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Uche Usim, Abuja
Globally, in the last one year, the petroleum industry has witnessed an unprecedented low turn. This period has seen the reduction in production and very low oil prices. In Nigeria, it has a period of drama, trauma and some level of success.
Incidentally, this is the period Mr Mele Kyari, the 19th Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), has been holding sway, having assumed office on July 7, 2019.
Unlike his predecessors that enjoyed a fairly stable business climate, Kyari had barely settled down when oil-reliant nations began purging as a result of the toxic economic situation caused by the COVID-19 pandemic and other calamities that trailed it. The unprecedented oil crash aside, Kyari, on assumption of duties, also met unending litigations, dispute, sub-optimal and very high production cost, prostrate refineries, stranded capital projects and hostilities in the oil producing communities.
But many have applauded Kyari for rising up to the challenges. The NNPC helmsman, it was gathered, rolled up his sleeves and quickly implemented an in-house strategic plan, hinged on cost-cutting measures and automation that gradually pulled the hitherto sinking NNPC ship from troubled waters and set it on a progressive course.
Fortified with many years of experience, Kyari, a geologist by profession, was until his elevation as the NNPC boss, the Group General Manager, Crude Oil Marketing Division from 2015 to 2019.
At his inauguration, Kyari promised to run a transparent national oil company that can be scrutinised by Nigerians. To this end, one of the major things he has done as the NNPC GMD was the scrapping of the fuel subsidy regime in April, setting the stage for full deregulation.
According to him, it made no economic sense spending billions of dollars annually to keep the price of petrol artificially low rather than allow market forces determine the price. The argument was that the huge funds hitherto channelled into opaque subsidy payouts can take care of other critical issues requiring government funding.
Stakeholders hailed him for the move and timing, saying it was done when oil demand was very low.
Automation
While the rampaging COVID-19 pestilence shuttered economies and disrupted global supply chains, Kyari insisted that surrendering to the pandemic was never an option.
Part of the success strategies was the automation of NNPC’s operations to align with global trends. He said in a recent tweet: “Today, we do 80-90% of our business through automation. This company is changing for the better and it will remain an entity that all Nigerians will be proud of.
“What we are doing differently about the refineries is to rehabilitate them first and then get them to be run, just like the NLNG Model, where the NNPC Group will be a minority partner.
“Our long term goal is to be an integrated energy company that is commercially focused and wholly committed to deriving value for the benefit of its shareholders.
“The NNPC is leveraging technology and innovation to achieve the goal of building an energy company of global excellence. We call on stakeholders to collaborate with the corporation in an atmosphere that is beneficial to all and emplaces Nigeria on the path of growth and development”, he added.
Kyari, in an interface with the Nigeria Guild of Editors (NGE) revealed that the NNPC has prioritised low-cost oil production and taken additional measures to ensure cost discipline across its operations, including renegotiation of contracts and other business obligations, thus saving 40% of proposed budget and cost
“We have rolled out strategy to achieve sub 10$/bbl UOC without jeopardizing growth,” he said.
Production target
Kyari has also emphasised that the NNPC targets increasing oil production from 2.3 million barrels per day to three million bpd. The NNPC is also working to significantly reduce cost per barrel, so that more revenue could be freed up to support economic diversification, Kyari noted
He affirmed that the Buhari administration has made it a priority to ensure revenues from oil and gas resources are utilised to support the emergence and growth of other non-oil sectors of the economy.
“In order to achieve this objective, it means more money will be required from the oil and gas to fund new economic projects outside the oil and gas Industry.
“The NNPC is encouraging private investors to join the train that traverses the oil and gas value chain to create more value and job opportunities for the nation’s teeming youths. Nigeria is still a net importer of petroleum products due to the current state of NNPC refineries and the long absence of private investment in the refining sector.
“We are progressing with the establishment of condensate refineries to fast-track domestic supply of petroleum products. In the same vein, the corporation would support the actualization of the 650Kbbl/day Dangote Refinery, as well as other private initiatives along this line. Our plan is for Nigeria to become a net exporter of petroleum products by 2023.
Publishing audited accounts
On June 12, Kyari, made history. For the first time in NNPC’s 43 years of existence, it released its audited annual reports and financial statements for the year ended December 31, 2018.
It encapsulated the performance of 20 of its subsidiary companies operating within and outside Nigeria.
The companies covered in the reports included the Nigerian Petroleum Development Company (NPDC), Warri Refining & Petrochemical Company Limited (WRPC), Port Harcourt Refining Company Limited (PHRC), Kaduna Refining & Petrochemical Company (KRPC), and Integrated Data Services Limited (IDSL), Nigerian Products and Marketing Company Limited (NPMC), Nigerian Pipelines and Storage Company (NPSC).
