The Group Managing Director of Oilserv Limited and Frazimex Limited, a pipeline and facilities repairs firm, Emeka Okwuosa, met with Nigerian reporters at the just-concluded offshore technology conference in Houston, Texas, United States. He spoke on how to prevent pipeline vandalism, survive in a low oil price regime and why product pipes in Nigeria lack integrity, among other issues. EMEKA UGWUANYI was there.
The East-West pipeline is expected to be the solution to domestic gas challenges. Your company is one of those that won the pipeline contract. What is the status of the contract given the dwindling crude price and the government’s financial challenges?
The East-West pipeline project also called OB3 pipeline is ongoing and we are looking at the project’s completion in 2017. The scheduled completion date is July 2017. The project has faced quite a few challenges like you will expect of any project. Projects come with plans, based on scope and as you progress with the project, you may have changes in scope depending on what you intend to achieve. We also have challenges that come with community management and security issues. We also have several other challenges, but at the end of all, we are always having reduced and recalibration of the schedule. Currently, we are looking at July 2017. In terms of how it is being affected by the current situation in oil and gas industry, it may not really affect it. This is a gas pipeline, and I know there is a plan by the government to make gas distribution come in top gear.Therefore, this means that the project has been programmed overtime and the funding is also being kept by the Nigerian National Petroleum Corporation (NNPC) and the Federal Government. So, clearly the funding is on stream and I believe by next year, we should have that pipeline fully functional to be able to increase the capacity of gas supply for domestic uses.
What is the volume or capacity of the pipeline?
At peak supply, we are looking at a maximum of two billion standard cubic feet of gas per day (bscf/d). Whether that capacity will be achieved or not depends on whether there will be enough gas to feed it.
With renewed attack and vandalism of pipelines, and your 2017 completion target, what measures have you put in place to secure the new pipeline?
Pipelines are built based on what is called ‘engineering codes,’ and these codes determine the way you scope the project, and the way you scope the specifications of the project, and once that is done by the clients, our job is to build to those specifications. There are many ways to secure a pipeline, but the most important way to secure a pipeline is the engagement of stakeholders including the government, the community and all manner of people that have direct impact on the pipeline. There are various forms of technology like the defined optic system, but that’s not being installed in the pipeline because it wasn’t part of the original scope. But what we have to know is that anybody that is tampering with a gas pipeline is a clear saboteur because you don’t tamper with gas pipeline to steal the gas. So, the incidence of gas pipeline vandalism is typical because it is an act of sabotage.
How do you think the government can permanently address pipeline vandalism?
Government has to set up a system to guide the pipeline because it is a national asset. It is a very strategic national asset because anywhere in the world, you guide your pipelines by using technology, engaging the communities around there, or putting up a proper security including military security, but you have to guide your pipelines.
In other words, you support government’s idea to set up a separate security that will guide the pipelines and the use of drones?
I won’t say I support it because I don’t have the details, but what I’m saying in general is that you need to do a combination of general methods and technology. You can’t restrict it to just putting police around it, because if you have a 500-km pipeline, are you going to get soldiers or police around it? This is not feasible. It requires, again, the people around it because they are the first and primary line of defence for the pipeline. Somebody has to know that something is going to happen and report it somewhere. Drone is also part of the solution. But it has to be an integrated solution. If you put drones, they can work but what it means is that when you have detected any attempt by the drones to vandalise pipeline, you have to quickly intervene. So, you need to have an integrated system because drone cannot intervene for you.
What do you now consider as the best method to stop pipeline vandalism?
It depends on the pipeline, the area and the community the pipeline passes through. It depends on many things, but like I said it is a combination of all sorts of security measures and it is only when you take a specific pipeline that you can address such issues clearly and be able to put a formula for it. It is not easy to say this is the way forward. It is a combination of being able to work together with the communities, and the individuals around the areas of that pipeline. Being able also to build the pipeline following codes in a way that it will be more difficult for anybody to get in there, which means you bury the pipelines deep which is what we do.
The other one is being able to deploy technology, which is either you put a detection system along the line or you put drones to monitor. Finally, you have to put an intervention system. An intervention system means when you have detected vandalism, what are you going to do? You need human beings to go there and take action, which means it has to be purposeful, it has to be well organised and finally you must have a legal system ready so that when you catch somebody, you prosecute that person. If after arrests nothing happens, that encourages negative actions, but going forward. It is quite a complex scenario but it can be solved.
In this petroleum industry downturn, how do you cope with exploration and production activities?
Exploration and production are part of the whole package. We started with construction, expanded it into full Engineering, Procurement and Construction (EPC). Oilserve is the first indigenous company to go into full EPC. With that, we consolidated our activities and we have been able to build capacity. We moved on into gas development, exploration and production. The whole idea is to have a balanced portfolio and be able to de-risk the business. Now oil price is low, but people will have to understand that oil price has never remained low or high. It is a cycle that has been going on for decades and for those, who deeply understand the oil industry, you have to be able to read the cycle and know when to gauge. Oil price is low, but the reality is that this is the best time to invest because you can price low. The main challenge is that you may not find the money to invest. We have gone into exploration and production to be able to gauge. Right now, exploration is more difficult because it is difficult to go out and drill and spend money on exploration with low oil price. You can still do it if you can get the services with reduced income, which is what is going on today. You can get into production asset where you optimise production, reduce your costs and be able to produce at a rate below $30 per barrel, and manage until the price goes up.
