At 30 he was the managing director of Phillips Oil Company Nigeria Ltd, the Nigerian subsidiary of Phillips Petroleum Company, a foreign oil producing company in Nigeria. UDUIMO ITSUELI, who holds a PhD in theoretical geophysics from Cambridge, also served as chairman of the Nigerian National Petroleum Corporation (NNPC) in 1992/93 and is currently chairman of Dubri Oil Company Limited, Africa’s first independently owned oil producing company. In this interview with BusinessDay’s ISAAC ANYAOGU, he traces the dark turns Nigeria took that led its oil sector to the edge of the cliff. With over 48 years devoted to the oil industry and rising to the position of NNPC chairman with stints with international oil companies some 30 years ago, Itsueli shares unique insights into how Nigeria can turn the corner. Excerpts:
There was a long period of uncertainty while we waited for the Petroleum Industry Act (PIA), how do we avoid that kind of situation going forward?
Within the past 48 years, that I have been in the industry, the decline I have seen in the sector, year after year, is caused mainly by not putting the right people, in the right places.
What we should be doing is appointing well trained professionals, experienced people, in any endeavour, anywhere in the economy, and in particular, the oil and gas industry.
Around 1974 when the NNPC was being formed from the then Nigerian National Oil Corporation (NNOC), we had a crop of professionals who had been trained by the IOCs. The bureaucrats in government and the regulators, were also experienced Nigerians. The work environment and ethos at that time were totally different. This was when people like the late Aret Adams, Festus Marinho, Akpe, Feyide, Osuno and others held sway in the Nigerian Oil Industry.
Those who started the NNOC which later became the NNPC as well as those who were in the Inspectorate Department of the Ministry were experienced and qualified people. They were placed in positions of authority primarily for their competence and expertise. Most had worked with the private sector IOCs before they were brought into the public sector. So there was no shame or fear or reluctance or feelings of inadequacy when dealing with your colleagues in the private sector.
In those early days, things worked because there was mutual respect between those in government, public sector and their colleagues in the private sector. When there was a need to come up with a policy, you talked to each other. So there was mutual respect, mutual collaboration, mutual consultation. And the oil industry was the better for it, then.
So what went wrong?
As time went on, politics, bureaucracy and ethnicity came into the picture while self interest became the primary focus. Promotions and appointments were no longer necessarily on merit basis. People were staying too long in a position, dissatisfaction crept in and many who did not ‘belong’ felt sidelined.
We stopped getting our best hands from the industry into the public sector and policymaking suffered. The result is what we see today. Take the shortage of products as an example. This epitomizes decay. Why should Nigeria, an oil producer suffer a shortage of products or the importation of adulterated products?
Why should a country with four refineries with a nameplate capacity of 450,000 barrels per day (bpd) be unable to refine its own crude?
We built refineries that are capable of refining different crude grades but today they are not working. There are refineries that are older than ours working elsewhere. There are refineries in the United States, Latin America, the Caribbean and India that are over 100 years old and working. Ours are not working because we have not put the right people in the right positions and we have allowed self-interest, rather than national interest, to come to the fore.
Now, there must be very good reasons why Mr. President wants to be the minister of petroleum, but if anybody had asked me as a professional, I would have advised against it.
He should superintend overall, ask questions, giving mandates, “knock heads” when things don’t work. For example, now that we have products shortage and quality problems, who do you hold responsible, who do you sanction?
Anywhere else, the adulterated petrol saga would have prompted the National Assembly to demand an explanation from the minister in charge. But are you going to call Mr. President, who is also the minister? Will you be able to successfully invite and interrogate him?
Recently, I read in the media that the President mandated the Minister of State for Petroleum to resolve the issue of crude theft. Something does not seem right here. This is why I said I would have advised against the President also being the minister of petroleum.
Whatever concerns, he might have had with the Petroleum Industry, I’m sure there are other ways, he could have addressed them, and more effectively, if you ask me. So, the short answer to your question is, we have not done what we should have done, and we have done what we should not have done.
Now, on the vexed issue of oil theft and the trending alarming figures of 80 – 90% of our produced oil being stolen, I strongly believe that these figures need to be properly interrogated. Given our presently reported national production figures of 1.3 – 1.4mb/d, let me be optimistic and take the lower figure of reported thieving as 80%. This means only 20% or 280,000b/d is being exported nationally, of which only approximately 60% or 168,000b/d belongs to Nigeria. Can this be correct?
If so, this is not stealing, this is heisting! There definitely is some stealing, but on this scale? I believe we need to properly re-examine these “thieving” figures, as well as what is actually going on. Do we have ‘stealing’ or “Heisting”?
