The Nigerian Petroleum Development Company Limited (NPDC) and its five Joint Venture Partners recently converged to brainstorm and adopt strategies that will enhance production and reduce cost:
t is a known fact that the global Oil and Gas industry is faced with one of the most challenging moments. This is essentially due to the fall of international oil prices from about $120 per barrel to about $30 within two years, leaving the Oil and Gas companies with huge losses. The effect of this dramatic drop in prices has also left a big hole in the revenue of oil producing countries around the world and greatly undermined economic development plans in the last two years.
As a result oil and gas companies are now faced with the challenge of finding sustainable survival strategies in order to remain in business. This was the thought on the mind of the Honorable Minister of State for Petroleum Resources and Group Managing Director, NNPC, Dr. Emmanuel Ibe Kachikwu who mandated an expansive meeting between NPDC Management and its Joint Venture Partners.
Needless to say that the platform offered an opportunity for robust brain storming and far-reaching decisions. It was also an opportunity for the stakeholders to dissect the challenges facing the operations, with a view to adopting strategies that will enhance production and reduce cost.
The meeting became imperative to review performance “because the need for change has made us to face the realities of low oil price which is about $30 per barrel compared to where we were some years back with $100 plus. If we are producing a barrel for example at $34 with all your cost and the selling price in the market is $30, obviously you are running at a loss,” Mr. Mai-Bornu stressed.
Present at the meeting which was held on the 18th February 2016, at the Best Western (Homeville) Hotel, Benin City were the former Managing Director of the Nigerian Petroleum Development Company Limited; Mr. Mai-Bornu, MD of First Hydrocarbon Nigeria Limited, Mr. Femi Bajomo; MD of Shoreline Natural Resources Limited, Dr. Ladi Bada, and MD of Niger Delta Western Limited, Dr. Layi Fatona. Others were MD of Elcrest Limited, Mr. Adebayo Ayorinde, and MD of Neconde Nigeria Limited, Mr. Malije Okoye. Others were the Executive Director Services, NPDC, Mrs Oyeyemi Ladipo and the General Manager / Company Secretary & Legal Adviser, Mrs Onikepo Animashuan and other NPDC staff.
In setting the pace for the meeting, Mr. Mai-Bornu had the mandate to fashion out a ninety day road map that will be agreed upon by all the parties for NPDC and its JV partners to return to profitability. The meeting which later broke into syndicate groups was also intended to engender team spirit among the JV partners and inspire some optimism in the partnership.
“This meeting will produce better collaboration and parts of what you are seeing today, we have broken into syndicate groups, asset by asset basis, our people and the JV partners are working together to come up with workable strategies. So you see again another purpose of today’s meeting is to engender that team spirit to make sure that we work together and achieve result”, the former MD, NPDC said.
In addition, the alliance will also establish new business relationships among the partners and free the operational, financial, and bureaucratic encumbrances that had hitherto undermined the performances of the five Joint Venture assets. “So that after ninety days, we will tell the HMSPR/GMD, NNPC that this is what we want to produce; what we want to achieve in terms of increase in production of oil and gas and then we see if we are there,” he added.
So the tone was set for what turned out to be an intense intellectual and emotional exercise. The issues bothering on production and profitability were obviously heavy on the hearts of all partners. All the participants had ample time to express their concerns.
Consequently one of the primary solutions the committee arrived at was to improve on the community relations approach as much as possible to limit downtime to the barest minimum. With this, Mr. Abubakar Dahiru, Manager of Community Relations Department came up with a couple of strategies that will encourage peaceful co-existence between the company and its host communities. One of such strategies is the Global Memorandum of Understanding (GMoU) model. The GMOU was recently introduced into OML30 and so far the Delta State Government and host communities are happy with it. As a result, the GMoU structure is now being extended to communities in OML 26.
Furthermore, Mr. Dahiru said that plans have been concluded for the inauguration of the Community Development Board for OML 26 and that by the end of second quarter, the GMoU process would have been concluded for that asset. This will ensure that the communities have ownership of developmental projects that will to be built within their domain. As soon as that is concluded, NPDC will also introduce the GMOU model to OML 40 & 42 and other assets that are within the operations purview.
Another strategy that has been adopted by the Community Relations Department is the Joint Community Relations Committee model (JCRC). The meeting is held every quarter with host communities to address potentially volatile issues. This will ensure that problems are nipped in the bud before they get out of hand. The third community relations approach is the issue of regular engagement. This is another proactive measure that could arrest potentially volatile matters.
Thus, at the end of the very extensive jaw-jaw session, an elaborate resolution was arrived at that addressed all the concerns expressed by the partners. The resolution also produced a road map that will be delivered within ninety days time frame. Some of the issues addressed were:
Working Relationship: Top on the list was the need for a better working relationship. All parties agreed to work closely together. To achieve this, members agreed on the establishment of a Joint Operating Team for each asset. They also endorsed a monthly review meeting to evaluate the progress made on the Business Improvement - Production Growth and Cost Reduction Strategies and implementation plans.
Operation & Maintenance Contracts: The partners recognized that the current operation and maintenance (O&M) contracts were not cost effective and efficient. NPDC was therefore mandated to develop and distribute a new scope of work to all the JV Partners that will bolster a proper operation and maintenance of facilities.
CHA/Terminal Fees: With regards to the Crude Oil Handling Agreements and Terminal fees which became major issues at the meeting, the partners agreed that negotiations should be initiated with SPDC to ensure drastic reduction of the existing capacity tariffs to reflect the realities of current oil prices.
Crude Oil Production Reconciliation: The meeting noted that accruable barrels arising from production reconciliation should be allocated back to the respective JV Assets even as they also settled for the quick installation of the Forcados Interim Metering and LACT Unit.
Profit and Loss Analysis: The meeting also resolved that all the JV Partners should continue to share and monitor the profit and loss (P&L) positions of their respective assets on a regular basis.
General Cost Reduction Strategies: The stakeholders endorsed prompt payment of salaries to third party staff; improved surveillance as threats to facilities, especially, pipelines have become quite frequent; security of wellheads; identification and immediate implementation of quick-wins to have direct impact to incremental production.
Trans- Forcados Pipeline (TFP) Cash Call Reconciliation
Partners also agreed that urgent steps should be taken to address the security and management of the TFP. Also all the partners agreed to work together seamlessly to resolve all outstanding cash call issues.
Finally, as the countdown to the successful implementation of the resolutions began, Mr. Abubakar Mai-Bornu revealed that NPDC was developing an accounting template that will allow the Asset Managers to capture their costs and other details. This will ensure transparency in the quarterly analysis of how much was made and spent as well as profit and loss.