The profit end of the sector seems to have shifted to downstream, do you intend to invest in refining of white products?
I mentioned that we have moved into other business areas in order to de-risk our business. Do not forget that Oilserve started activities in 1995, so we have come a long way. This year will make it 21 years and you can understand that we have matured. Five years is enough for you not only to strategise, but try the strategy and be able to fine-tune it. We have done this and where we are today is that we have actually integrated and adapted to the situation. As we speak, we are undergoing a massive strategy session to reposition ourselves to be able to work and determine, which area to pay more attention to in medium term. We also have long term strategy there. But in long term, you have to twist from time to time to meet up with the short term and medium term results. It is a matter of planning, understanding the industry and not being a company that comes into the industry and do just trading.
So, if you look at refining and refinery that is a different business. We do not intend to get into that. The only way we can get into the refining and refinery business would be to basically do modular refinery in other to utilise the production we may have going forward, if we do not want to evacuate the crude, but rather turn it into products and be able to use the products within the country. All these things are not required within the present predicament. But right now, we have not decided to go into refining. We must create the right value with the right strategy to go into it.
Most operators you serve are being owed by the NNPC, how are you coping with the situation and what strategy should the industry adopt to get out of this situation?
Everybody is affected definitely. We have an industry-wide downturn. There is low activity, low price regime, so it is affecting everybody. It is also creating a challenge for the government to be able to cope with the issues of funding, knowing that oil in particular is the major ingredient of our economy. Oil still constitutes more than 60 per cent of our foreign exchange earnings as a country. You can realise that lots of things we use in Nigeria are purchased from overseas.
So, to fund these, you need to ensure you get enough money from the sale of crude to meet them. If you opt out from the side you know, you create a gap there, and it becomes more difficult for the government to fund its Joint Venture commitments. Don’t forget that some of these commitments are dated five to eight years ago. It is actually a problem.
But I strongly believe the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu. He has stated severally that government is working on resolving these commitments. They are looking at alternative means of funding. They are also looking at being able to draw some funds from the Middle East, China and from other sources. The government is in a better position to decide that but I believe they know what the problem is and that they are dealing with it. But as far as it affects members of Petroleum Technology Association of Nigeria (PETAN) members and Oilserve, it is a serious problem. We all know that it is not going to be there forever because if you look at the price regime of crude oil, it appears like it has bottomed, you have upside going forward. It requires planning and decisions to get it to the $100 per barrel cap. What is important is that the oil producers that need our services are still in business. So far as they are in business, they will need our services. It is just a matter of time.
What is the objective of your activities outside Nigeria?
The objective is again what I called de-risking. You have to balance your portfolio, both in terms of different services and areas of operations as well as geographical spread.
Many of your colleagues have expressed frustrations with respect to accessing Nigerian Content Fund (NCF), what really is the situation of the fund?
The NCF is a major issue because some of us in PETAN, who fought so hard with other stakeholders to be able to set up the NCDMB based on local content act, feel some of the aims are not being achieved as of now. It may be too early to judge, but we need to make sure that some of the policy directions are looked into and correct them. We are slowly building up the fund, which of course is being taken from us. When I say us, I’m looking at service providers, and the producers. The purpose of that fund is very clear. It is for capacity building. But how the fund is being deployed today is not clear to any of us. We need to come together and look at the fund and make sure it is being deployed properly in order to build capacity. Capacity is not for one person, it is for the nation.
What are the indigenous players doing to correct the anomaly?
It is still at the early stage because, don’t forget, this law has been in place for just six years, so in terms of practice, we are still coming to deal with it and we are taking up as an organisation to address it with the NCDMB. And where that does not yield the result, we will take it up. As NCDMB reports to somebody and there is a system, we have to make sure that clearly, NCDMB manages the situation in a way that will address the original reason for which it was set up.
But have some members of PETAN accessed this fund?
Yes, but it is like you have $1million fund and somebody accesses one cent, that’s not access as far as I’m concerned. Not more than one or two companies have accessed the fund at a very low level, extreme low level, and that kind of fund doesn’t do a project for companies like Oilserve, so we can’t even go for it because it doesn’t make any sense to us.
Some of the pipelines have been laid for decades now, what is your assessment of their integrity?
It depends on the pipelines. Don’t forget when we talk of pipelines, we have crude oil pipeline, products pipeline, gas pipelines. These are owned by different entities. For crude oil pipeline, mostly owned by the international oil companies (IOCs) and the indigenous producers, the codes are very clear. We know the codes, we know the standards and they are obliged to keep to the rules. So they do the maintenance to assure integrity. Besides, you have to build it according to the codes. You also have to do the routine maintenance to keep the pipeline going and make sure you have the corrosion protection system working very well to slow down or stop corrosion from happening. That way, pipeline can last for several years. The crude oil producers more or less keep to these codes. You get to gas pipelines, they are owned by different entities. Gas pipelines are mostly owned by Nigerian Gas Company (NGC) and other entities. They are also well maintained.
