PIB and the NNPC: Building Synergies

By

Bello Salihu, PhD

This is the third installment on the topic of how the (hopefully) soon-to-be-passed Petroleum 

Industry Bill (PIB) will, or should, impact on Nigeria’s national oil company the Nigerian National  Petroleum Corporation Corporation, NNPC, as regards human capacity building and job creation.  In the first discourse I presented how history - right from its creation - has burdened NNPC with the task of playing a critical role in building a technical and administrative manpower base for the country’s oil and gas industry. In the second discourse I wrote about the challenges the corporation itself is facing in defining and following a workable recruitment and human capacity building agenda that is in tune with both the aspirations of its core investors, which include all Nigerians, its expected position to be a trend setter and standard bearer to all companies and institutions involved in the energy industry in Nigeria and, finally, its ambition to be a global player in the oil and gas realm.

Today’s contribution aims to define what synergies are there to be built or strengthened in order to have a corporation that can assume its apex position in the scheme of things in the global or, at least African, oil and gas scene not only by virtue of its size or the reserves it lords over but also by virtue of how many Nigerians it has consciously and deliberately aided in securing gainful employment in the industry.

As I have mentioned in one of the earlier write-ups on this topic, there are other areas in which the passing of the PIB will impact on the NNPC, but, for now, the discussions will be restricted to the issue of job creation and human capacity building. 

As it stands today, the NNPC remains the main driver for almost everything that happens in the Nigerian oil and gas industry, including in the area of employment. A Nigerian service company working in the upstream sector that has just employed three more engineers could have done that because it won a contract with a major upstream operator. That contract was likely to have been sanctioned by the NNPC as the main joint venture partner or the reserve owner in the case of production sharing agreements (PSAs). The preference of the Nigerian company over more established foreign contractors in the same field may have been facilitated by the Nigerian Content Development Monitoring Board (NCDMB) while one of the roles of the Petroleum Technology Development Fund (PTDF) remains to ensure that the skill required by the hiring company is available to be found in the teeming employable youth demographics in the country. This is the synergy one hopes to find in the industry today. Statutorily, the government of the land, by enacting the laws and bringing into existence the various agencies involved, has laid the the foundation for the synergy to take place. 

The personnel strength of the NNPC is just over ten thousand and it is common knowledge that most international oil companies operating in Nigeria, as in any similar oil producing country that is not their home country, maintain very limited number of permanent staf on the pay rolls as it is in their business plan to be thin on the ground - executing most of their operations through proxies, contractors, consultants and non-permanent employees. According to a past NNPC GMD, Engr. Funsho Kupolokun, in a talk given a few years ago, it is estimated that the Nigerian oil and gas industry does not directly employ up to one percent of the Nigerian population. Another estimate puts the actual jobs created for Nigerians in Nigeria through actions occasioned by the passing and enforcement of the Nigerian Content Act of 2010 to be about two hundred and fifty thousand. If these estimates reflect current reality this means that, put together, less than half a million people in total draw a salary and earn a livelihood from the Nigerian petroleum industry. There are more farmers in some Nigerian local governments than that number.

As things stand now, the NCDMB actively fights for a generalised concept of Nigerian value 

addition in the upstream and mid-stream sectors of the industry. This concept includes, but is not restricted to, employment and job creation. In other words, value is measured holistically and not singularly. This, in itself, leaves room for the same local companies whose interest the board champions to seek ways to define what value they add strictly in terms of what generates better profit for them and not what benefits the nation through job creation - a benefit that can trickle down in the entire levels of the national economy. If, however, that concept is turned on its head - and value added is now measured by how many Nigerians are employed - and those employed are now expected to perform tasks to a set standard as agreed by the operator and the contractor - with penalties and rewards incorporated in the delivery structure, many more Nigerians will rise to the occasion and deliver, the local companies will attain more measurable competence in the service they deliver and be more profitable while the operator would have helped in establishing a more readily accessible, competent local work force for current and subsequent projects.

In areas where, the local company has to bring in expatriates, it will then be in the interest of that company to ensure that expertise is efectively transferred to Nigerians as that will be the basis on which its adherence to the local content principle should be measured. Unfortunately, thanks to the way things are, the industry still generates more employment outside the country than it does within. 

For this synergy to work, of the three organisations discussed here, the one that requires the most overhaul in its operations - not its guiding principles - is the Petroleum Technology Development Fund (PTDF). The PTDF needs to understand where to get the biggest bang from the money it is investing as long as its remit is concerned.

As far as the industry is concerned, not to mention the social and economic needs of the country, the PTDF needs to concentrate on training more technologists, technicians, operators and other lower skill professionals. This is more advantageous than training post-graduates and researchers. Looking at the number of personnel in each skill level that are required in a typical oil and gas project at the level of actual hands on the job, there is a need for a just a handful of engineers or researchers as against an army of lower skill technicians, technologists and other support staf. Moreover, the lower skill set represents the bottom end of the pyramid for which more people can be entered into productive employment and be lifted out of poverty. In a nutshell, the industry requires more pipe fitters than pipeline engineers.

Continuing the way things are now will generate a case of too many chiefs and too few indians, which is symptomatic of situations where adequate planning is absent in the acquiring and use of human resources. This seems to be pervasive in the industry. In the NNPC, for example, the last major mass employment that took place was in 1991. No structured employment took place for over ten years after that. By then, a massive gulf in experience, skill and knowledge has built up which the new-comers are ill-equipped to fill and the personnel last employed - who are now about to enter into management, could not effectively transfer to them. And today, twenty years after that, very few technical personnel-considering the size of the company-, have been added to its payroll. In the NNPC of today, engineers, that should be involved in higher thinking or trained in non-routine problem solving tasks are deployed in massive numbers to refineries as operators to undertake tasks that mostly require technicians.

