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NNPC Workers Move To Overrule Management

The strike by the workers of the Nigerian National Petroleum Corporation (NNPC) to protest joint operatorship with private partners despite the NPDC’s abysmal performance has been interpreted as affront on corporation’s management.

Sopuruchi Onwuka

The prevailing crisis over the operatorship of oil mining licences (OMLs) 40 and 42 amplifies the fear of most investors that stake funds in enterprises where government is a principal partner. In most of such ventures in Nigeria, a number of issues ranging from slow processes, official red tapes, impunity of labour unions and legislative oversight bog down fasttrack business plans.

Currently, the producing fields operated by the Nigerian Petroleum Development Company (NPDC), OMLs 40, 42, 30, 34 and 26 have been shut in by workers of the company, stalling production and expected revenues accruable to partners own significant equities in the fields.

The workers subsequently shut in the flow station at Batan in OML 42, but the Odidi field on the same acreage was in production. They also shut in production of around 32,000 barrels of oil per day bpd in all oil fields in OML 30, 3000 bpd in OML 40 and about 6,000 bpd in OML 26.

They were unable to shut in the Utorogu field in OML 34, because the staff of Lee Engineering, the contractor running the Utorogu station, said they were not part of the strike. However, crude oil produced in that acreage cannot be evacuated because it is pumped through the Afiesere field in OML 30, which NPDC workers shut in.

The situation appears likely to escalate following high level agitation by other private indigenous players that became partners to NPDC. The indigenous private firms and NPDC became partners by default following their acquisition of the assets divested by major multinational private firms that hitherto held 45 percent interest and operatorship of the blocks for decades.

The firms seeking recovery of operatorship from NPDC had hoped to operate the fields during the bidding process for 45 percent interests in OMLs 26, 30, 34, 40 and 42 held and operated by Shell on behalf of Total and Eni, but government had taken the opportunity to test the efficiency and capability of NPDC at operations.

Thus, Nigerian National Petroleum Corporation (NNPC) invoked its rights to operatorship of the assets, and assigned those rights to NPDC, its exploration and production subsidiary.

For most of the last three years, Neconde and Elcrest, along with First Hydrocarbon Limited, Shoreline Resources and ND Western, who bought similar stakes in OMLs 26, 30 and 34 between 2011 and 2012, have lamented NPDC’s lack of capacity to continue as the operator of the acreages they purchased from the Shell-led consortium.

Their argument is that they could have performed better than NPDC was doing as operator and yield more value from the assets.

For instance, OML 30, which was acquired by Shoreline Natural Resources, has nine flow stations with combined production capacity of 395,000 barrels of oil equivalent per day (bpd). The flow stations include Afiesere, 60,000bpd; Eriemu, 30,000bpd; Evwreni, 30,000bpd; Kokori, 90,000 bpd; Olomoro-Oleh, 60,000bpd; Oroni, 30,000 bpd; Osioka, 15,000bpd; Oweh, 30,000bpd and Uzere West, 60,000bpd.

But the current output under the NPDC operatorship is only around 53,000bpd, leaving 342,000bpd undeveloped. In a memorandum dated December 12, 2014, with Reference No. PI/1124/Vol.18/1, which was addressed to the petroleum minister, George Osahon, director, DPR, had reminded the minister that the investors that bought the divested assets were certified as capable of holding the acreages on the basis of their financial and technical capabilities, predicated on the outcome of the thorough due diligence carried out on the companies by the DPR.

In contrast, OMLs 3, 38 and 41 acquired and operated by indigenous Seplat Petroleum Development Company have seen reserves and production upsides as the company leveraged private funds and efficiency in running the business despite poor funding drag from NPDC which still holds overriding 55 percent interest in the assets.

Seplat also operates OMLs 53 and 55 with 40 percent and 22.5 interests respectively acquired when Chevron divested its operating 40 percent interest in the assets. Seplat’s status in the fields as well as overall integrity of the Chevron divestment process are however still disputed by leading bidder, Brittania-U Nigeria Limited.

The government appears to have finally agreed with the perception in the industry that private firms still remain the best option available to the country in the management of upstream petroleum industry business.

Thus, in more recent divestments by the foreign partners, government had rescinded the model of recovering operatorship for NNPC following a deluge of complaints by NPDC’s partners in OMLs 26, 30, 34, 40 and 42. Consequently, government awarded operatorship to winners of of OMLs 18, 24, 25 and 29.

