The agreement by oil producing nations, including members of Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC members like Russia, has resulted in crude oil price rallying around $50 per barrel. However, indigenous operators are still finding it difficult to get new jobs and explore new frontiers. In this interview with OLATUNDE DODONDAWA during the Offshore Technology Conference 2017 in Texas, United States, the Chief Executive Officer, Oilserv Limited, Mr Emeka Okwuosa, explained how indigenous operators have been surviving and suggested strategies on the way forward.
What is your assessment of OTC 2017?
It was basically a successful outing, the participation of the Nigerian contingent is as strong as it can be. Generally, you can see that activities this year still appear a bit diminishing in terms of quantum of people, but the Nigerian participation is as strong as ever and I believe it is very successful. More so, with the Minister of state for Petroleum Resources, Dr Ibe Kachikwu, appearing in person, it basically gives it more credence and puts it in the right direction.
Kindly speak a little about the theme of this year’s conference, taking away the challenges. What would you say are the opportunities inherent for Nigeria?
The opportunities are immense. The Minister of State, Kachikwu enumerated these opportunities and he mentioned the seven-big wins. You can see that opportunities exist along the entire value chain from the upstream, to midstream and to downstream. If you take the midstream, that is gas development as an example, the opportunities are from gas processing facilities to production and distribution of LPG, production of lean gas and pushing it out for power generation. This is a huge industry on its own. You heard him talk about modular refineries, these are opportunities.
How is your firm able to key into these streams of opportunity and how far have you gone about OB3 project?
Oilserv has always been proactive. That’s why we moved from being just a construction company in 1995 to being a company that has activities across the value chain. Today, we are a group that has six different companies from pipeline construction, engineering construction commissioning down to full engineering from feasibility study, front-end engineering, detail engineering and so on.
We have been proactive in looking out for these opportunities and taking advantage of them. Today, when you talk of refining, we are positioned to take advantage of that because we have already moved ahead of that. You may wish to know that we did not set up bearing in mind that there will be local content law. Oilserv has built capacity prior to that purely by continuing to invest and developing resources including human resource base. So, the point is that we are very well prepared to take advantage across the value chain.OB3 project is towards the end of completion. What we are doing is terminal station. The pipeline itself is finished pipeline, we are going through pre-commissioning of the pipeline, now terminal station poses its own challenge because we have to realise that these stations are huge. For you to build a gas metering system for a 48-inch diameter pipeline, lots of people don’t understand what it means. A pipeline you are building to have a throughput of two billion standard cubic feet (scuf) of gas per day. That means for you to build a metering system to take this, in engineering parlance, you cannot build a single system. We are to have four streams of 500 million scuf per day. That pipeline will have four sections where we will have different metering and connection systems to be able to take it and utilise, that’s exactly what we are doing. We believe that by end of this year, that will be finished.
The government has talked about various incentives for prospective investors in Nigerian oil and gas sector, what incentive do you think should be given to those interested in modular refineries?
It depends on the model. From what I have heard so far, the model is not yet out. Only when they come up with a model that we will look at it and examine how they will guarantee finances, fixed stock, off-take and all these will come into the model we are expecting from the government. So, we have heard a policy statement but until they come up with a blueprint, for now, I can’t comment.
At what point will Oilserv participate in the issue of gas to power, are you having a power plant or do you intend to go into distribution?
We have a company called TransPower, it’s a gas to power company from gas development to power generation. But the power we are talking about is not the power system connected to the grid. We are involved in the distributed off-grid power systems where we develop the gas transportation system. If you don’t have a pipeline, we do a virtual pipeline system where we use Compressed Natural Gas (CNG) or we use Micro-Ornano LNG system. Now the clear thing is that we target end users. We store the power plant, we run it and supply the gas. That’s our model. Our model isn’t that one that will be embedded into the grid.
Has your company done any project on this power business?
As we speak, we are at a stage where we are developing working relations with operators in the Oil Mining License (OML) 56 which include about four or five companies. We are at a stage where we are trying to collect the gas, process and utilise, that is the first step. We already have Nano technology system where we have a project we are working on with an Argentine company. This is a process, from the day you have your strategy and put it on the ground, it takes at least two years. Let’s be clear, this is real work and not talk. The process is a process. First you have to sign a gas-purchase agreement with gas owners, you build the processing system. From the processing cycles you take the lean gas then you now deliver. The power plant is the simplest thing; you buy the power plant then you install. The process of getting the gas there is the most difficult.
So, we are working on it.
Local content is seven years, what is your opinion about the policy?
A lot has been achieved. The first is the setting up of an agency to manage the policy and this is the NCDMB. You will agree with me that it takes time to build. But I believe that with time they will settle very well. They have the capacity to certify companies to ensure they comply with the law. They have resources in place to encourage companies to have capacities to be able to be compliant to the local content policy. They have many other processes in place to encourage training. My assessment is that they have achieved quite well but there is enough room for development. That’s why I mentioned earlier that I’m one of those that believe that NCDMB has come a long way and they are moving, not gotten to their target but still have a long way to go. It makes a difference to have strong leadership who will make a difference. Listening to executive secretary, not just what he says but what he does, I will say I’m encouraged. Local content management is going in the right direction.
Last year, during the OTC, you and other members of Petroleum Technology Association of Nigeria (PETAN) complained about lack of access to Nigeria Content Fund (NCF). One year after, what has changed?
What has changed is that we have an Executive Secretary who recently took over the position and is very interested in addressing the issue. He has said it and he’s doing something about it. This is because every day that goes by, the fund keeps building up. The primary aim of that fund should be capacity building. So, there are many ways you can deploy that fund to support capacity building.