The long hiatus in employment in the NNPC can be attributed to the stagnation of the company during that twenty-year period. The same period that saw the growth of Brazil’s Petrobras from a regional product marketer to a deep ofshore exploration giant and saw Russia’s Gazprom transform itself into the pre-eminent gas giant of Europe that it is today. It was a period when NNPC could have been truly transformed through building globally recognised competence in any of the various strands of activities it was, or still is, involved in.

It is also during that time that a Libyan company, Oilibya, built a supply infrastructure and registered its presence in many countries in north, west and central Africa. Its market focus is the provision of petroleum products across the continent and its logo can be seen atop many filling stations in almost all the countries surrounding Nigeria. Twenty years ago, with our geography, a functional refineries and a burgeoning upstream sector, the NNPC would have been in a better stead than Oilibya to build a delivery infrastructure in liquid products that could be more efficient than that of Oilibya. The NNPC could have, by now, used that available infrastructure to deliver not only such products but also gas and petrochemical products all across the entire continent.

Along with Oilibya, after the collapse of apartheid South Africa’s SASOL has been at the game, cornering the greater part of Southern Africa.

Since the beginning of this year, the NNPC, and not the marketers, has singularly been importing products into Nigeria. Those in the employ of companies involved in getting the imported products to the end-user, from depot operators to tanker drivers to filling station forecourt attendants are much more in number than those employed in the upstream and mid-stream sectors of the Nigerian oil and gas industry combined, areas in which NNPC and its JV co-sojourners are operating.

This, in itself, means continuing and expanding further downstream could be worth thinking about by the NNPC. Because more than any other Nigerian company, the NNPC could be more capable in standardising the downstream end of the market and build an exportable business line from its assets.

If, however, the rigours of building and maintaining a products delivery infrastructure is too 

distracting for the company, the corporation can easily achieve the same level of involvement and profitability by building linkages and partnerships with existing Nigerian downstream operators to deliver such services while it concentrates on refining and petrochemical processing as a core business. The strong deregulation element in the PIB will, if the bill delivers its expected gains, ensure that the refineries are run as purely commercial entities involved in buying crude from Nigeria or anywhere in West Africa or farther, refining it and selling the products within and outside Nigeria - all done at the prevailing global market price for both crude and products. NNPC then makes a profit from the added value of refining and delivery.

Now, extending such a scenario even further, more refineries may be required to service the 

greater west and central Africa given other downstream operators in those countries, such as 

Oilibya and France’s Total a run for their money. By the time NNPC adds its gas advantage to the mix, it stands the chance of becoming the largest supplier of energy in Africa. This bright promise can also be consolidated if the corporation decides to use its gas to light up west and central Africa, which, according to all the global energy usage indices, are still in darkness. To achieve this, the NNPC can deliberately invest in independent power plants (or buy up the existing ones), supply them with gas and build a cross-border power delivery infrastructure.

The NNPC can choose any other area in which to concentrate in building distinction and competence and not necessarily the few examples mentioned here. But which ever area(s) that may be - the corporation should endeavour to do so using a systematic and well thought out policy that ties into the job creation synergy we are talking about here. As I have mentioned many times in this column, the success of the corporation needs to be measured not in our reserve strength or production volumes but in how many people earning their livelihood through the actions of the corporation. 

So in both the downstream and upstream ends of the business, the NNPC, the Petroleum Technology Development Fund (PTDF) and the Nigerian Content Development Monitoring Board (NCDMB) can build a synergy in which Nigerian companies wishing to be involved in taking advantage of these and similar opportunities are partnered or encouraged by the NNPC, facilitated by the NCDMB and empowered with knowledge by the PTDF to do so. The Nigerian oil and gas industry is well positioned to achieve this and more. The components required to build the machinery to do that are all there except the will and the well-designed policy, such as the PIB, to tie all the strands together.

This was earlier published in my column 'Oil and Gas Weekly' in Government, 

a publication of Leadership Newspapers, Nigeria - 2012.

PIB and the NNPC: On Human Capacity Building

PIB and the NNPC: On Human Capacity Building

By

Bello Salihu, PhD

Last week’s piece was dedicated to examining questions that may arise as the nation awaits the passing of the PIB, particularly how elements of the bill are set to affect the NNPC, Nigeria’s national oil company - which is set to be have a name change that will hopefully fuse its efforts into a more targeted service delivery and also focus it to fewer areas in which it can build sound technical competence. 

Of the four cardinal objectives of the corporation at its inception, the first, that of building administrative and technical capacity will be singled out and discussed today vis-à-vis the corporation’s readiness to metamorphose into a globally relevant E & P company as envisioned by the PIB. Not because the other three original objectives of its formation, namely, formation of a functional, global and independent national oil company, encouraging local participation in the industry and ensuring national energy security are not important, but because, as has been demonstrated by other countries and their national oil companies, once the human capacity end is sorted, the rest will surely fall in line.

This is hoping this is looked critically by Nigerian lawmakers as they debate the bill in the not-so-distant future.

Next week I hope to discuss those synergies that if explored will bring about a robust and capable technical and managerial manpower not just for the NNPC but also for Nigeria, a country that is currently suffering from massive youth unemployment and under-employment. But before we discuss what shape such a synergy should take we need to understand, first of all, NNPC’s take on the all-important role of developing administrative and  technical capacity in the Nigerian oil and gas industry. It is only after doing that that we can see what the corporation is doing right (or wrong) in working with the other agencies to build a robust pool of technical and managerial expertise for the Nigerian oil and gas industry.

In the 1990s, as a young engineer starting out in the oil industry, while on a training programme on my then employer’s training in the south of France, I could remember being handed a vision speech made by the then new CEO of the then British Petroleum (now BP), Mr. John Browne (now Baron Browne of Madingley). We were told that the speech was circulated to all BP employees the world over and was seen by all as what will define the company's future in a soon to be challenging operating environment. Prior to John Brown's ascension to head BP, the company was beset will all manners of operational and fiscal difficulties.

