Oilserv, an indigenous Engineering, Procurement and Construction (EPC) company is renowned for the various ground-breaking achievements it has continued to record in the country’s oil and gas industry. In this interview with the MD/CEO, Engr. Emeka Okwuosa told Orient Energy Review during the 2018 Offshore Technology Conference (OTC) in Houston Texas that its success in clinching such projects like the OB3, AKK, among others lies in having the right term sheet, advanced technology, capacity and ability to deliver. Excerpt:
I am aware that your company is set to deliver the OB3 project this year, so when is it likely to be completed?
The Obiafu-Obrikom-Oben project, popularly called the OB3 is currently undergoing pre-commissioning. It has been undergoing pre-commissioning in the past three months. The project of that size is the largest pipeline project existing in Nigeria. It is 48 inch diameter and 67 kilometer. The project is at the terminal end; we are supposed to finish with it by the end of July, 2018. We are still on track as we speak.
What technologies have Oilserv adopted that has placed it ahead of its peers, enabling it to clinch jobs like the OB3, AKK among others?
Oilserve is not about singing our praises, it’s about facts. You need to know that Oilserve was setup on a sound basis and principle. That is on the basis of sound knowledge of engineering and a clear plan to grow technology and grow the company organically. When we started in 1995, it was a very small company, it was only myself and one other employee, and we slowly built it up. We build it up by reinvesting whatever money we made and acquiring latest technology. Now, it is not just about technology acquisition, it is about acquiring knowledge about that technology. By my background, I am a cerebral engineer and I have worked in 12 different countries before I came into Nigeria. Before I came into Nigeria, I was principally focusing on developing engineering capacity. Along the line, we looked out for the best way of achieving the EPC. One of the things we introduced here is the welding works. Welding is at the core of pipeline construction, and the major threat to welding is the traditional welding system, which is the manual welding system. Here you have to use the welders association and some of them are very troublesome. They are not there to work; they are there to create problems. Sometimes, you may not even be able to control the quality of their output. But we have moved up to develop automatic to semi-automatic welding system, where it is like being in a production line in a factory. With this, we train our own staff technically and because it is automatic welding, we are not bound by certain rules. With the automatic welding, we are able to do as much as 25 joints a day. Ordinarily, if you are doing manual welding, we can’t do more than six joints a day. So, you can see how we increased our speed and better quality.
Another technology is our Horizontal Direct Drilling system,(HDD) and you may realize that in building pipelines, you cross rivers, you cross creeks and all kinds of barriers. We have now developed a system whereby we can now dredge without touching the water. We go underneath the water to the bed of the river. That again gave us some advantage in crossing the roads. Imagine crossing an eight-lane road. We do cross-boring system. All we need to do is to go from one end of the road to the other without disturbing vehicular movement on the roads. It speeds up things. The bottom line is that we developed technologies, we train young people from the university; we provide them with the capacity building that other companies don’t have. Of note is our graduate trainee programme, where we train young engineers from the university. Sometimes, we train them for one year. We also have the tanko training programme for welders, for fitters, for operators in the oil and gas industry. This is normal for us in Oilserv, we invest in human capital development, which some companies don’t.
That is why our quality is better, our speed of delivery is faster and it is the only reason why we have the AKK. Also, it went through a due process. Beyond the fact that NNPC believes that Oilserv will deliver, in our previous jobs we have shown that we have the capacity to deliver and we have consistently delivered. Oilserv is possibly the only Nigerian company that can deliver such project. I am not saying this just to boast, Oilserv is the first indigenous firm to graduate from a construction company to a full EPC company. Most construction companies in Nigeria are not fully EPC companies. It is expensive to be an EPC company because if you have an engineering arm, you must have engineers and you must keep them with all dedication. So, AKK was given to Oilserve primarily because we got the best bid. Secondly, we won our client’s confidence that we can deliver it. In fact, if you look at the way they divided AKK project into 3, you will realize that we got the first section, which is the most important because if you don’t get the first section, others will not work.
Most project of this nature run into hitches as a result of funding, how do you intend to attract funding for this project?
It is a truism that most oil and gas projects are capital intensive. Let me cite an instance using a recent project, the AKK pipeline construction. The project owners, the Nigerian National Petroleum Corporation (NNPC) won’t be providing funding for this project. And if I may ask, why should we not be able to attract funding for this project since NNPC won’t be providing same? That’s the whole essence of the bid. In the bidding process, every company bidding did actually demonstrate how they can raise the finance and not only that they can do the job. We have already done 80 per cent of that. What we are waiting for is to close the deal with NNPC.