Others were the National Engineering & Technical Company Limited (NETCO), Nigerian Gas and Marketing Company Limited (NGMC), Duke Oil Services (UK) Limited, Duke Global Energy Investment Limited, Duke Oil Incorporated, NNPC Retail Limited, National Petroleum Investments Management Services (NAPIMS), The Wheel Insurance, NIDAS Shipping Services, NIDAS UK Agency, and NIDAS Marine.
Summarily, the report showed that its subsidiaries recorded atotal revenue of N5.04 trillion with a profit of N1.01 trillion.
The report also unveiled the losses the group recorded.
It showed that all the refineries recorded poor results, with Kaduna Refinery and Petrochemical Limited posting the worst performance, with an accumulated loss of over N423.43 billion compared to over N359.093 billion in 2017.
Apart from an operating loss of about N64.55 billion, Kaduna refinery reported administrative expenses of about N64.68 billion during the year, down from about N114.347 billion in 2017.
The Executive Secretary, Nigeria Extractive Industries Transparency Initiative (NEITI), Mr Waziri Adio described the development as very good for the country’s image locally and internationally.
He said: “Having such disclosures is good for transparency and accountability. I congratulate Mele Kyari and his team and urge them to make this a regular practice and in open data format.”
Hydrocarbon discovery
In October 2019, Kyari was quite elated as he announced the discovery of hydrocarbons in Kolmani River Well 2, in Bauchi, in the Upper Benue Trough, Gongola Basin.
The drilling of the Kolmani River II Well was flagged-off by President Muhammadu Buhari on February 2, 2019.
NNPC acquired 435.54km2 of 3D Seismic Data over Kolmani prospect in the Upper Benue Trough, Gongola Basin.
It was to evaluate Shell Nigeria Exploration and Production Company Kolmani River 1 Well Discovery of 33 BCF and explore deeper levels.
Another achievement under Kyari’s watch was the successful signing of Innovation Agreement with Nigerian Agip Oil Company (NAOC) to formalise the transfer of OMLs 60, 61 and 63 to the Nigerian Petroleum Development Company (NPDC).
The GMD also launched the banners of the corporation’s downstream company, the NNPC Retail Limited, with a view to positioning the company as a market leader in the products distribution subsector in the country.
Under Kyari’s watch, NNPC attained over two billion litres of premium motor spirit reserve and completed phase one of Port Harcourt refinery rehabilitation.
Kyari, at a recent stakeholder engagement said it was very saddening that Nigeria, an oil-producing country, would become a net importer of petroleum products.
“The reason is simple: we could not fix our refineries and that is very difficult to explain. We started this very many years ago. However, all attempts to fix our refineries failed for very simple reasons and that was a strategy problem and we’re tackling that”.
He, however, explained that upon completion of the ongoing refinery rehabilitation exercise, the services of a company would be procured to manage the plants on an Operations and Maintenance (O&M) basis.
“We are going to get an O&M contract, NNPC won’t run it. We are going to get a firm that will guarantee that this plant would run for some time. We want to try a different model of getting this refinery to run. And we are going to apply this process for the running of the other two refineries”, he stated.
He explained that the ultimate plan was to get private partners to invest in the refineries and get them to run on the Nigerian Liquefied Natural Gas (NLNG) model where the shareholders would be free to decide the fate of the refineries going forward.
Gas
The NNPC GMD said there are ongoing plans to aggressively expand the domestic gas footprint with the delivery of the Escravos-Lagos Pipeline System (ELPS) II to double capacity from 1.1billion standard cubic feet of gas (BSCF) to 2.2BSCF and the OB3 gas pipeline to connect East and the West.
A new chapter into Nigeria’s economic prosperity journey opened on June 30 when President Muhammadu Buhari laid the foundation for the Ajaokuta-Kaduna-Kano (AKK) pipeline project valued at $2.8 billion.
Kyari said on completion, the project would enable the injection of 2.2 billion standard cubic feet of gas per day (bscf/d) into the domestic market, and facilitate additional power generation capacity of 3,600 megawatts (MW).
The 614 kilometre pipeline is expected to spark off economic activities that would ultimately deliver on a bundle of broad national economic aspirations in the petroleum industry through which the government targets to position the country’s abundant natural reserves as the key enabler for economic diversification from oil dependence.
