year, we should have that pipeline fully functional to be able to increase the capacity of gas supply for domestic uses.
Q. What is the capacity of the pipeline?
Ans: At peak supply, we are looking at a maximum of two billion standard cubic feet of gas. Whether you achieve that or not depends on whether you have enough gas to feed it.
Q. With the spate of renewed pipeline vandalism and you targeting 2017 as due date, what measures have you put in place to ensure the security of the pipeline?
Ans. Pipelines are built based on what is called ‘engineering codes’. And these codes determine the way you scope the project; the way you scope the specifications of the projects and once the clients do that, our job is to build to that specification. There are many ways to secure a pipeline, but the most important way to secure a pipeline is the engagement of stakeholders, including the government, the community and all manners of people that have direct impact on the pipeline. There are various forms of technology like the defiled optic system, that’s not being installed in the pipeline because it wasn’t part of the original scope.
But what we have to know is that anybody that is tampering with a gas pipeline is a clear sabotage because you don’t tamper with gas pipeline to steal the gas. So the incidence of gas pipeline vandalism is such that is not normal and not usual. Whenever it happens, it means that whosoever goes to vandalise the pipeline cannot be easily stopped because it is an act of sabotage.
Q: Let’s talk about your oil and gas activities. Now that downturn has set in, how are you coping and moving on in terms of exploratory activities?
Ans: Exploration and production are parts of the whole package. We started with construction; expanded it into full Engineering, Procurement and Construction (EPC). With that, we consolidated our activities and we have been able to build capacity. Oilserv is the first indigenous company to go into full EPC. After that, we moved on into gas development, exploration and
production. The whole idea is to have a balanced portfolio and be able to de-risk the business. Now oil price is low, but then people will have to understand that oil price has never remained low or remains high. It is a cycle that has been going on for decades and for those who deeply understand the oil industry, you have to be able to read the cycle and know when to gauge.
Oil price is low and the reality today is that this is the best time to invest because you can price low. The main challenge is that you may not find the money to invest. We have gone into exploration and production to be able to gauge. Right now, exploration is more difficult because it is difficult to go out and drill and spend money on exploration with low oil price. You can still do it, if you can get the services with reduced income, which is what is going on today. You can get into production asset where you optimise production; reduce your costs and be able to produce at a rate below $30 per barrel; and then manage until the price goes up.
Q. The profit end of the sector seems to have shifted downstream; do you intend to spread your tentacles into refining of white products?
Ans: I mentioned here that we have moved into other business areas in order to de-risk our business. Do not forget that Oilserv started activities in 1995, so we have come quite a long way. This year will make it 21 years and you say that we have matured. Five years is enough for you not only to strategise, but also try the strategy and be able to fine-tune it.
We have done this and where we are today is that we have are actually integrated and we have adapted to the situation. As we speak, we are undergoing massive strategy session to reposition ourselves to be able to work and determine which area to pay more attention to, in medium term.
Long-term strategy, we have it all there. But long term you have to twist from time to time to meet up with the short term and medium term results.
It is a meter of planning, understanding the industry and not be a company that comes into the industry and do just trading.
So, if you look at refining and refinery, that is a different business. We do not intend to get into that. The only way we can get into the refining and refinery business would be to basically do modular refinery in order to utilise the production we may have going forward if we do not want to evacuate the crude, rather, turn that into product and be able to use the product within the country. All these things are not required within the present predicament. But right now, we have not decided to go into refining. We must create the right value with the right strategy to go into it.
Q: Most operators you serve are being owed by the NNPC, how are you coping with this situation and what strategy options do you think the industry should adopt to get out of this situation?
Ans: Everybody is affected definitely. We have an industry wide downturn, you have low activity; you have low price regime, and so it is affecting everybody.
It also creating a challenge for the government to be able to cope with the issue of funding. Knowing fully well that oil in particular is the major ingredient of our economy in terms of being able to feed our economy.
Oil still constitutes more than 60 per cent of our foreign exchange earnings as a country. You can realise that a lot of things we use in Nigeria are purchased from overseas. So to fund these, you need to ensure you get enough money from the sale of crude to meet them. If you put that aside, you will know we have a gap there, it makes it more difficult for the government to fund their Joint Venture commitments. And do not forget that some of these commitments are dated more than five to eight years ago.