There was a talk in the speech about BP moving from just a learning organisation to a teaching and learning organisation. Every member of staff involved in any project and at any level of involvement was tasked to bring it into the open and make it available to any one and everyone within the BP system to encourage cross-fertilisation of ideas - to achieve this all were encouraged to have an intranet webpage about themselves, their work and their contributions to BP's corporate goals using a then new-fangled tool called the 'Internet'. The aim is to cut costs and make BP the most cost-conscious of all its competitors in the international oil company (IOC) ranks.

Two things struck me then as they still do now. The first one was that the company I was working for then was a mere service supply to BP but saw, then, how intricately intertwined their future as a business was to wherever BP was heading - my former company recognised that fact enough to make us all, not only aware of but, buy into BP’s vision. Secondly, Browne's ability to communicate to all levels, high and low, of the importance of the seemingly little and inconsequential things that, will, in the long run, determine if BP survives as a business or not. 

Bringing it closer to what today’s article is about, since NNPC is the apex company whose various activities in the upstream, midstream and downstream drive the Nigerian oil and gas industry, actions and policies in the line of job creation championed or relegated by the NNPC will affect all contractors and suppliers to the entire industry which will cascade further down to the sub-contractors and suppliers connected to the corporation’s first line of service suppliers. This extensive chain continues and ultimately translates into the ability of a fifth line beneficiary of that contract signed by the first line supplier to employ an additional driver, technician or machine operator or even finance a small R & D project in their local university or polytechnic geared towards  a better product or service delivery. Along the line, thousands will be fed, sheltered, clothed or sent to school because a small part of an offshore field development or maintenance of a refinery or pipeline has been internalised within the country thereby creating value in the life of many Nigerians.

Looking at this cascading chain of value addition, the Group Managing Director of the NNPC, Andy Yakubu, may be the single most important person in reducing the plague of unemployment in NIgeria. Because with a single decision from the corporation millions of jobs that are not necessarily on the corporations payroll can be created in the Nigerian economy overnight. But again, the vision or creativity to define, sanction and manage what jobs are to be created can only be taken by managers who are themselves empowered to do that through an effective human capacity building culture.

The NNPC of today does not seem to be structured to maximise the oft-mentioned enormous human resources that abound in Nigeria - both as a direct primary, secondary or tertiary beneficiary of such a resource and as a catalyst for the unleashing of massive job creation potential of a country of over 160 million people and in which nearly one hundred million are within the employable age and a higher percentage of that hundred million are either unemployed or under employed.

In the last few years, NNPC seems to have got its act together in the area of recruitment. Young professionals are now employed mostly based on merit after a rigorous, and mostly transparent, selection process. There has been numerous complaints about the process but then, coming from an era in which even that was not obtainable, one could excuse these flaws in the hope that eventually they will also be rectified.

But for the young people so lucky to be employed the new challenge is to seek professional fulfillment in a system in which their progression is mainly, for the most part, taken for granted. This is because, as long as they keep a low profile and do not step out of line, they are likely to get their promotions and advance up the system when due. This has rendered the corporation to be “top-heavy” since over the years - for many years - many have toed that line and risen up the corporation’s ladder. Very few of the NNPC’s over twenty-thousand employees enjoyed or, as long as this system remains the norm, will enjoy rapid career advancement and rise above their peers because of some professional or technical achievement linked directly to advancing the corporations core business(es) in either innovation or cost saving.

The elevation of Andy Yakubu from the ranks of group executive directors to become the current GMD over more senior colleagues could be an acceptance by the government of the day that unlike before proven talent into that position could be found within the corporation and need not be imported from the IOCs. 

This is hoping that this is not an aberration but a new culture that will be allowed to cascade down the entire corporation because In the NNPC’s current and future competitors the hierarchical system is mainly structured in such a way as to be ‘bottom heavy’. That way, only the very best rise to the top. The not so good will be confined to job roles commensurate to the level of promise they have exhibited and exposed to further training and development at that level.

In the last few instances when NNPC advertised for experienced professionals to join their ranks, the cut off age for the applicants as mandated in the adverts was pegged at 40 years. From what one gathered happened in the recruitment process, most of the professionals, who are mainly from the IOCs, that were able to scale through the process were placed in the early  or middle managerial cadre in the corporation. If the same professionals had been in the NNPC at the inception of their careers, it is very likely that they would have spent only a maximum of fifteen to eighteen years of services in the corporation. As things stand now, only few officers who joined the corporation’s service are managers after the such a length of time.

The corporation remains about the only employer in the Nigerian oil and gas industry in which one is hard pressed to find young officers in the engineering and technical job roles being handed positions of real responsibility before their tenth anniversary in the company. Most of the technical professionals who migrate from the international operating or contracting service companies operating in Nigeria on the other hand are handed technical and budgetary responsibility very early in their careers and challenged to prove their mettle to justify their employment. By their tenth anniversary with their employers, many of them have held such responsibilities in their companies’ other subsidiaries either within or outside the shores of Nigeria. For most of them, migrating to the NNPC is to secure their future with a company in which their age mates have not even start rising up the managerial ranks. I stand to be corrected but I feel very few of them move to the NNPC to seek more challenging technical roles.

This, in effect, should tell the NNPC that there is a need for a re-think in the way the corporation handles the professional development of their staff. 

I saw a ray of light when I was briefed a few years ago by someone high up the human resources function of the NNPC who wants to change the way young newly-recruited engineers in the corporation are accelerated through training and exposure to a position where they could assume professional and functional responsibilities earlier in the careers. While there is an in-built culture in the NNPC that may see such a plan self-destruct at the alter of an established system of political meddling, lack of an effective  mentoring system and reward for non-performance, as found in any state or federal ministry, this is hoping that it succeeds in spite of such odds.