Another vexing issue in the sector is the long time it takes for projects to come on stream in Nigeria due to delays in securing approvals, how can the process be made to work better?
When you have somebody who’s technically capable, competent, and experienced supervising a department, (the kinds of projects you’re talking about, presumably, joint venture projects for which you must go for approvals) and if there were no interference from government bureaucracy, there’s no reason why approvals can’t move speedily in weeks or months, not years. So a project comes to my desk, say from Shell, NNPC JV and they want to drill a well, they have hired rigs, and produced the right documentation, why should it take me more than a day or two to get it approved. At most a week, at the very most a month, if it is a complex issue.
If they have all the necessary documentation for exploration, such as seismic and geologic studies, have followed industry standards and there are professionals on the project, why delay?
If I have any doubts, I would call for a meeting. The problem is that the wrong people are there, they do not even attend these meetings, they delegate to the next level and this means that the final decision cannot be taken on time, because you must refer to someone else and on and on. So delays creep in.
If the right person was not there at that meeting and his representative took the technical decision that was right, considerations such as vested interests might come in and you begin to hear excuses. Meanwhile, time is going, eventually, it is awarded to someone without experience but from the ‘right’ place. He goes to The US or China to get a rig but knows nothing about exploration or rig operations.
In those days, those who made the high level decisions would have been there when the plans were first discussed.
One major cause of the industry’s stunted growth is the destabilisation caused by the frequent leadership changes whether ministerial or at the NNPC. How can we guarantee stability and efficiency?
Everything revolves around that same issue; the right people, qualified, experienced people, in the right place. I will add for this particular question, the issue of tenureship.
Why can’t the NNPC GMD serve a determined term? Search for experienced and qualified people by requesting for applications or ‘expressions of interest’ or even head-hunting for one. Cast your net wide and you will find qualified Nigerians, but we are not doing that.
The process is shrouded in secrecy. We put people who are unprepared in important positions. When you employ people like that, they make mistakes and look to cover up, or they upset the powers that be because they have not had enough time to understand the job.
We should have experienced people who have been in the system for years, who have worked and risen steadily, who everybody knows as a thoroughbred professional. Then let them do the job. Give them terms of reference – say cost reduction, grow oil reserves or production capacity – if he or she doesn’t meet it, remove him or her.
Give measurable milestones, say by year one, move volumes from A to B, ensure refineries function at a minimum of 30 or 60 or 80 percent, then at the end of the period, review performance asking questions why objectives were not met and see if they are reasons you can live with, so when a crisis comes, you know who to hold responsible.
ExxonMobil’s divestment to Seplat energy is faced with NNPC’s exercise of a pre-emption right, what should be the key consideration here, how should pre-emption rights be used?
I cannot recall any divestments during my time as the NNPC Chairman, so we did not have to deal with pre-emption, however, what came close to a pre-emption issue, was when we needed to decide who would be the right CEO of NLNG, whether to be appointed by government or the lead company in the consortium.
Shell as the lead company wanted to be the one to appoint the CEO, the Government and NNPC also wanted to be the party to bring the CEO. At this time, we were, fortunately, dealing with people who respected each other in the industry. The managing director of Shell Nigeria at that time happened to have been my classmate at Leeds where I studied for my Master’s degree. Remember I said we had experienced, well meaning people on the saddle back then.
We all knew each other’s competencies, so we resolved things with dialogue. Today we have NLNG that has become a model and has given Nigeria billions in dividends. Dialogue works among people, who have mutual respect for each other.
Some say the window for oil is closing, how big is this window and how best can Nigeria position itself and its oil industry to thrive?
Around the world, the talk is about the energy transition. It is about the use of fossil fuels for energy, nobody is saying don’t use hydrocarbons for other purposes. And this is driven mostly by pollution and climate change concerns. We are burning hydrocarbons, polluting the air, and depleting the ozone layer, thereby raising the earth’s temperature. The poles are melting. I agree we should stop such degradation of the environment. Hydrocarbons are probably the best known organic material in use globally. Without hydrocarbons, the Western economy will not be what it is today.
But hydrocarbons are used for more than just fuel. They are in solvents, cleaners, greases, tars for roofing & roads, soaps, paints, plastics, pesticides, cosmetics, plastics, fertilizers, insecticides, feedstock for industry and many others. Using hydrocarbons for fertilisers, how does it cause negative climate change if applied properly?
So we should be careful about the emphasis we place on energy transition. We should transit from combusting hydrocarbon for energy and focus on a lot more other uses for industries that do not threaten the environment.