It is actually a problem. But I believe strongly that, like the honourable minister of state for petroleum resources, Ibe Kachikwu, has stated severally, they are working on it and looking at alternative means of funding. They are also looking at being able to draw some funds from Middle East, China and from other sources. The government is in a better position to decide that, but I believe they know what the problem is and they are dealing with it.
But as far as it affects PETAN members and Oilserv, it is a serious problem. We all know that it is not going to be there forever because if you look at the price regime of crude oil, it appears like it has bottomed; you have upside going forward. It requires planning and decisions to get it to the $100 per barrels cap.
What is important is that the oil producers that need our services are still in business. So far as they are in business, they will need our services. It is just a matter of time.
Q: What is the objective of your activities outside Nigeria?
Ans: The objective is again what I called de-risking. You have to balance your portfolio, both in terms of different services and areas of operations, as well as geographical spread.
Q. How do you think the government can permanently address these challenges of pipeline vandalism?
Ans: Government has to set up a system to guide the pipeline because it is a national asset. It is a very strategic national asset because anywhere in the world, you guide your pipelines. Either by using technology, engaging the communities around there by putting up a proper security- including military security, but you have to guide your pipelines.
Q. In other words, you support the idea by the government to set up a separate security that will guide the pipelines?
Ans: I’m not saying I support it because I don’t have the details, but what I’m saying in general is that you need to do a combination of general methods and methodology. You can’t restrict it to just putting police around it, because if you have a 500-km pipeline, are you going to be able to put an army of soldiers or police around it? This is not feasible. It requires again, the people around it because they are the first and primary line of defense for the pipeline. Somebody has to know something is going to happen and report it somewhere.
Q.Will the drone solve the problems?
Ans: That is part of the solution. But it has to be an integrated solution. If you put drones, drones can work but what it means is that when you have detected any attempt by drones to vandalise pipeline, you have to quickly intervene. So, you need to have an integrated system because drone cannot intervene for you.
Q. What do you now consider as the best method to stop vandalism?
Ans: It depends on the pipeline, the area and the community you are passing by. It depends on many things, but like I said it is a combination of all sorts and it is only when you take a specific pipeline that you can address such issues clearly and be able to put a formula for it. It is not easy to say this is the way forward. It is a combination of being able to work together with the communities, and the individuals around the areas of that pipeline. Being able also to build the pipeline following codes in a way that it will be more difficult for anybody to get in there which means you bury the pipelines- which is what we do.
The other one is being able to deploy technology, which is either, you put a detection system along the line or you put drones to monitor. Finally, you have to put an intervention system. An intervention system means when you have detected it, what are you going to do? You need human beings to go there and take actions, which means it has to be purposeful; it has to be well organised and finally, you must have a legal system in gear, such that when you catch somebody, you prosecute that person. If after arrest, nothing happens, that encourages negative actions but going forward, it is quite a complex scenario but it can be solved.
Q: Talking about legislation, the PIB was re-presented and eventually stepped down. Considering the apprehension that followed the past PIB, does it mean this may not also see the light of the day?
Ans: Clearly, past administrations did not handle the PIB very well. From the Executive to the Legislators, plus purely in my own opinion it’s a huge joke. This is because every year we come here and we always hear the story that this year PIB will be passed and it went on for four years. There was no commitment to do that. I have stated it severally in the past that if Nigeria needs to move forward, we have to define the regime of all operations in the oil and gas because the investors cannot invest on the basis of an unknown framework or system that has the potential to impact on their own investment. Whenever there is a problem, you find out that companies take a back seat and wait for you to sort it out. So, it is a major challenge. Now I believe that this current administration is serious about making a move. Few things I’ve seen showed me that they are serious, but what they are going to do about that, I don’t know. Let us remember, it is not just about the executives, the major culprit in this situation is the senate, and the House of Representatives. So if the legislatures do not do their works, the executives can’t also. From what I have heard recently in the briefing of the chairman of senate committee on upstream, he stated clearly that they are working on it, and I know that they are working on it.