Mind you, this is gas infrastructure development and there are funds all over the world, for those who really know how to go about it. You just have to have the right term sheet and the right way of providing security for it. If, for example, a bank in America says it can give you a billion dollars, there is more than that money that are chasing projects. The problem is the risk and another is, can one pay back or be trusted to deliver? All these coming together could have effect on the pricing. If your risk is too high, your pricing will be up. And if the pricing is too high, the project may not be economical and that’s how projects fail.
But in this case, it’s all balanced. Oilserv being an EPC company of repute has given us advantage because we don’t need to prove ourselves; the financiers know we can deliver. We have the capacity to deliver. We have three financiers eager to give us fund but the biggest challenge in this kind of project is the ability of the Federal Government to provide a guarantee for the fund. We have confidence based on our discussion with NNPC, who is our client that this arrangement will work. NNPC has a system in place with the support of the Federal Government to make sure that it works. We are satisfied with the security they are providing and our banks are also satisfied with that. So the issue of funding is not a problem in anyway. The way it works is that, when the money is ready, it is domiciled in the Joint Venture (JV) account with NNPC. Now comes the EPC, as you work, you are paid from that fund.
As a follow-up to the AKK project, I saw that it is Oilserv-Oando consortium; could you explain the Oando role in the consortium?
This project is not just an EPC project; it’s a contractor-financed project. Consortium in a nutshell is that Oando is a partner to Oilserv. However, Oilserv is the principal company, it’s the EPC Company. So, I am talking from the point of view of EPC, Oando does not build pipelines. We are in a consortium because it is contractor-financed and it gives us more leverage. Oilserv and Oando have always had concessions from NNPC to develop. They developed for example their gas pipeline from Lagos, through their company Gaslink; they built Eastern Horizon Company, the South-South Company which is from Okanafo through Calabar, which is Ifanoseng which is where you have Unicem cement plant. There are many other projects we have done, but in all of these, Oilserv is the EPC Company.
On gas monetization, I want to know what Oilserv has in place, for instance we have heard about the issue of carbon credit, the NNPC GMD also talked about gas flaring, what is Oilserv doing to ensure that it participates in this?
Primarily, we don’t solve all the problems from the point of view that we have developed into an EPC company. We want to be a company that focuses on gas utilization and commercialization. Our job is to develop the infrastructure for the client and sometimes they ask us to maintain and operate the system. So, we don’t own them; we build, operate and transfer. On gas commercialization for example, Oilserv came up with a system two years ago. Some of the gases flared are not big enough to warrant building pipeline. If you have a situation where a field is producing 60,000 scuffs a day, you cannot build pipeline for that because it is not a commercial quantity. We devised a way to move the gas and we call it adorial pipeline system. Others like the compressed natural gas, the liquefied natural gas system normally come in big modules like the NLNG. It has been miniaturized, you can build it in such a way that you can transport it by truck; we have a franchise for that. What we are doing this time is to match whatever source we have with the transportation and utilization. You have to tie the take off very well, tie the feed and then you bridge the gap. So, we are at that stage now. It is at this point you will now be looking at the carbon credit and all of that, but we are on it anyway, that is the point I am making.
You have been an advocate of gas infrastructure and utilization, do you think the stakeholders and the government are doing enough in the area of infrastructure and level of gas utilization in the country?
I won’t say its complex but it requires a comprehensive solution. Let me state here that the FG has done a lot in the past 10 years to change the paradigm. Before now, many policies were not there to enable commercialization of gas It was so difficult to tell the producers to produce gas, when they were being forced to sell gas with less than one dollar for a thousand scuffs. It does not make any sense because the cost of production far outweighs that; that is why they were eager to flare and pay the penalty. Penalty is good but it is not the most efficient way of solving this problem, it is setting up of a system in place to encourage producers to produce this gas and move it. Some of the gases here are inadvertently produced because they are associated gas. So, for you to get the oil, gas must come out, because you don’t have a system in place to move that gas and use it you, have to flush it; because topping the oil means shutting the oil production
Today, we know that gas price has gotten to a level where they get 2.5 dollars a scuff and even more. That is a major shift. Now, the wastage is the infrastructure, you must build the system to be able to move that gas as you produce and match it with utilization. If you cannot match it, then it cannot work. So, it requires a comprehensive approach and the off takers. If you do not have the possibility of off takers from industries like the power generation, fertilizer plants, etc, you won’t be able to take and utilize and even when you build the infrastructure.