Over the last five years, Saudi Arabia has placed a lot more emphasis on petrochemicals, fertilisers, and talked a lot less about producing more barrels per day of oil. Nigeria has not said much in this regard.
I don’t think we need to worry too much about energy transition. We are not a big player in combustion. It is not as if we are fuelling all the vehicles in the world, or we are producing hydrocarbon generated power and selling it to the whole world.
So let’s have a policy that serves other areas. For Nigeria not to be left behind, we should constitute a small group to look at what other areas to take advantage of during this hyped up energy transition phase. And there are many. Don’t just produce petrol or diesel, that’s not all that hydrocarbon is useful for. We should put together a team that can think of other ways we can use hydrocarbons as we transit the oil industry.
IOCs are leaving and moving away their capital that Nigeria badly needs, what is responsible for this?
Yes, the IOCs are leaving but the decision to move was taken years ago on the basis of the unfriendly terms which were getting increasingly worse by the day. You know, since they, the IOCs are not nimble, it takes them time to make a decision. When they do, a lot of things have been taken into consideration. They have moved MDs, and funds, knowing that they are now in the divestments stage, they are picking the right teams, and MDs who can manage negotiations and handle legal issues are put in place, as they ramp down.
What are we doing to respond to this? We should learn from them and have a team in place to manage divestments from the policy side. How do you replace the IOCs and their capital?
It will continue to be independents taking up the place left behind by the departing IOCs, and they are not coming back. That should be clear to us. These IOCs are being harassed by their shareholders, while investment funds like the Norwegian sovereign wealth fund are pulling out of oil.
We need to be working out our own response. Nigeria must tap the expertise of its knowledgeable people, forget ethnicity, select seasoned and qualified people, for the sake of Nigeria.
While Nigeria has abundant gas, it is unable to get enough gas to fuel its power plants, industries and for household use. What needs to change?
It is a contradiction that a country with over 200 TCF reserves of gas, the ninth-largest in the world, is short of gas. The shortage is not for lack of endowment, nor lack of ability to produce. We still flare gas, so the answer is economics and environment, and policy.
If we have the right policy in place and Nigerians smell the opportunities, they will get into it. So if we’re not producing enough gas, it means the policy is not right, it means the ease of doing business is not there. Make it attractive and they will produce it. As small as Dubri Oil is, we have in excess of 700mscf of gas.
Why force companies to sell at a regulated price instead of making it a “willing buyer, willing seller” situation. The same way you force marketers to sell petrol at a fixed price, you’re forcing distributors to sell power at a regulated price, it doesn’t work. Economics doesn’t work that way. And in Nigeria we should know that.
If we enthrone market prices, there will be more production and prices will eventually reduce on the basis of competition, just as in the case with GSM telephony, price crashed. Today a SIM card is given for free but at the beginning we paid up to N16,000 for it. We allowed the GSM companies to charge a fair, commercial rate. Government did not do the foolish thing of fixing the price. Eventually, the prices crashed. Even drivers, fishermen in canoes, roadside vulcanizers and cooks are today carrying one or two phones. When the government-controlled telecoms, there were only 400,000 lines in the country, today even artisans have more than one line and I believe we have over 150m mobile lines now.
Everything the government has controlled has failed – education, power, petrol, shipping, foreign exchange, gas even government media, they have all failed. Telecoms that were privatised are successful. Control has failed but they have held on to it because they are looking at it from the wrong prism rather than what is in the country’s best interest.
When you look at the future of the Nigerian economy, as well as oil production, what are your worries?
Over time, the Nigerian oil industry will be dominated by independents whether they are Nigerian or foreign independents, because the IOCs are not coming back.
The next level is the independents, but they don’t have the clout of the IOCs. So, we need to craft policies that can encourage these ones who don’t have the same clout. We need to change how we do business. We need to encourage them, grow our own independents. And attract foreign ones quickly. If we want Nigerian independents to become larger, and possibly become IOCs, we need to encourage them, we need to create the right operating environment.
Today, everything I see is punitive. All the letters coming from the National Assembly or regulators, it’s all threatening, if you don’t do this, we will do this. As parents, we don’t treat our children like that. Put love into this thing, incentivise, call the independents, find out their needs, give them rebates, help them grow because as they survive and thrive, the economy gets bigger, they employ more people, pay more taxes, get involved in more CSR and relieve the government of some burden to focus on more urgent areas.
Too many times government doesn’t want you to make a profit as if it is a crime to make a profit. It is not a crime. If I don’t use the money legitimately, if I don’t pay taxes, come after me. But a company that is doing well has to be encouraged by the government.