Q: How do you manage the expectations of your host community to avoid issues with them?
Ans: We have a process that has been working for us for years. Don’t forget that we are the only oil service company that was operating fully in repairs and recapitalisation of pipelines between 2001-2008, when militancy was at its peak. We managed to operate in the middle of the swamp. So the trick is very simple. It is a matter of being able to understand what it should be, having a proper process in place to address them and being able to engage the community in a sustainable manner. If you deal with them, agree on anything and you do those things, when you come back, they will receive you.
But when they see you as somebody that usually takes advantage of them, there will be problems. It has to be a consistent relationship. This is from a service company point of view; you cannot solve the entire problem doing it that way. You require engagement of oil and gas producers because after our works, they will remain there. The government has a lot to do on how they organise communities and how they make sure the communities become stakeholders in all they do. When the communities are shut out from these processes, then they revert to how and where they can do something.
Q: Many of your colleagues have expressed frustrations with respect to accessing Nigeria Content Fund (NCF), what really is the situation of the fund?
Ans: The NCF is a major issue because some of us in PETAN who fought so hard with other stakeholders to be able to set up the NCDMB based on local content act, some of us feel some of the aims are not being achieved as of now. It may be too early to judge, but some of the directions we are seeing, we need to make sure that some of them are looked into and corrected. We are slowly building up a stanch of fund that is being taken off from us. When I say us, I’m looking at service providers, and the producers. The purpose of that fund is very clear. It is for capacity
building. But how the fund is being deployed today is not clear to any of us. Until we all come together and look at it and make sure that this fund is being deployed properly, in order to build capacity. Capacity is not for one person, it is for the nation. We have to make sure the oil and gas industry is positively robbed off on the economy of the country. How to do
that is to continue boosting capacity, to provide jobs, grow the Nigerian participation in the exploration and distribution of oil and gas sector. That is the only way.
The fund is a major ingredient and for me, I don’t see the direction of the fund and it is a major issue.
Q: What are you people doing to correct the anomalies?
Ans: It is still at the early stages because don’t forget, this law has been in place for just six years, so in terms of practice, we are still coming to deal with it and we are taking it up as an organisation to address it with the NCDMB. And where that does not yield the result, we will take it up.
Because NCDMB reports to somebody and there is a system but we have to makesure that clearly, NCDMB manages the situation in a way that will address the original reason for which it is set up.
Q: But how true is it that some of PETAN members have accessed this fund?
Ans: Let me tell you, it is like saying that you have $1million of fund and somebody accesses one cent, that’s not access, as far as I’m concerned. Not more than one of two companies have accessed the fund at a very low level. When I say low level, extreme low level because that kind of fund doesn’t make any sense to us. That fund can’t achieve anything worthwhile for such a company as Oilserv.
Q: When we talk of pipeline security, we know that these pipelines have been constructed for decades now, what is your assessment of the integrity of these pipelines?
Ans: It depends on the pipelines. Don’t forget that when we talk pipelines, we have crude oil, products and gas pipelines. These are owned by different entities. From crude oil pipeline, mostly owned by the IOCs and the indigenous producers, the codes are very clear. We know the codes; we know the standards and they are obliged to keep to the rules. So they do
the maintenance to assure you integrity. One, you have to build it according to the codes. You also have to do the routine maintenance to keep the pipeline maintenance going and make sure you have the cartodic protection system working very well to slow down and stop corrosion from happening.
That way, pipeline can last for several years. The crude oil producers more or less keep to these codes. You get to gas pipelines; they are owned by different entities. Gas pipelines mostly owned by NGC and other entities. They are also well maintained.
Where we have a gap is the product pipelines. For years, we have seen claims that product pipelines are being maintained, but they are not serviceable. Some of them have not been pigged for years. The tank farms are not working; there is a gap and that is where PPMC has to take the blame. You cannot be an owner of an asset and do not take care of it and you expect the asset to work. That’s why we still have problems in the distribution of products in Nigeria. Today, you cannot put petrol of diesel into pipeline and expect it to get to Yola. It means you have to continue moving this by trucks and it is not feasible.
Olusola Bello
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