Local content policy implementation and political influence in Nigeria oil and gas industry

 

The Nigerian Oil and Gas Industry Content (NOGIC) Act was signed in April 2010 by the administration of Goodluck Jonathan with the aim to boost indigenous capacity through implementation of 30 per cent retention of oil and gas projects in the country. However, eight years after, many indigenous operators have success stories to share while others do not. In this report, OLATUNDE DODONDAWA examines local content policy implementation and political influence in Nigeria.

 

One of the main challenges confronting oil and gas operators in Nigeria is the issue of host community unrest. And this is one of the areas where the indigenous operators have demonstrated capacity which may be attributed to their understanding of fellow Nigerian citizens.

 

In an interview with the Nigerian Tribune recently, the former Managing Director of Energia Limited, Mr Felix Amieye-Ofori, explained how his company transformed the host community and made the members to see themselves as part owners of the company.

 

According to him, “People are becoming aware that it is better to be partners and stakeholders and not as benefactor where I give you some money and you go. Whenever you come, we give some envelopes to the chiefs. We don’t do that because we make them feel that the oil is in their lands, and it is for their own good. It is for their children and for their future.

 

“So this community royalty that we are paying is broken down into community projects and into trust funds. So there is part of it that is saved for tomorrow. There is part of it for investment, for entrepreneurship for the community and then there is a part for sustainable projects and infrastructure. So the people are involved round the clock. They come to see our operations as a source of economy and they now begin to protect our facilities.

 

“Occasionally, they fight among themselves if there is anybody trying to disrupt our activities. If someone sends letter with the intent to disrupt, the community will return the letter and write to us that they don’t support his intended action and that we should disregard it. We have been able to operate with them to a level that they see our production as their production.

 

“They see the pipeline as theirs, they see our project as a sustainable project and we recruit them to monitor the pipelines. They are the ones monitoring the pipelines. They clear the pipeline right of way themselves and they are working as contractors clearing our facilities.

 

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“In terms of employment, we have about 25 per cent of our workforce from the community. All the local contracts go to local contractors. Besides, we do bursary, we give scholarship, and we have scholarships different from bursary. We have development consultant who is working with them to create a soft loan in form of cooperatives and empower the women from the community. This is quite commendable. So, they begin to see that one barrel produced from our operation is empowering the community and this model is working.

 

“You may think that you are losing, but by the time you shut down production or your pipeline is blown up, you realise that it is cheap. Look at what happened when Forcados (pipeline) was shut down, we lost as much as 20 million barrels. But you are not going to spend that much money to keep peace. All the people want is that if you are there; let the people feel that you are there.”

 

Energia is the operator of Oil Mining License (MOL) 56.

 

When communities protest removal of indigenous firm OML 30 is the Nigeria’s second largest onshore oil and gas asset, located in the Niger Delta about 35km east of Warri.

 

There has been ongoing community protest at OML 30; central to the unrest is the success story of a young technical services operator, Salvic Petroleum Resources Limited, an indigenous firm.

 

Investigations revealed that Salvic, a relatively young Nigerian company, had been acting as third party operator of OML30 in the last one year on behalf the name-plate operator, a company called Heritage Energy Operational Services Ltd (HEOSL), and that Salvic achieved obvious successes in the one year it took charge of the mining lease to the benefit of all stakeholders, that the communities are unhappy with the sudden move to replace SALVIC with foreign operators who do not understand the local environment nor the requisite stakeholder management.

 

Covering 1,095sqkm, comprising 11 fields, nine flow stations, the Ughelli tank farm (UPS), the Trans Forcados Pipeline (TFP), and with reserves estimated at about one billion barrels of oil, OML30 is a critical source of oil revenues for the Federal Government, the Delta State, 111 host communities and other asset owners around the region.

 

The communities point to Salvic’s commendable performance in OML30, taking production from zero to 75,000 barrels per day (bpd), rehabilitating the Forcados Pipeline in record time and sustaining an uptime of over 86 per cent in the 12 months of operations between March 2017 and April 2018.  Furthermore, it was discovered that Salvic restored good relationships with the communities and recorded no major security or environmental issue during the same period. The communities and their leadership therefore see no justification to terminate Salvic.