If that plan is able to see the light of day, a structured continuing professional development  (CPD) process set up to work in tandem with a mentoring programme and delivered and monitored through the corporation’s existing and future projects will go along way in developing capable professionals that are able and empowered take decision’s on behalf of the corporation much early in their careers.

All one has to has to do is close one’s eyes and envision a corporation that ‘touches our lives in many other diverse ways’, as stated in its motto, is positioned to touch those lives more efficiently than it does now - from the point of exploration and to our tanks or gas burners. That, in effect, can only be achieved with a well-trained and empowered work force.

In the next part of this discussion I will attempt to highlight the shape a possible synergy between the NNPC and the various establishments directly mandated to spearhead the unleashing of such a potential. At the head of that value pyramid is, of course, the NNPC with various statutory organisations such as the Nigerian Content Division, the Petroleum Technology Development Fund (PTDF), the Department of Petroleum Resources, the Energy Commission of Nigeria (ECN), etc., taking their respective positions as we travel down the pyramid. Some of these bodies are set up to have a synergistic and symbiotic relationship with the NNPC especially in the area of human capacity building, but apart from the Nigerian Content  Division almost all of them are working in a vacuum as far as the objective of job creation in the Nigerian oil and gas industry is concerned.

This article was original published in my column, 

'Oil and Gas Weekly' published in Government ,

 a publication of Leadership Newspapers, Nigeria 2012

PIB and the NNPC: Questions that Need Answers

PIB and the NNPC: Questions that Need Answers

By

Bello Salihu, PhD

Like a warped sequence of evolution, four years before we were set free from the colonial shackles of the British we discovered something that, if not properly managed, will substitute the colonialist and eventually keep us in worse penury. And it is sad to report that we have not managed it properly.

The discovery of hydocarbons in commercial quantities on Sunday, January 15th 1956 in Oloibiri of Ogbia local Government in today’s Bayelsa State brought to an end almost 50 years of frustrating search for hydrocarbons in commercial quantities the Nigerian Niger Delta. The well, Oloibiri-1 was spudded on the Wednesday, August 3rd 1955 and drilled to a pay zone buried 3660 metres beneath the earth's surface. The well that marked the arrival of Nigeria as an oil producing country was tested at about 5000 barrels of oil per day - which was deemed to be a commercially viable discovery. That, in effect, was the day that the seeds of conception of our Nigerian National Petroleum Corporation were planted. Since then the country has never looked backed - which is, in itself, a tragedy. Because everyday viable lessons that could have been learnt are missed because past decisions and actions are not reviewed and assessed with a view to improve on gains made or losses incurred. 

An even greater tragedy is that we also haven’t looked sideways or forward. Because if all we could learn from the past is to use the benefit of hindsight to avoid future pitfalls, looking forward enables us to better anticipate those pitfalls and our own strengths or shortcomings in trying to avoid them. Looking sideways on the other hand will provide a better view of the landscape and reveal to its policy initiators and executors what weapons they have in their disposal to reach objectives designed to make the corporation viable and relevant in the energy industry in Africa and wider world. 

Prior to 1971 multi-national oil and gas companies were the sole owners and operators of the prospecting and mining concessions issued to them by the Nigerian government. The government collected tax and royalties on production and the concession owners were free to do as they wished with their productions. By joining the OPEC in 1971, and as is encouraged by the tenets of the cartel, the then Nigerian government moved to take control of its petroleum industry and in the same year the forerunner of the NNPC, the Nigerian National Oil Corporation (NNOC) was created. A few years later, in 1975, the Ministry of Petroleum Resources (MPR) was also created to provide regulatory oversight to the industry and take charge of administrative roles that a commercially-focussed entity such as the NNOC should not be burdened with. Yet, the evolution continues - two years later in 1977 the NNOC and the MPR were merged to form the Nigerian National Petroleum Corporation, NNPC. A colonial entity charged with the supervision of the petroleum industry called the Hydrocarbons Section under the Ministry of Lagos Affairs later metamorphosed into the forerunner of today’s Department of Petroleum Resources (DPR). At various times, the DPR (or Petroleum Inspectorate) was part of the NNOC, MPR and later became the semi-autonomous Petroleum Inspectorate before finally being re-aligned with MPR in 1988 as the ministry’s technical arm.

Since the early days of the current political dispensation, politicians have surveyed the landscape and realised that there needs to be a step change in the way the industry is run. The government of the late President Umar Musa Yar’Adua brought together industry experts and who engaged widely with the industry and midwifed the reports that formed the nucleus of the original idea of the Petroleum Industry Bill (PIB). For better or worse - all indications point to the fact that the Nigerian oil and gas industry will be transformed by the petroleum industry bill soon to be enacted by the country’s national assembly. The difference between the two eras - pre and post-passing PIB is likely to be almost the difference between night and day.

So today, we will ask the question, is there anything in the PIB that - when passed - will herald a step change in the way the Nigerian National Petroleum Corporation, NNPC, is currently set up and run? Will the metamorphism of the NNPC to the National Oil Company (NOC) as suggested by the  draft Petroleum Industry Bill - make any difference to the way NNPC is run currently or as it is composed of today?

I have often been asked my opinion of this current re-incarnation of the much-touted PIB. All one can say now is that it is a pretty document. Its bark has been reduced to a whimper but still has some fangs that, in the right hands, could bite. One of the places where it can be made to bite is in the transformation of our flagship national oil company - the NNPC. What makes getting it right with the NNPC even more pertinent is because the corporation is the main interface between the Nigerian oil and gas industry and the greatest number of external stakeholders - from the citizenry - which include oil producing communities. Other stakeholders include the International Oil Companies (IOCs) operating in the country, potential investors and multilateral international energy concerns such as the OPEC, Gulf of Guinea Commission, the Gas Exporting Countries Commission, etc.

So the NNPC’s impact today is felt across the entire social and economic spectrum, in and out of the country. Certainly, transformation in the NNPC should be geared towards one direction and one direction alone - efficiency. A concept of efficiency that covers everything from products marketing to social and corporate responsibility, from profits and attracting investors to handling community issues and managing and satisfying, in the best way possible, the expectations of Nigerians.