According to the project profile from the NNPC, the AKK pipeline project will provide a channel for the upstream and midstream petroleum industry operators to deliver their natural gas output into the grid and spur industrial evolution along the new pipeline corridors in northern Nigeria.
Industry watchers see the project as a game changer as it is designed to solve energy challenges that have stunted the growth of the country.
Before now, members of the Organised Private Sector (OPS) of the Nigerian economy, especially the Manufacturers Association of Nigeria (MAN), had consistently called on the government to provide critical factors of production to make investment in the Nigerian business environment attractive, and economically rewarding.
In the upstream sector of the petroleum industry, the AKK pipeline will enable more oil production by helping operators to meet the condition of zero flare development plans. So, operators who have been held down by market limited destination for associated gas are now provided space in the AKK pipeline.
Again, expanding the domestic gas market with the AKK pipeline will boost investor confidence in the government’s flare gas commercialization programme by providing ready offtake channel for harnessed gas. This strongly propels Nigeria’s drive to attain zero emission at oil production sites and will probably enable the country exit the inglorious global greenhouse emission chart.
The AKK pipeline promises a double barrel economic advantage for the country by earning direct income for the government and also helping develop indigenous industrial capacity by providing cheaper, cleaner and more sustainable energy. It will become a consistent revenue earner for all stakeholders including the government by operating a tariff based gas transmission services to assist producers wheel gas to market. It will also entitle the government to tax income, equity dividend and direct market returns on volume gas sales.
Also, the AKK pipeline flaunts all the attributes of industrial stimulus.
The AKK pipeline holds potential to feed power plants with adequate fuel energy to generate adequate electricity for homes and businesses. The pipeline can also directly feed industry and commerce with cleaner, cheaper gas energy. In both ways the AKK pipeline is going to enable the industrial sector of the economy optimize its potential for growth, job creation and contribution to gross domestic product (GDP).
Analysts say the biggest value that the AKK pipeline holds is the testament to the government’s commitment to the Nigerian content policy. Save the funding arrangement which necessarily entails Chinese content in the project, the full project scope would have been delivered by the indigenous Oilserv consortium which also delivered the even more challenging Obiafu-Obriko-Oben (OB3) pipeline on which the AKK pipeline is anchored.
Chairman of the Oilserv Group, Mr Emeka Okwuosa, said that the consortium led by his company is working in concert to provide best in class EPC services for NNPC and Nigeria in consonance with the company’s track record of delivering world-class pipeline construction, even in more challenging terrains.
Deep Offshore Act
On the recent passage of the Deep Offshore Act into law, Kyari said the development has set the petroleum industry on the path of irreversible growth.
“Nigeria as Africa’s leading exporter of LNG and the fourth in the world after Qatar, Australia and Malaysia, is ready to capture more LNG market with the Final Investment Decision of the NLNG Train 7.
“Oil and gas resources have remained the major source of revenue that has kept the wheels of Nigeria moving for over five decades. Oil, as we all know, has served as key enabler to the economic transformation of many nations like Norway, Saudi Arabia, UAE, Qatar and many other oil resources dependent nations. It is not a new story that most resource dependent nations rely on their dominant natural resource to drive other key economic initiatives and activities.
“This is true of Nigeria and many other countries represented at the conference. The connection between the oil and gas industry and the Nigerian economy is intricate. Every aspect of the nation’s economic and social life revolves around the hydrocarbon resource,” he explained.
Interventions
As the battle against the rampaging COVID-19 pandemic rages, the NNPC under Kyari’s watch has, so far, pooled N21 billion from stakeholders in the oil and gas sector to prosecute the war against the pestilence.
Fifty-three per cent of the N21 billion has been earmarked for strengthening the nation’s health sector in form of constructing medical infrastructure across the six geopolitical zones in the country.
Ground-breaking ceremonies for the construction of 200-bed Infectious Diseases Hospitals with in-situ laboratory had already been held in Bayelsa, Borno and Katsina States. Those in other locations are in the works, it was gathered.
A recent report of the group’s delivery schedule indicated that other medical consumables and logistic support have been delivered to 20 states and the Federal Capital Territory (FCT). A time frame has been set for states that are yet to receive.
The NNPC GMD said there would be 14 medical centres in total and two Intensive Care Units (ICUs) expansion and upgrade that would be delivered across the federation as part of the intervention initiative.
The group’s Governance Committee, headed by Kyari and comprising the managing directors of oil companies and other industry players, has also allocated 26 per cent of the intervention funding to the deployment of logistics and in-patient support systems and 21 per cent of the sum to provision of medical consumables across the country.
