Recent attacks on oil and gas pipelines have cost Nigeria almost half of its daily crude oil production, in addition to denying power generating plants the needed gas supply, thereby depressing the nation’s electricity output to a new low of about 600 megawatts in recent times. Speaking on how to tackle the hydra-headed issue, Engr. Emeka Okwuosa, who is the Executive President, Oilserv Group, identified a number of ways including: technological deployment, policing the pipelines and community engagement. Given the complexity of these attacks, the Oilserv boss has called for the adoption of a multi-dimensional approach to effectively curb the resurgence of pipeline vandalism. He spoke with Orient Energy Review Editor, MARGARET NONGO-OKOJOKWU at the Offshore Technology Conference, OTC 2016, in Houston, Texas, USA. Excerpts
In view of the recent attacks by militants, what have you put in place to secure your investments?
Pipelines are built based on what you call engineering codes and these codes determine the way you scope the project, the way you put the specifications on the projects done. Our job is to build according to the specification of the clients. There are many ways to secure a pipeline but the most efficient way is engagement of stakeholders particularly government with various entities including communities and all manners of people that are impacted or have direct impact on the pipelines. Also, there are various forms of technologies: the fibre optic detection system but that has not been installed yet because it is not part of the original scope. But anybody tampering with a gas pipeline is a saboteur because you don’t tamper with gas pipeline to steal the gas unlike oil. So the incidence of pipeline vandalism is not normal, and whenever it happens, it means that whoever has gone all the way to do that cannot easily be stopped as it is purely an act of sabotage.
So how do you think government can find solution to that?
The government has to set up a system to guide the pipelines because they are strategic national assets. Everywhere in the world you guide your pipelines, either using technology or engaging host communities including military outfits.
In other words, you are supporting the government to create separate security outfits to guide against vandalism of pipelines?
I’m not saying I support it. I don’t have the details but what I’m saying in general is that you have to do various combinations of methods and modalities. You cannot restrict it to putting police around there. If you have 500 km of pipelines for instance, are you going to put armies and polices in every metre? That is not feasible; it requires again engaging the people around there which are the host communities because they are the first and primary line of defence for the pipelines. Somebody has to know that something is going to happen and make report appropriately.
Will that solve the problem?
That is part of the solution. It has to be an integrated solution. If you put drones, it can work but what it means is that when you have detected any abuse by drone you will still intervene, meaning an integrated system is vital.
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So what is the best method to stop vandalism in your opinion?
It depends on the pipeline, the area; the communities and so on. It depends on many things but like I said, it is a combination of many factors and it is the only when you take a specific pipeline that you can address such issues clearly and be able to put a formula in place. It is not easy to say this is the way forward. Being able to work together with the communities and the individuals around the area of that pipeline, being able also to build the pipelines in conformity with the right codes in a way that makes it difficult for anybody to get in there like burring the pipeline which is what we do. The other one is being able to deploy technology such as a detector like fibre optic, track system or any method along the line, or you can put drones to monitor, and then finally you have to put an intervention system, which means when you have detected it; what next are you going to do? You need human beings to go there and take actions which means it has to be well organised; then finally you have your legal system that when you catch somebody you prosecute that person, and not let the system filter in and nothing happens. That encourages negative actions going forward. It is quite complex anyway but it can be solved.
Sir, let’s talk about your incursion into oil and gas exploration, the upstream. Now that you have downward trend in the oil and gas industry, how are you guys moving on in terms of explorative drilling and similar things?
When you look at exploration and production, it is part of the whole package. We started with construction work, and expanded it to EPC. Oilserv is the first indigenous company to go fully into engineering, procurement and production, and with that we have been able to consolidate our activities and develop capacity. We later moved on into gas development, exploration and production. The whole idea is to have a balanced portfolio and be able to de-risk your business. Now oil price is low but people have to understand that oil price never remain permanently low or high. It is a cycle that has been going on for the past 30 years, and for those who fully understand the oil industry, you have to fully read the cycle to know when to invest. The oil price is low but the reality is that this is the best time to invest because you can price lower; the only challenge is that you may not find the money to invest, so it is a balance. So we have gone into exploration and production to be able to gauge. Right now, exploration is more difficult as it is sometimes difficult going out there to drill, spending money in exploration with the low oil price but you can still do that if you can get the services at reduced cost. You can get into production assets where you can optimize production, reduce your cost and be able to produce at a cost that is less than $30 per barrel. So you have a margin you can sustain until the price goes up.