At its inception, the NNPC’s objectives were four-fold and simple; 1. to build administrative and technical capacity in the young industry, 2. to form a commercially-independent oil and gas company capable of participating and competing in the industry globally, 3. to support active participation in the industry from individual and corporate entities in the country, and , 4. to ensure national energy security.

Even though the corporation has undergone countless changes in its evolution from 1971 to date, an assessment of the success or failure of the NNOC/NNPC idea in the last forty years must start from the hit/miss ratio of the four aforementioned goals at its inception because most, if not all, of the changes during all those years have been to reposition the corporation towards achieving those four cardinal goals.

The first goal, that of capacity building, can best be looked at in the context of not only job creation in the NNPC or its subsidiaries but also the impact of its activities in the generation of jobs in Nigeria as a whole. NNPC’s activities, especially in the upstream and midstream ends of the industry have created more jobs outside the shores of Nigeria than it has done in Nigeria. From foreign refineries, fabrication plants, shipping yards and even foreign lawyers, insurance brokers and investment firms have made more killing from the Nigerian revenue cow than the Nigerian based ones. What is sadder - is even naturally occurring minerals that can be used as inputs in oil well drilling and that would require little low-tech processing prior to use, are not promoted against foreign competition.

The two bodies, external to the NNPC, that were set up to counter this are the Petroleum Technology Development Fund and the Nigerian Content Division.

So why are Nigerians just feeling the impact of the Petroleum Technology Development Fund (PTDF), which was created a few years after the NNPC was created? But most importantly, is there any interfacing between the actions and performance of the two bodies? Does NNPC’s - and to a larger extent, the industry’s manpower needs - drive where PTDF commits its funds? 

What about the concept - Nigerian Content - which in my opinion is one of the more laudable efforts in the industry since its inception? Is it living up to the hopes of its creation? Why are local Nigerian firms still able to access contracting jobs still driven by the whims of the oil companies? Granted that by the nature of the way the industry operates globally, only firms that can perform should be considered for certain contracts - why is it still difficult for Nigerian companies to break the glass ceiling that is more often than not put in place by both the IOCs and those that should challenge the IOCs for creating that ceiling in the first place? For the Nigerian companies, my question to them is why, after the Nigerian authorities have spent over ten years actively promoting local participation in the industry, there are still very few Nigerian firms that are more than briefcase carrying individuals fronting for the same foreign service providers the Nigerian content drive is aiming to displace? Why have so few Nigerian firms broken the efficiency, innovation and professionalism barrier to be able to contest for design jobs that require more of brain power and less of feet on the ground?

Similar and deeper questions relating to the original objectives of the setting up the NNPC can be asked - and in due course will be asked on this column. Most importantly - ideas on solutions will be presented and discussed. But for now one will only hope that the entire PIB delivers and that, in the particular case of the NNPC - the industry’s more public face - it delivers big time.

One cannot be blind to the fact that one of the NNPC’s major impediments to achieving any of the said goals is political meddling from the successive governments and rulers of the land. And as long as that continues, it is difficult, nay impossible, for the NNPC to work as goal-driven, profit-oriented and responsible corporate entity. For a country like Nigeria, the resource(s) the NNPC controls, or should be given a free hand to control, are so mind-boggling that the corporation will continue to remain as an extension of the country’s treasury. But then, other countries have been able to successfully surmount that obstacle with their national oil companies, Malaysia and Petronas easily come to mind here.  Others, such as Brazil’s Petrobras, have risen in the last few decades to become the face of their countries coming of age and massive industrialisation.

Both Petronas and Petrobras exist and operate from countries that not very dissimilar to Nigeria in terms of level of development and political maturity - the difference is that their respective governments choose to do things a little differently.

The above opens up a discourse on a few questions that the future role of the NNPC, as suggested in the PIB, should elicit. In the next and concluding part of this essay I will be discussing possible answers to the questions raised here today. I am sure other questions will still be there to be asked – and more questions may yet be lurking in the corner as a consequence to the solutions that may be suggested next – but the industry and NNPC are both mammoth both in their pervasive presence and relevance – so we may yet still have more need for further discussions on this issue as the days go by.

This article was originally published in my column, 

Oil & Gas Weekly, in Government, 

a publication of Leadership Newspapers, Nigeria 2012.

What is the real price of a barrel of oil?

What is the real price of a barrel of oil?

By

Bello Salihu, PhD

J. Paul Getty made a name, not mention lots of money, for himself as the founder of the Getty Oil company. In 1966, the Guinness Book of World Records named him the world’s richest private citizen. During that era he was a poster boy for a lot of folks involved in free enterprise but especially those involved in the oil and gas business. He was to our industry in the 50’s and 60’s what Bill Gates, Larry Ellison and the late Steve Jobs are to today’s IT entrepreneurs and enthusiasts.

It was quintessential Getty to pay Ibn Saud, the founding king of Saudi Arabia and the father of the current monarch, King Abdullah, nine and a half million dollars plus a promise of 1 million dollars a year for a 60-year concession on a barren tract of land near Saudi Arabia’s border with Kuwait.  This was in 1949 when such an amount was more whispered than spoken of. And for the next four years he invested further multiples of that sum searching for oil in what everyone in the oil game then told him was a waste of time. In 1953 his gamble paid off with a massive find that would produce 16 million barrels of oil a year  - every year - thereby catapulting him to be amongst the very rich. A few years after that he was named by Fortune Magazine as the richest living American.

But I introduce today’s discourse with this larger than life personality more for his epigrammatic wit and less for his fabulous wealth or business acumen. Two of his many famous sayings sit succinctly and comfortably with the two global and linked viewpoints on the issue of the actual value of a barrel oil.