You can provide funding at an affordable rate for Nigerian companies that are investing. This is not money to be thrown away but returned. You can also have an NCDMB that can be involved in development of key sector like pipe-mills.
How comfortable are you on the issue of transparency problem surrounding the fund?
I believe I’m not comfortable, but we have to bear something in mind that we should not over criticise. I believe there are records and these records are available. I don’t believe they have no records. This money accumulates based on records. Do not forget that NCDMB is also a young entity that’s learning and developing its system. We have to give them time to do that. What is happening right now is that NCDMB is managed by very competent people with good knowledge of best international practices. You cannot compare it with NNPC. I believe we have to give them time because I believe they are doing the right thing.
The FG said it is establishing Project 100 where any Nigerian company that has capacity should not bother about funding because the government will help it source for funding abroad. What are PETAN members, especially Oilserv, doing to key into this project?
Project 100 is a very good idea because some of us have been saying this in different ways. Some of us that have built capacity all the years have to be sure that it will be utilised. If I have capacity based on $100 million lying there and maintaining these equipments, I’m employing people and don’t have jobs for them, how does it work? There has to be a process of guaranteeing jobs for companies that have invested.
It is not only Oilserv, there are quite a few other companies who have invested and taking the risks. It is important that going forward, there would be guarantee jobs, instead of trying to give contracts or opportunity to briefcase contractors. Project 100 concept will help address that because they will look at few companies with capacity and help them raise fund for business and this will enable us employ more people. But don’t forget, as we get the details, we know how to move into them.
Anywhere in the world, power issue isn’t an easy situation to deal with but it requires proper strategy, execution and proper management. All these come with discipline. We lack discipline in Nigeria. We also lack continuity. This government comes say a thing, another government comes says another thing. You have to be ahead of the curve, and you have to keep developing. When the US started its power industry, it was just like Nigeria. It was owned by big government entities but overtime, they have a way to privatize in a way that it works. The problem we have in Nigeria is that we say it but we don’t do it. Capacity to improve power means you have to align the generation to transmission to distribution. But all you hear is that distribution companies collect money but they don’t remit. If you do not remit it to the aggregator, how do you have the transmission company to get paid? The whole system breaks down. If you are able to generate power and you are not able to transmit it through the transmission system, then you are constrained. My issue is that this is still being run in a government way in other to regulate and control. If these issues are not addressed it will be discouraging. The biggest problem in any business idea is execution. Talk is easy, but execution is key. If we don’t execute properly, it’s not going to work and we have that problem with power sector.
There have been concerns about terms of tendering processes, what do you think the government could do to ensure we are at par with other countries of the world?
I’m not sure that it is the government; I think it has to do with owners of the projects. Whether it is the NNPC or the IOCs which in this case you have NAPIMS being the major partner that controls things, it’s about making a conscious efforts to put up a process that’s fit for purpose. When you start a tender and the tendering process goes beyond six month, you are in a different territory. You have a situation where inflation may have changed, prices may have changed. Some tendering processes take up to 18 months. That should end, it requires concerted efforts. You have heard NAPIMS said they will look at that and correct that. You have also heard clearly the Minister of State, Kachikwu say that it has to end. There should be a need for concerted efforts to streamline the process of tendering to make sure that it is within a shorter time and that requires directive from the minister then drives it down, but it is a process.
On low crude oil price, what is important is that oil price never remains the same. It goes up and down and driven by market forces which is basically demand and supply and in some cases, geopolitical forces come in. What is most important is cost of production. In Nigeria, when cost of production goes beyond $20 per barrel, it becomes a problem.
Compare this with Saudi Arabia where their cost of production is about $8per barrel. When crude oil price is $15 per barrel, they are still making profit. In Nigeria, at that price you cannot but to shut down. You can’t spend more than you are getting. The main problem is cost of production. Oil price at $40 per barrel depending on how your industry works, we can still manage it. If it is at $80 per barrel, it is a plus but it comes with a caveat because the higher the cost of crude, the higher the cost of production because there is this tendency that when oil price is $100 per barrel, E&P companies will take more risks and embark on expensive projects because there is money.
How is delay in PIB hurting the Nigeria’s oil sector?
I have granted interview on this issue and will continue to grant it. Today, our distinguished Senators said they will pass it very soon. I’m not a politician but a businessman. My take is that this is the fifth year we have been assured at OTC that it will be passed. I made clear that without the passage of a representative PIB, Nigerian oil and gas industry will remain stagnant. We have no control over that; it has to come from legislature. There must be deliberate efforts that will integrate our Senate and House of Representatives and come down to the Executives. For it to be passed it depends on the Senate and I believe they are patriotic enough to know that this is important. But so far that we have not passed the PIB, there have been deferred investment and Nigeria will continue to lose values because some of the tax regimes, especially for offshore production is no more representative. If you hear we are producing one billion barrels offshore today, Nigeria is making little or no money from it. Because that was the regime that was set up in the 1970s to encourage offshore production and we have since gone from there to a stage where we should be getting something but we cannot get something because most of the laws governing the PSCs are outdated.
Nigeria is planning another marginal bid rounds, will Franz E&P participate?
Once the opportunity is there, we shall participate definitively. We have the capacity not only to acquire that block but the capacity to develop it. Developing that also, we are talking about going entire the value chain from the E&P activity to the main stream of setting up the refinery to use the crude. Or if it makes sense, we will develop the gas facility. There can never be a better company than Oilserv Group today because all it takes is within the group to utilise.
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