All the initiatives by the respective stakeholders form part of their usual Corporate Social Responsibility (CSR) commitments, it was gathered.
The report said medical consumables comprising respirators, protective suites and test kids as well as logistics and in-patient support systems have been delivered to 21 states and the Federal Capital Territory. They include ambulances, ventilators and beddings and laboratory equipment.
Besides the FCT, states that have benefitted are Adamawa, Akwa Ibom, Borno, Delta, Ekiti, Enugu, Imo, Jigawa, Kwara, kaduna, Kano, Katsina, Lagos, Ogun, Ondo, Osun, Oyo, Sokoto, Plateau and Rivers.
Dispute resolution
Part of Kyari’s earliest tasks on assumption of duties was ending long-standing disputes that threatened crude oil production and Nigeria’s economy.
Top on the list was his intervention that led to the reopening of the Oil Mining Lease (OML) 25 flow station after two years of inactivity as a result of squabbles between the host community/Belema Oil and Shell Petroleum Development Company (SPDC).
Trouble started in 2017 when the host communities chased away SPDC staff from the facility over issues around unemployment, underdevelopment, disruption of social lives and others.
Since then, the facility lay idle and efforts to bring the warring parties to the dialogue table failed.
However, when Kyari became the NNPC boss in July 2019, he braced the odds and reopened dialogue on the matter since the inactivity of OML 25 and its adjoining blocks robbed Nigeria of 35,000 barrels of crude oil per day. By mid-September 2019, barely a month in office, he had brokered peace and got all parties in the dispute to sheathe their swords.
Coincidentally, the Minister of State, Petroleum Resources, Mr Timipre Sylva, on assumption of office on August 21, 2019, also appreciated the need to resolve the rancour around OML 25.
However, by time he swung into action, he discovered that Kyari had taken care of it and he was only going to be invited to supervise the signing of the dispute closure agreement in Abuja.
An elated Sylva thanked the NNPC boss for his prompt intervention.
Commenting on the dispute resolution, Kyari said: “For us, the most important aspect of the dispute resolution is that, at least, the communities will have their peace restored.
“At the back of it, you are aware that there is a complete stoppage of petroleum operations around the OML 25 and adjoining blocks.
“What this means is a shutdown of production of over 35,000 barrels of oil every day in the last two years and that is enormous economic loss for all stakeholders, including Nigeria and the communities.
“This is why we engaged all stakeholders and we are happy to announce that the closure has been obtained. “It means that the communities will have their peace back and also commence operations with the OML 25.
“That means that there is prosperity for the community and also some returns to shareholders of Belema Oil, NNPC and Nigeria at large,” he said.
He commended Belema Oil for its role and assured full engagement of the communities. He assured that all the parties would be taken care of.
The NNPC boss also said that all opportunities found would be shared equitably for the overall peace and development of the country. He also commended the Minister of State, Petroleum Resources for his support.
Also, the Managing Director of Shell, Osagie Okunbor, was happy that the squabble had been resolved, just as he hailed the NNPC GMD for his efforts.
“When disputes of this nature happen, everyone suffers, especially the immediate family, recipient community not to talk of investors like ourselves.
“We have been in discussion with communities and Belema Oil and sometimes under the auspices of government. We are very pleased that we have finally brought this to a conclusion, to work on some agreements with communities to achieve speedy return to operations on that facility,” he said.
The President and Founder, Belema OIL, Jack Rich-Tein, in his remarks said the agreement signalled that stakeholders shared common interest and value of lifting the country high and strengthening relationships.
“What has been resolved is that, we have agreed to work together, SPDC and Belema Oil.
“Belema Oil is now going to be able to create a lot of employment opportunities for the communities under operations and maintenance part of the operations.
“SPDC remains the operators because they still have the licence, the communities will be happy because we will employ them and they will be able to work with SPDC.
“The key thing there is getting back to work and creating jobs for the local communities. Everybody will be happy.”
He said that Belema Oil with 7.7 per cent asset would provide the operation maintenance and employ the community members through that platform.
Aside the OML 25 issue, the NNPC has so far saved more than $3 billion from arbitrations.
Kyari, at a recent meeting with NNPC workers, commended the management of the corporation’s legal division for the savings, saying due diligence accounted for the feat.
Kyari urged the corporation’s workforce to redouble their efforts to ensure that the nation reaped bountifully from its vast hydrocarbon resources which NNPC has the mandate to superintend.
He added that it was imperative for the corporation to increase its level of efficiency, reduce cost and increase revenue across the value chain of its businesses within the shortest possible period.