So let us start with his answer to the question I paraphrased and used above as the title of this article; when asked what he thinks should be the price of a barrel of oil, he was reported to have answered simply, “However much you are ready to pay for it”.  With such a deft and intelligent response, Getty switched the question from that of price to that of value. Which we all know are not always one and the same thing.

As I write this the current price of a barrel of oil hovers just over $110 dollars for the Brent blend light crude. Other crude benchmarks vary in price but I will take the Brent blend as my reference benchmark not only because it is used to price over two-thirds of the worlds traded crude oils, but, most importantly, because it is the benchmark for the Atlantic Basin crude oils, under which Nigerian production falls.

The same barrel was sold for slightly less than $25 dollars a quarter of century ago. It experienced a spike in 1990 when Saddam adventurously annexed Kuwait and a dip -  averaging just above $12 - in the 1997 as a consequence to the Asian financial crises. But for the twenty years between 1987 and 2007 its average peak was about $40.

The nearly $100 dollars above that average peak price that is being paid today for each barrel has been attributed to many factors - principal of which is the dreaded peak oil scenario - which paints a gloomy picture for the future easy availability of oil if the current production rate at which global reserves are being produced and depleted is maintained. Another major factor is the rise in demand from emerging economies - especially India and China. Countries with both massively expanding manufacturing bases and billion-man populations.

From all pointers, oil price will continue to soar for sometime - the peak oil prediction is taking root everyday as nations, basins and fields continue to conform to the predictions made by the proponent of the peak oil theory over half a century ago. And at the rate at which China and India are going, the two countries will continue to move massive swathe of their population into the middle class bracket where, with more disposable income, the new ‘global citizens’ will be expecting and demanding an energy-hungry way of life equal to that which obtains for the citizens of developed, first world economies. The aforesaid factors add more fuel, if you will forgive the pun, to the massive price speculation that has forever been intrinsically linked to the energy industry.

But even after considering all of the aforesaid factors one still has to concede that there are a few commodities in the world that can manifest such a rise in value in a span of 60 months - without a global war and/or a major natural catastrophe or some form of disruption at their production source.

To try to put such a rise into perspective we have to remember that oil and gas drive the global economy because of two simple reasons - the first is that hydrocarbons are unsurpassed as a cheap form of energy and industrial feedstock and the second is that almost anything we can touch or feel is either made from hydrocarbons or has hydrocarbons involved in its production. As an example, 90% of all transportation globally is powered by hydrocarbons, 95% of all goods in a typical supermarket have hydrocarbons as their base raw material or a major processing input and most importantly, 99% of global food production and processing involves hydrocarbon products either as fertilizer, other agrochemicals or fuel. So it is not far-fetched to see that, yes, as long as current global demand holds - and all trends show that it will - then the price of a barrel of oil will continue to rise.

When refined, out of the 42 gallons that make up that barrel of oil that was sold for just over $110 dollars refiners can obtain up to 20 gallons of gasoline, up to ten gallons of diesel fuel and another ten gallons of jet fuel/kerosene depending on refining yield. All the three fractions mentioned above average about $3 a gallon in today’s international commodities market. So in a simple ‘back-of-the-envelop’ calculation it can be seen that with its first three major derivable fractions our barrel has already paid back its cost. 

But these three major fractions are just the beginning of a long list of  value that will be extracted from that barrel. Heavy fuel oil for industries, propane gas, asphalt for road building, petrochemical feedstocks for plastics, resins, medicines and fertilizers and many other derivatives will be extracted from that barrel. And these are just the tangibles. The intangibles include employment and a raised standard of life in the country where the barrel is refined. 

For some of the developing nations of the world, and especially those in Africa, for  centuries our fore bearers were selling agro-based primary commodities to the developed world, which were processed and returned to them as value-added goods for much higher amounts than they sold the raw materials for. These primary commodities were sold cheaply when viewed in contrast to the value of the finished product derived from them.  Not to mention the jobs they generate - which feeds an upward spiral of literacy, social stability and development in their citizenry - in the receiving countries. 

In many cases the under-developed and developing world is still doing that. Most of the chocolate-loving world have cocoa producing countries of West Africa to thank for even if the actual cocoa farmers in Nigeria, Ghana, Cote D’Ivoire see only a trickle of the actual value of their produce get paid to them. The same goes for countless other commodities both agricultural and mineral that today’s world cannot do without.

Unfortunately, same goes for hydrocarbon resources - which almost the entire oil producing nations of Africa sell to the outside world without adding any value to. But what makes hydrocarbon resources a different issue all together is three fold; firstly, unlike farm produce, they are a non-renewable and wasting resources in which case every barrel produced and sold or used up is gone for good. Secondly, hydrocarbon resources are so intricately intertwined with political, social and economic stability of the present world that, for now, no people or nation can do without them. The huge price movements that we see in the market for crude oil only goes to show that we are still far from a point of value of saturation that the world can see a barrel of oil as being too expensive to buy. 

At a given peak price point the world can find a bar of chocolate too expensive to buy - which will see the crashing in the price of cocoa in the international commodities market or the manufacturers finding an alternative raw material as substitute to cocoa in satisfying the craving of their sweet-toothed customers. But, for the foreseeable future, that scenario cannot be seen to happen to a barrel of oil.

Third and most importantly, the availability of directly useable form of oil and gas, especially in the form of energy-producing fuels, in any country dictate how far and how fast that country develops industrially - because these fuels constitute an energy source that is so dense that, at its current price, it is essentially free energy. Apart from nuclear fission there exists no richer source of energy in the world than fossil fuels.

To drive this point home, all one has to look at is the roll call of the top oil producing  and exporting nations on one hand and that of top consuming nations on the other.