It is in companies doing well, that Nigeria profits. And the civil servants profit too. There are better roads, hospitals, and schools for him and his family, saving him costs.
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Production cost per barrel in Nigeria is among the highest. What needs to be done to bring down the cost for producers because it is also why the IOCs are leaving?
The independents do not have the same capacity to absorb shock as the IOCs. Right now, insecurity has messed up a lot of things. Pipelines are not working the way they should work. More and more independents are looking at barges. And barging is not the cheaper transport option. The bureaucracy is mounting. The amount of time we have to spend responding to queries from committees in the National Assembly is scandalous.
The Committees will write requesting 20 copies, they will tell you give us data on your account for 20 years, bring them to Abuja next week. Four or five committees at the same time are writing you. Then the State wants to come to audit your books for the last five years. Federal Governments want to come and audit your books for the last five years. Where is the time for work? The IOCs were big enough with large departments and staff but it is not the same for independents.
Some of those people in government don’t do their homework. Somebody sent a letter to our Benin office saying that we do not have a water permit to produce water we use commercially. We don’t even have a water plant, we don’t sell water. They wrote threatening to take action. We simply called their number to say we have a borehole for water that we use internally. They said, oh, they did not know.
We receive letters from the National and State Assemblies, requesting details of Dubri’s Oil transactions with NNPC. They assume all oil companies are in Joint Ventures with the NNPC. Whereas, we, as a sole risk company have no such transactions or relationship with the NNPC.
Do you get a sense that lawmakers or even some judges lack a sense of the economic landscape the country should be toeing?
If the right people were in the right places, they would know. In the US congress, each lawmaker has a team of assistants to support them, these carry out the necessary research to ensure that their Principal is well informed on any subject he or she is looking into. Ours should invest in such. I believe they are so funded.
It’s the same situation with the judges. I don’t know how many judges understand the complexities of the oil industry well. Again, if judges were well funded, if we allow companies to grow and make money and pay taxes, you will fund the judiciary, the third leg of government, properly. The judges will have technical assistance. And if I have a petroleum case that is important, the judge will almost become an expert. This is why we have judgment somersaults, one judge who knows a bit more will throw out the judgment of the lower courts who might not have done the required research.
The independents don’t have the clout to fight these matters as the IOCs do. The IOCs, when the going gets too difficult, they also have the option to go to their ambassadors and home governments to intercede.
There is a $2bn judgment against Shell in Nigeria in a case that I believe was thrown out in The Hague. Even if we insist they pay, how many of us realise that 60 percent of that ($1.2bn) must be borne by Nigeria, one way or the other by virtue of the Joint Venture, and the country is broke. So we are fighting ourselves.
Why can’t we have consistency in our policies?
Part of the problem is because we are promoting people beyond their capacity. A judge that has taken 20 or 30 years to get to the Supreme Court probably may have sat on two or three petroleum cases, but when you go and bring judges that have not been exposed somewhere because they come from one part of the country, and you elevate them and he gets there, he fumbles. Whether it’s the judiciary, the legislature, or even the Executive branches, we need qualified, experienced, and competent patriotic Nigerians to man crucial positions. Essentially, we need to enthrone merit!
What risks lie ahead for Nigeria if it fails to reform its oil sector?
The way we are going, there’s trouble. Chief Anyaoku recently said Nigeria’s standing in the world has declined. Why won’t it decline, some of our judges give poor judgments, IOCs are leaving, we no longer have ambition, we are not encouraging our Independents to prosper and grow. These worry me.
I was chairman of the NNPC 30 years ago and in my familiarisation tour after being appointed, Nigeria was producing about 2.5m bpd of oil and we had reserves of about 30bn barrels at that time.
I challenged NNPC to endeavour to get our production to 4m bpd and get reserves up to 40bn. It was both a bold dream and a desire, but 30 years later, I read in the media that the NNPC GMD says the country wants to raise production to 3m bpd. Today, we are doing 1.2m – 1.4m bpd, about half of what we did 30 years ago. Can you see how so bad things are?
It is our fault and we have to do things better. Take the PSCs for example. When the PSCs were designed, we crafted into that Agreement a provision which allowed any of the parties to call for a review every five years or when the price of oil went beyond $20 but every hierarchy of government kept saying IOCs were cheating us but I told them I don’t agree. Not because they are not cheating us, but because the contract we were working on says either party can introduce a discussion for a review. So I asked, have you called them for discussion and they say they are not coming? So why are you blaming anybody?
So we have to do the right things and get the right people in the right places.