 

Salvic is a new breed Exploration & Production (E&P) company in Nigeria’s oil and gas industry. Company information indicates that Salvic has strategically differentiated itself as an E&P company with a service orientation, focused on providing the full range of value chain E&P services as a non-equity holder third party operator to asset owners. Their strength lie in execution excellence, cost control, operational efficiencies and optimising existing infrastructure to extract value, even from challenging and mature assets, to deliver superior value to stakeholders.

 

Prior to the NOGIC Act 2010, the arrangement has always been to engaging foreign technical partner as operator of most oil field. But the local content policy has made it possible for a foreign firm to engage indigenous contractor as operator of such magnificent field such as OML30.

 

In 2017, OML30 presented an opportunity for Salvic to prove its new approach and capabilities. Between March 2017 and April 2018, under a Technical Services Agreement (TSA) with the name-plate Operator of OML30, Heritage Energy Operational Services Limited (HEOSL), Salvic embarked on handling all aspects of operations and crude oil production in OML30, including technical support services, security, operation & management (O&M), community relations & other stakeholder management, corporate social responsibility (CSR) and management of the 87 kilometre Trans Forcados Pipeline (TFP).

 

The company was given steep production targets with a penalty of $25 million if the targets were missed. Considering the 15 months prior to March 2017 foregoing conditions of Zero production in OML30 and the TFP down throughout, it was a daunting challenge for any operator, let alone a new young company in a complex business arrangement.

 

Undaunted, Salvic took on the challenge and turned around the fortunes of OML30 by ramping oil production from Zero to 75,000 bpd by end December 2017, drawing commendations from industry experts, the communities and stakeholders, as well as the Federal Government and the Delta State government.

 

According to industry sources, Salvic achieved the feat without drilling any new wells, but with a robust work programme of creative and innovative solutions that optimised production and unlocked value from old legacy infrastructure and equipment.

 

These feats were instrumental in improving revenue generation for the Federal Government, the Delta State, all injectors into the Forcados Pipeline and other asset owners in the western Niger Delta.  The sustained uptime on the trunk line also enhanced gas production into the domestic market for power generation by the continuous support of OML34 condensate evacuation.

 

Other verifiable successes that Salvic achieved in OML30 on behalf of HEOSL and the JV Partners include the rehabilitation of the TFP and sustaining 86 per cent uptime; peaceful community relations & stakeholder management as it changed the practice of treating community workers as cash-based casual labour by converting them to full time permanent employees with full benefits. The operator also recorded no major health, safety, security & environment (HSSE) incident.  Specifically, in February 2018, the company achieved a total of over 1.1 million loss time injury–free man-hours, which is a rare feat in view of the size of the OML30 asset and the operations.

 

“Undoubtedly, the Salvic and OML30 success story is one of defying all the odds.  By their achievements in OML30, the SALVIC team has gained a name as Turn-Around experts in handling and extracting value from challenging and complex assets.

 

“SALVIC met and exceeded targets that were near impossible and demonstrated that excellence does not come from the age of a company but from the resilience of innovative, intelligent people who are empowered and focused on results,” one stakeholder said.

 

The Salvic-OML30 project was led by Ikemefuna Okafor, CEO, Salvic; Ebenezer Ajayi, ED, Operations, Theophilus Ekiyor-Katimi –OML30 Asset Manager; Gabriel Oramasionwu CEO, Abbeycourt; Celine Loader Director, Corporate Affairs (incl. Government & Community Relations); Fufeyin Funkakpo, Manager, Government & Community Relations; Uchechi Nwankwo –GM, HSSE; Okey Ekeocha, Manager, Security; Maxwell Okoh, MD, Eraskorp.

 

Conclusion

 

An oil and gas expert and the Managing Partner of Zenera Consulting, Mr Meka Olowola, “It all started with the divestments by some IOCs and I would say it is a blessing in disguise. The divestments that we’ve seen have been to indigenous players. So the likes of Aiteo, Oando, Seplat, Nestoil, First Hydrocarbons, Shoreline, Eroton, Amni etc of Nigeria are the winners. And because they are indigenous, they are less likely to have capital flight.

 

“Rather, they are more likely to have indigenous contractors and Nigerians working on those assets. Lastly and perhaps more importantly, community relations will be at the forefront of local operators. So Nigeria stands to gain in multiple folds from manpower development to reduction in unemployment and other corollary benefits. But when foreign operators are deployed to manage such fields, it may result into job loss and lack of manpower development.”

 

Source: Nigeria Tribune

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