Russia, Brazil, Mexico and Saudi Arabia are the only countries that feature in all the three lists of fifteen top oil producers, exporter and consumers. About the only surprise there to the uninitiated is Saudi Arabia. Russia and Brazil are part of the BRIC countries that include China and India - countries with emerging industrialised economies that are enjoying unprecedented economic growth - a growth that is occasioned and powered by massive energy consumption. Mexico on the other hand is in the backyard of the world’s richest and biggest consumer nation, the United States of America for whom most of their industrial output is targeted - so their high energy consumption can also be explained.

Some of the countries in the top list of producers such as United States, China and Canada do not feature as exporters because they consume what they produce internally and, in the case of United States and China, even have to depend on imports to satisfy their thirst.

However, countries such as Iran, United Arab Emirates, Venezuela, Nigeria, Iraq and Angola all feature in the list amongst the top fifteen major producers and exporters of oil and gas.  But none of them feature amongst the top fifteen consumers of energy. They all depend on oil and gas as the mainstay of their economies - but not oil and gas as an energy source to power their industries, generate employment and raise the standard of life of their people - but oil and gas to be exported in crude form to generate easy revenue that, more often than not, is whittled away through fanciful projects or corruptly diverted.

If Nigeria can process and consume half of what it currently exports in the form of raw crude oil, there will be no clearer indication to the rest of the world that the country is using its strength as an energy producer to empower its massive population to be industrially productive. That in turn means that the country is turning its strength in numbers from being a liability to being an asset.

China understands this all too well. That is why the chinese are all over the world cutting deals and exploring for hydrocarbons wherever they can. The chinese may have laid the first ever recorded oil pipeline using bamboo sticks thousands of years ago, but they have now come to the scary realisation that they have arrived a tad too late for the massive oil and gas rush of the past century where European and American companies and countries have carved for themselves massive slices of the global hydrocarbon reserves.

The current estimate is that by the middle of this decade China will overtake the United States of America as the number one oil consumer in the world. With such a rising demand China must find its own source of energy to remain competitive. About the only thing that can hamstring China’s current double digit growth is an inability to access cheap energy. The only scenario in recent history comparable to that is General Rommel  of Germany losing the battle fields of North Africa in the Second World War because his troops were immobilised by lack of fuel!

Each barrel of oil sold in its crude form with no value added by the producing nation - even at prices multiple of what currently obtains - is more a loss to the selling nation than a gain. It is an unequal barter in which the buyer gives the oil producing nation a token amount of cash in return for a commodity that provides for the buying country abundant and cheap energy to power their industries, raise their people’s standard of living, provide jobs and fuel their relentless development. The end products so produced by the industries in the buyer’s country, in more ways than one, find their way back to the oil exporting country as valued added goods paid for with the same petro-cash earlier earned selling crude oil. 

The so-called developed nations of today became developed at the expense of nations that sell to them cheap energy.

In the peculiar case of Nigeria it is additionally disturbing that a great chunk of the revenue gained in selling that barrel is again “dashed” back to the buyer in return for petroleum products bought at a premium that are used not to power industries or drive tractors in our farmlands, but to fuel cars and electricity generating sets.

This brings us to the second wise quip from Getty. He was reputed to have rephrased a famous biblical injunction by stating that “The meek shall inherit the earth, but not its mineral resources”. Or in other words, it is not enough that your country sits on top of massive mineral resources - it amounts to nought if you are too timid, docile and tame to take advantage of such a gift to better the life of your people. The not-so-meek will take that mineral resource from you and show you how better to use it while you watch mouth agape.

At prices even higher that what it is currently sold for, there will always be someone ready to take that barrel from you - not because their dollars are not valuable to them but because what they are buying from you is far more valuable to their country’s economic and social stability than the paltry sum they are giving you in exchange for it. 

This was published earlier in my column 

'Oil and Gas Weekly' in Government, a publication of
Leadership Newspapers , Abuja, Nigeria.

The Sahelian Dance

The Sahelian Dance

By

Bello Salihu, PhD

Earlier this year in June I was invited to a function in the UK government’s Foreign and Commonwealth Office in the Palace of Westminster aimed at selling Niger Republic as a safe and promising destination for foreign direct investments - anchored, of course, to their dual status as an established solid minerals exporting country and as newly-minted petro-state. From the speech of the Nigerien President, Mahamadou Issoufou, to that of his ministers in-charge of key ministries of mining, petroleum, etc., one is given the impression of a country trying its hardest to avoid the mistakes and pitfalls of other countries afflicted with the resource curse, and like Obama’s speech in Ghana, no one there mentioned the name of any country but everyone in the audience knows which one they all are talking about. It will indeed do well for Niger Republic to be extremely assiduous in avoiding the path towed by some resource-endowed countries of their neighbouring Gulf of Guinea, the Middle East and Latin America.

Niger Republic’s arrival as an oil producing country is no longer news to Nigerians - some of whom are already  filling up with refined products from their northern neighbour. One could almost imagine the collective gasp of indignant surprise followed immediately by a shrug of resignation when it was at first rumoured, then later confirmed, that, indeed, Nigeria, Africa’s pre-eminent oil giant, is importing products from lowly Niger Republic. After all, wasn’t it like yesterday that Nigeria’s refineries were overheating trying to satisfy not only internal demand for products but also near-dry tanks in nearby West African countries - fed illegally by smugglers through porous border?

To most people, it was less a surprise that countries like Ghana, Cote D’Ivoire and even Sierra Leone are joining the exclusive club of African oil producers after all their oil finds were all in the  shallow and deep waters of the Gulf of Guinea - which seems to have more prolific oil bearing basins - and not in a sprawling, arid and lifeless desert. But the gods of oil are known to have a fondness for showing their disdain for monotony.

For the past ten years, the local crude oil consumption for Niger’s fifteen odd million inhabitants averages 5000 barrels per day. That of their big southern neighbour, and the most populous  country in Africa, averages about 270,000 barrels per day. So it doesn’t take much evaluation to know who that spanking new refinery in the Zinder province is actually meant for.