This is where the government comes in. I don’t praise people for the sake of praising them. The current GMD of NNPC is someone who understands gas. He has done a lot of gas business in NNPC, apart from other things he did in the upstream and mainstream. Since he took office, a lot has happened in the past two years – building confidence in the IOCs as well as the producers. Building in them such confidence that enables the off takers to know, “if I know that pipeline is going to bring gas, then I can invest in taking gas, if I do not know that gas is going to come, why should I build off take system”. Nobody does that in business. Taking the AKK for example, we are working on putting a thousand three hundred mega watts in Abuja, that will be an anchor project for this. You see, that is the way it works. Once you get the anchor project going, you may utilize the pipeline, it will be viable commercially, then other users can come in, that is the way it works. The same way there is a plan to do one in Kaduna. If you don’t have all these anchor projects, industries alone will not take anything, how much can they take, if you bring gas, it may take 10 years for industries to grow up. When Lagos and Escravos pipeline were built, it took 10-15 years before it started coming up. The fact is that government has a lot of role to play because it has to fund some of the key infrastructural projects for gas. No business person can go into that because you need a billion dollars to build such a pipeline. Meanwhile, the off take is not there because it cannot go before the pipeline, its like chicken and egg. The pipeline goes before the take off. So, it requires government stepping in through NNPC to coordinate that because if you leave it to the industry whether it is the producer or the utilizing company, they cannot talk to each other easily, that is the basis.
At 2.5 dollars per thousand scuffs, can that drive the particular change or development you are looking at?
It is a starting point, it is positive. Don’t forget that prices are not cast on stone; there is also room for constant review. Don’t also forget that gas pricing like oil goes up and down. So, today, gas price could be three dollars in America but there was a time it was two dollars plus. There was also a time it went up to 8 dollars, it all demands. What is important is the understandings between the producers and NNPC and of course the consumers that this price is such that producers can produce it. Don’t forget that if you take it too high the consumers cannot take it, the price will be too high for them to utilize it.
Given the discoveries of gas reserve in Mozambique and Egypt which are already being produced by ENI and its JV partners, where do you place Nigeria in all of this and what is stopping Nigeria from taking her place as a country that has that large oil field?
It is about gas policy implementation framework and driving it all the way down. Over years the fact remains that Nigeria has not been that good in policy implementation. More than 10 years ago, we were talking about Brass NLG and some others; we are still talking about it. That is a typical example. So, why is it taking so long? It is purely the way we do things, that is why the new frontiers of government production pose a challenge. No question about that but the fact remains that irrespective of the fact that Egypt is about to produce, Mozambique is about to produce, gas commercialization takes years, Nigeria has already had a head start, to build NLG system, the capacity that Mozambique is about to produce is already here in the past two years, you are talking about 10 Billion dollars to do that. It is a mega project, it takes time. What Nigeria has to do is to add another train, we have advantage over these ones. All we have to do is to now is to focus back and know that competition is already here but we are in a better position, but we also have some weakness and the weakness is that we are far from the Asian market, Egypt is closer, Mozambique is closer, so all those things should ginger us to move and log in ahead of time.
Does it have anything to do with the gas Masterplan?
No, the gas master plan is a traditional one. One of the things we have always said about gas masterplan is that by always being a driver, no matter what you want to do and sell your gas overseas to make money, the most important is how you use the gas to develop your country. Gas Masterplan provides the framework to establish the infrastructure to be able to achieve the utilization of gas in Nigeria.
Talking about domestic gas utilization and pricing, some stakeholders have called for pricing in local currency, do you see this call as being realistic?
Do you price petroleum products in Naira because they are not produced in Naira? Most of the feed, the products you put into producing oil and gas are international and the price is simply in international currency. You don’t sell gas in local currency, it is not possible. It doesn’t make any sense, because local currency can fluctuate. Assuming I sign a contract with you to sell at N700 and then naira goes to 600 per dollar, are going to benchmark it? If you do, it means that you are still selling it in dollars, you understand me, so you do not sell such product in Naira. Anybody saying that is not being realistic!
In terms of security, I’ll like to know what is being put in place since you are going to be in ownership for awhile before you finally transfer it and I know you are very conversant with the volatile nature of the environment, what is Oilserv doing in this regards?
You know that obviously. But one thing you may also have to bear in mind is that gas pipeline is different from oil pipeline. Sabotage is the only thing you have to tackle in gas pipeline. Nobody goes to gas, any time there is a breach in gas pipeline, it is purely sabotage. Whereas in oil pipeline, people are encourage to go and take the oil, because they can make money from it; that is the fundamentals of gas pipeline.
But with the new technology, we built detection systems with the pipelines. So, we use fibre optic system that we laid at the same time such that if you touch those pipelines, you are detected. With the new technology that is being deployed in all the pipelines that we are building now, it gives us a level of security; so, having said that, you cannot secure anything 100 per cent.