The profit end of the industry seems to have shifted to the downstream with the drop in oil price; given your stake in the industry, do you have any plan to go into explore that sub-sector? Secondly, looking at your corporate profile, you have diversified into agriculture, exploration and production, a whole food chain. How do you integrate all of them into a single business strategy?
I mentioned here that we have moved into other areas in order to de-risk our business. Do not forget that Oilserv started business in 1995, so we have come quite a long way. We are 21 years old in business and you can see that we have matured. 21 years is enough not only for you to strategies but tried the strategies and be able to fine- tune them. We have done this and are continuously to integrating to adapt to prevailing circumstances. As we speak, we are going through a major strategy section to reposition ourselves relative to what we have done and been able to determine which areas to pay more attention to. In the medium and long term strategies, planning, and understanding the industry. It is a matter of not being a flight by night industry that is not just coming into business and trading and all that. So if you look at refining and refinery for instance, that is a different business, we do not intend to go into yet. The only way we can get into refining will be to do modular refinery in order to utilize our productive inputs going forward if we do not want to evacuate the crude or turn same into refined products for use within the country. We have not decided to go into that yet as we must create the right value with the right strategy to go into refining.
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A lot of operators are actually weighed down by huge debt and almost every PETAN member is complaining that it is being owed. How are you coping with this situation and what strategy do you think can get the industry out of this situation?
We are affected one way or the other. We have an industry wide downturn with low activities and low price regime which is affecting everybody. It is also creating a challenge for government to cope with issues of funding knowing full well that oil is the major driver of our economy, spurring economic growth. Oil still constitutes more than 60 percent of our foreign exchange revenue as a country and you realize that a lot of things used in Nigeria, you buy overseas. So to fund that, you need to make sure that you have enough money from sale of crude, knowing that a gap there which makes it more difficult for government to fund its Joint Ventures (JV) commitments. Do not forget that some of these commitments are outdated, some dating back to between 5 and 8 years ago. This is actually a problem, and I believe strongly that like the honorable minister of state, (Petroleum) stated times and again recently; work is in progress to address the issue. They are looking at alternative means of funding. They are looking at the possibility of assessing funds from the Middle East- China and other sources. Well, government is in a better position to decide. I am a private business man and am not but I believe they know what the problem is and they are dealing with it as far as it affects PETAN members as well as Oilserv. However, we all know this problem will not last forever because if you look at the oil price regime, it appears but it doesn’t mean it will hit the $100 per barrel mark. It means you are going to have that contour coming up slowly. So overtime it requires planning and adaptation and what is important is that oil producers that need our services are still in business. As long as they are in business, they need our services one way or the other. It is just a matter of rationalizing.
Some of your members have expressed frustration in accessing the Nigerian Content Fund. What is the position of the fund today?
This is a very good question and I am glad you raised it. The Nigerian Content Fund is a major issue because some of us in PETAN who fought so hard with other members to set up the NCDMD based on the Local Content Act are not happy that some of the aims are not being achieved. It may be too early to judge but some of the things we’ve seen so far need to change. We are slowly building fund that is being taken away. The purpose of that fund is for capacity building but how the fund is being disbursed today is not clear to any of us until we all come together and looks at it and make sure that this fund is being disbursed properly in order to build capacity, and capacity is not for one person, it is for the nation. We have to make sure that the oil and gas industry mileage rob off on the economy of this country and the only way we can do this is to continue to build capacity, provide jobs, and grow the Nigerian participation in the production and distribution of oil and gas services. I have not seen much effort in this direction today.
What are stakeholders doing to correct these anomalies?
It is still early and don’t forget this law has just been in place for only 4 or 5 years. In practice, we are still coming to terms with it. We are taking it up as an organization to address it with NCDMB and where that does not yield results, we take it up the more as NCDMB reports to somebody and there is a process but we have to make sure that NCDMB manages the situation in a way as to address the reason for setting it up.
How true is it that some of PETAN members have accessed this fund?
Let me tell you, it is like saying that out of a million of funds, one person accesses one percent; that is not access as far as I’m concern, it is not more than one or two companies that have accessed the fund at a very low level. By level, I mean complete low level that for a company like OILSERV, that fund cannot do a single project for us, so we cannot even go for it because it makes no sense to us.
Sir, we have talked a lot about pipeline security and the other side of it is pipeline integrity. Some of these pipelines have been laid for decades. What is your assessment of the integrity of some of them?