Niger Republic has its own thorny history in oil and gas exploration. In the 1960s PetroPar of Paraguay drilled two wells in the Tamesna-Talak and Djado blocks. Nothing came of that. Then in 1992 Djado permit was given to Hunt Oil while the Tenere permit was awarded to Canada’s TG World Energy.  In 2004 the Niger government approved the joint venture arrangement between CNPC of China and TG World Petroleum Limited. A year later, a subsidiary of Malaysia’s Petronas announced that it had found hydrocarbons in the Agadem Block, for which it shares equal rights along with a co-venturer, a subsidiary of America’s ExxonMobil. 

The successful exploration well, Jaouro-1, was drilled in the 1,000 kilometres east of Niamey, the country’s capital. The well achieved a total depth of 2,462 metres. Production tests of the well resulted in a maximum flow rate of 2,540 barrels of oil per day.

But in 2008 the rights, along with the estimated 350 million barrels reserves, were transferred to CNPC for USD$5 Billion investment. The one million tonne a year refinery in Zinder mentioned above and a 2000 KM oil pipeline were a promissory note from China’s CNPC, which Niger has already begun to cash.

CNPC is planning an aggressive exploration programme that aims to shoot 4,000 km of 2D seismic in the Diffa region near Chad Republic. About 18 wells also are planned over the next 8 years, of which 11 will be drilled within the next 4years,

Recently, a Nigerian company, Sirius Energy Resources with head office in Victoria Island, Lagos has won an oil exploration license for the 22,000 square kilometers Grein Block in the North West Region of Republic of Niger - just east of CNPC’s play. Pre-spud expectations points to estimated reserves of between one to three billion barrels of oil.

There is a general unstated consensus amongst petroleum geologists that the Iullmeden Basin,  which is predominantly in Niger Republic but the southern tip of which is in Nigeria and known locally as Sokoto basin, has so far yielded little cause for optimism. Even the much-touted oil discovery in Niger Republic is in the eastern Agadem Block which is situated in the Termit Rift Basin and not in the southern Iullemeden Basin that extended southward into Nigeria and terminated in Sokoto. The Iullemeden is the least explored of the basins and thus there is little data on it as an oil bearing basin. This could be attributed to low sedimentary thickness especially in the Nigerian end.

Since its inception over a century and a half ago, hydrocarbon exploration remains a very risky commercial venture anywhere in the world. Sound feasibility studies go along way to mitigate the risks. Companies or countries averse to this risk-taking culture may save their deposits, but will be amongst those to cash in  on a possible jackpot. Just ask those who shied away from investing in the Jubilee field exploration in Ghana a few years ago.

But the industry survives to this day and remains one of the most lucrative because it is a risk that has a habit of paying off handsomely when it does pay up - take the case of what happened in the same basin across the border in the Chad Republic. A consortium led by American oil major ExxonMobil invested about four billion dollars in the development of their concession in the early noughties. That venture started producing at 20000 barrels per day in 2004, peaked at 22000 barrels in 2005 and has now stabilised at just over a hundred thousand barrels per day. Less than a decade after the investment was made, ExxonMobil and friends are close to recouping their original four billion pounds.

A sub-plot to  that happy ending is that the success has also heralded Chad Republic as an oil producing country subsequent to which it started attracting the attention of companies and countries interested in new energy frontiers to invest in. Heightened interest led the country to review prospecting licenses it issued long before the ExxonMobil campaign but had remained unused - some were revoked and re-issued to other companies while in others a farmed-in arrangement was agreed. The biggest beneficiary of this review are, of course, the chinese. Who, through the China National Petroleum Corporation, has now made a discovery in the Bongor Basin east of the Chad Basin thereby opening a new oil producing region in the country. 

Almost all inland hydrocarbon bearing basins in west and central Africa are under-explored - as such the game plan for countries with large land mass and involved in the exploration game is to prove one basin and then encourage companies to take it over and foray into other similar basins yet explored. 

Sudan is now already established as an oil producer. And as the old and new global superpowers wage a proxy war of influence over the land, people and resources of one of Africa’s largest countries, Africa welcomes its newest nation-state, the Republic of South Sudan. 

The Comprehensive Peace Agreement between the two countries gives the young republic  between 50 to 60 percent of the estimated 6.7 billion barrels of proven reserves of the country before it was broken. 

Because negotiations are still on-going between the two countries about resource sharing and compensations, we may have to wait a little while before a decent analysis of the hydrocarbon potentials of this northern Sahelian region can be made. Suffice it to say, in terms of both reserves and production, it will take both Niger and Chad republics a while to catch up with either of the Sudans. In terms of full on participation in their country’s oil and gas industry, it will take Niger, Chad and the South Sudan ages to be where Sudan is today. 

In the not-too distant future it would be easier to count West and Central African countries that have not discovered hydrocarbon deposits in their borders than those that have. The  energy-hungry nations of the world will soon herald the arrival of the Sahelian region as a prolific hydrocarbon bearing region.

While all this is good, this generation of leaders of these countries will be judged by how much they can use these gifts from God to transform their region. One may even hazard a hope that Niger will somehow solve their unspeakable rural poverty that sees every drought as a certain famine. With the political maturity that was shown in the handling of ex-President Tandja’s power hunger and belligerence to the emergence of Issoufou,  a mining engineer, to midwife the efficient exploitation of the country’s natural resources and hopefully bring about a stable investor-friendly polity, one can only hope that Niger will not become another hope betrayed.

The same prayer and hope extends to both Chad and Sudan. Each one of the two countries has been grappling with a crippling insurrection for most of Africa’s modern history. Hydrocarbon revenues, judiciously used for national development may be the harbinger good fortune and peace in countries that have seen more than their share of want and strife.

As they welcome the world to their resource dance, this is hoping they keep a keen eye on both the dancers and the drummers.

This was earlier published in my column'Oil and Gas Weekly' in Government,
a publication of Leadership Newspapers, Abuja, Nigeria.