To salvage operations in the acreages operated by NPDC government appears to have devised the joint operatorship model that have allowed Neconde Energy Limited comprising Nestoil Group, Aries E&P Company Limited, VP Global, Kulczyk Investments and Kulczyk Oil Ventures to assume the operatorship of OML 42, sparking off protests by NNPC workers.

Despite the protests, approval has also been given to Elcrest, the consortium of Eland and Starcrest Energy to assume operatorship of OML 40. Eland Oil & Gas had also announced that its JV company, Elcrest Exploration and Production Nigeria Limited, has received confirmation from the Department of Petroleum Resources (DPR) that Elcrest had fulfilled its obligations, including the payment of the requisite premium and fees of $2.3 million, in relation to Elcrest’s appointment as operated operator of OML 40 for a minimum 10 year period.

In recommending the move to the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, the Director of DPR, Mr, George Osahon, cited the unsatisfactory performance of the NPDC in managing assets assigned to it.

The DPR is the industry’s technical regulators and sister parastatal to NNPC in the Ministry of Petroleum Resources.

“In order to develop and strengthen the execution capacity of the respective joint ventures between the assignees and the NNPC, often represented by its whollyowned subsidiary, the NPDC, the DPR is proposing a joint operatorship model (JOM),” Osahon stated in the letter quoted by proximate sources.

“Under the proposed model, the investor may be designated as the operator and lead an Asset Management Team (AMT) that will spear all activities in the block. The AMT will comprise staff from each of the parties as would be specified in the respective revised joint operating agreements (JOAs). This initiative is expected to offer training and understudy opportunities for NPDC to further develop its capacity in all areas of petroleum operation and compliance,” he explained.

Mr. Osahon stated that the management of NNPC was carried along the formation of an Asset Management Team (AMT) that would run the JOM for 10 in order to allow the parties to effectively benefit from the technical and financial resources.

After 10 years of understudy, he proposed, DPR would review the JOM and decide if NPDC could be requested to assume operatorship or if the investor could continue.

In order to facilitate effective operation of the assets, the DPR boss also recommended upward review of the financial authority limits set for the operator from $500,000 to $1,000,000 for foreign contracts and purchase orders relating to upstream arrangement in a JV and from $250,000 to $1,000,000 for production sharing contracts (PSCs).

He suggested that the JOM be considered for the operation of divested JV assets in which NPDC is currently the operator and in subsequent divested assets.

With indication that the remaining three companies that acquired divested assets in 2011 and 2012 might soon recover operatorship under the JOM, NNPC workers have gone furious and shut in production at NPDC operated fields.

The company’s chapters of the two key labour unions in the industry, Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and National Union of Petroleum and Natural Gas Workers (NUPENG) were however not protesting any impact of the operatorship transfer on their members neither were they pre-empting incipient breach on the rights and privileges of their members.

Rather, the labour unions were challenging the predicates supporting the business models that informed stripping the government company of the rights to lead business decisions and programme of actions that translate to profit and loss.

Enquiries by The UNION showed that business processes run by NPDC in operated and non operated joint ventures and the company’s vulnerability to political interference as well as limitless penchant of workers for flimsy reasons for strike are part of the issues that unsettle private partners and trigger agitation for control.

Group General Manager, Public Affairs Division at NNPC, Mr. Ohi Alegbe, has maintained that the JOM has not jeopardized the interests of the workers since, according to him, it only concerns operating business model and not equity transfer as reported by media houses that lack understanding of issues in the industry.

He stressed, “It is a joint operatorship which is what is obtainable everywhere in the world as industry best practice. The NPDC holds 55 per cent share in the OMLs while the other companies hold 45 per cent.”

He also disclosed that NPC engaged the labour unions all through the entire process of the operatorship transfer and wondered why the unions would go as far as shutting down production platforms to express any conceived grievance.

He advised the union leaders to place the country first in their decisions and actions, adding that the current action of the workers could be interpreted as affront on the management of the corporation since the new model was purely targeted at improving efficiency and yielding more value for the country.

Former Chairman of National Association of Petroleum Explorationists (NAPE), Mr. Austin Avuru, had at Oloibiri Lecture in Lagos criticised NNPC’s invocation of pre-emptive rights to grab the operatorship of the oil blocks now in crisis.

He had predicted that issues such as labour impunity and political interference and other operational nightmares not obtainable in private businesses might erupt to throw the operation of the assets into crisis.

Other analysts in the industry have also pointed out that interference of workers in management and business decision of their employers are intolerable in the private sector. They attributed the success of the upstream sector of the petroleum industry in Nigeria to private sector efficiency, pointing at the mess in downstream segment of the industry as typical index of public sector inefficiency.

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