It depends on the pipeline. Don’t forget that when you talk of pipelines you talk of crude oil pipelines, product pipelines and these are owned by different entities. Crude oil pipelines are still owned by the IOCs and local producers. The codes are very clear; we know the codes and we know the standards and which you are oblige to maintain. To assure integrity you have to build in conformity to the code. Secondly you have to do the routine maintenance like digging and what have you. You also need to have your cathodic protection going to stop corrosion from happening. With this, the pipeline can last you more than 20 – 30 years. Crude oil producers more or less keep to this. When you get to gas pipelines they are owned by different entities, mostly by NGC and other entities. They are also well maintained. Where we have a gap is the product pipelines. For years now, we have heard claims that product pipelines are being maintained but they are not serviceable. Some of them have not been dug for years; the tank farms are not working so there is a gap. This is where PPMC have to take the blame. You cannot be the owner of an asset without taking care of it and you expect the asset to remain valuable. This is why we still have problems with distribution of products in Nigeria today. You cannot put diesel or petrol in pipeline in Port Harcourt and expect it to get to Yola. It means we have to continue moving it with trucks which is not feasible.
The PIB has been presented to the National Assembly. However it has been stepped down by the same apprehension that follows previous moves. What should we do next?
Clearly the immediate past administration did not handle the PIB well, and you are talking about the executive and the legislature, that is purely in my own opinion a huge joke because every year, we hear promises that this year is the last year and it went on for 4 good years, but there was no commitment to do it. I have stated it clearly in few interviews that if Nigeria needs to move forward, we have to define the operation of the regime of oil and gas because investors cannot invest on the bases of an unknown system or a system that has a potential to make a change that can impact on their investment. When that is the problem, you discover that companies, entities take the back seat, so it is a major challenge. I believe the present administration is serious about making a move. Few things have convinced me that they are serious but how they are going to go about it is what I don’t know. Lest we forget, this is not just about the executive arm only; the major culprits are the Senate and the House of Reps. So if the legislature does not go ahead and do its work, the executive cannot do anything. From what I heard yesterday in the briefing of the Chairman, House Committee on Petroleum (Upstream), work is in progress and I know they are working on it. What we hope for is that sooner than later before the end of 2016, they will come up with the first phase of that law. I think they have broken it down into sections, that makes sense but there have to be a strategy and a clear target of where we are heading to. The fund you are talking about is part of the entire system, so it cannot be treated in isolation. You have to look at the whole gamut of the issue because beyond the host community fund there are other issues there. Clearly host community fund has to be looked into but it has to be put into perspective with various other schemes like NDDC which has a lot of things going on there. How do we manage all these things to make sure that the host community which it is meant for actually gets it?
You talked about how pipelines situated in host communities are better protected. What is Oilserv doing to these communities? How have you been able to manage the expectations of the communities whereby you don’t have issues with them?
We have a process and that process has been going on for years. We are the only oil servicing company that was operating fully in repairs and rehabilitation of pipelines between 2001 and 2008 when militancy was at its height especially from 2004 to 2007. We managed to operate in the middle of the swamp ranging from the western swamp all the way to the eastern swamp from Onne River to Bonny. It is very simple; it is a matter of understanding what the issues are and having a problem strategy 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 them, when you come back, they will receive you. But when they see you as someone who is taking advantage of them, then you have a problem. It has to be a consistent and sustainable relationship. This is from the service point of view. But you cannot solve the entire problems doing it that way. It requires the engagement of the oil and gas producers because after we have worked and gone, they will remain there to produce oil. Government has a lot to do with it, how they organize communities, how they make sure that communities become stakeholders in everything government is doing. Most of the reasons you have these problems is when the communities are shut out of normal processes, then they revert to where they can get something.
In the face of all these, what do you see as the way forward for the oil and gas industry?
The way forward is to continue to build local and indigenous capacity in a very structured manner looking at long term plans. Secondly, being able to continue to invest in the oil and gas industry regardless of the price regime is vital. Finally, government must understand that it has no business owning assets in oil and gas; government’s duty is to regulate, tax, and then utilize the proceeds of the tax for the development of the country. Each time you allow government to claim the assets either in JV or whatever, it does not work because they are not structured to manage it. Going forward, you have to realize that the government of America does not own any oil assets, so far as you collect your tax and allow the private individual to do their business they will create capacity and collect more money in tax.