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Driving cost efficiency, value optimisation in oil industry

Last week, players in the Nigerian oil and gas industry received a great relief with the eventual launch of the National Oil and Gas Excellence Centre (NOGEC) Lagos by President Muhammadu.

The integrated resource centre, whose major flagship units are domiciled at the Department of Petroleum Resources (DPR) headquarters annex, in Lagos, is a well-thought out regulatory intervention of the agency to tackle some of the major challenges being suffered in industry.

NOGEC is structured to drive three-prong objectives of safety, value and cost efficiency in the Nigeria oil and gas industry, under five flagship centres, including Search, Rescue and Surveillance (SeRAS) Command and Control Centre.

Others are National Improved Oil Recovery Centre (NIORC); Oil and Gas Dispute Resolution Centre (DRC); Oil and Gas Competence Development Centre (CDC); and Integrated Data Mining and Analytics Centre (IDMAC). According to plan, the last two units – the CDC and IDMAC are sited in Osubi, Delta State and Brass, Bayelsa State, respectively.

President Buhari was joined virtually and physically at the ceremony by a host of government officials and industry players, including the Minister of State for Petroleum, Chief Timipre Sylva; the host of the event and Director of DPR, Mr. Sarki Auwalu; Group Managing Director of NNPC, Mallam Mele Kyari; and the Executive Secretary, Nigerian Content Development and Monitoring Board (NCDMB), Mr. Simbi Wabote.

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Others were Minister of Information and Culture, Alhaji Lai Mohammed; Lagos State Governor, Mr. Babajide Sanwo-Olu; Permanent Secretary, Ministry of Petroleum, Mr. Bitrus Nabasu; Chairman of Oil Producers Trade Section (OPTS) and Managing Director of Total Exploration and Production Nigeria Limited, Mr. Mike Sangster; and Chairman of Independent Petroleum Producers Group (IPPG), Mr. Demola Adeyemi-Bero, amongst others.

The Challenges

The issues of operational safety, value of investments and cost of operation are at the heart of oil and gas business across the world and as such, the main drivers of investment decisions undertaken by operators. For the industry, particularly in Nigeria, safety of assets and personnel is critical; hence companies spend big to ensure adequate safety and protection of their employees and assets.

Also, oil companies in Nigeria, just like their counterparts in other sectors, place great importance on their assets and investments and try all means possible to protect them in order to continue to get commensurate returns on them and continue to thrive.

Equally, as a sector driven by huge capital outlay, which is mostly made possible by loan facilities, the oil and gas industry pays greater attention to the cost of their operation and always look after businesses they can play in, in a much more cost efficient and profitable manner.

However, in Nigeria, the oil and gas industry, especially the upstream segment, faces a lot of risks arising from insecurity of assets and personnel, dwindling value of assets and high cost of operation. These pose major disincentive to investors and result in heavy drop in investments as some companies that could no longer cope with the situation have had to move their investments out of the county.

Oil assets in the Niger Delta are, on a regular basis, attacked by militants and oil thieves either by blowing up oil pipelines at the slightest provocation and protest or by stealing huge volumes of crude on a daily basis, to the detriment of the companies and with huge economic hemorrhage to the nation.

The development remains a major reason why Nigeria has not been able to achieve its three million per day oil production aspiration.

Ironically, to mitigate such losses, the companies resorted to committing huge amounts of their hard-earned money to either employ more security to guard their assets and personnel or engage in paying the same militants and thieves to stop or slow down their evil deeds on the assets, aside the normal corporate social responsibility commitments to the host communities.

They also spend even more on fixing their assets that have been destroyed. All these significantly contribute to the high cost of operation which the industry suffers in the country, which does not exist in other countries.

It was this high cost of oil-per-barrel production in Nigeria which is far above $10, unlike many oil producing nations, which prompted the pursuit of $10 per barrel oil production benchmark by the Nigerian National Petroleum Corporation (NNPC), whose target was set for the end of fourth quarter of 2021.

Those industry challenges, including issues around skills gap and outdated method of operations, are what the NOGEC is set to significantly address, for the benefit of the companies, the nation and the communities.

Opportunities

Inaugurating the facility, Buhari said the centre has opened a new set of opportunities for the Nigerian petroleum industry in terms of investments, cost reduction, safety in operations and capacity development.

According to him, ‘The establishment of the National Oil and Gas Excellence Centre (NOGEC) aligns with my administration’s commitment to foster stability, growth and sustainability of the Nigeria Oil and Gas Industry consistent with the economic development and sustainability agenda articulated in the National Petroleum Policy 2017, National Gas Policy, 2017, Economic Recovery and Growth Plan (ERGP) and the Economic Sustainability Plan (ESP), 2020.

“This ceremony of the official launch of the National Oil and Gas Excellence Centre (NOGEC) – an integrated resource complex to drive Safety, Value and Cost efficiency in the Industry – is yet another milestone in the development of the oil and gas sector and the realisation of greater value for all stakeholders.”

He said the creation of NOGEC at this time further demonstrated that the Nigeria oil and gas industry had come of age, even against all odds, explaining that NOGEC would, ‘serve as oil and gas industry cost-reduction centre and hub for industry best practices, technical support and competence.’

Buhari added that NOGEC, will also act as the oil and gas tecno-economic bureau to support Government and its entities in policy development and implementation efforts.

“Above all, the Integrated Centre will enhance the contribution of the oil and gas sector to the nation’s GDP as well as strengthen Nigeria’s position as regional leader in the oil and gas industry.”

While acknowledging the achievements recorded so far, Buhari said, “we must not relent. Rather, we must redouble our efforts and confront the challenges of global energy dynamics, resurgence of the corona virus, unstable oil prices, and alternative energy.”

He added: “I therefore charge you all to rededicate yourselves to national duty and take full advantage of this Excellence Centre to meet the challenges confronting industry. On our part, we will spare no effort to ensure that every Nigerian gets the maximum benefit from the huge natural resources.”

“We will continue to leverage oil and gas for development and pursue our economic diversification drive across all sectors. I urge all industry practitioners and stakeholders to join me in this task of nation building to realise the abundant opportunities in our country.”

The president who directed Sylva to cut the tape and unveil the NOGEC plaque on his behalf, however, commended Sylva, the director of DPR, and the entire staff of DPR on the actualisation of the centre that will guarantee cost reduction, safe operations and value creation in the Nigerian oil and gas industry for the benefit of the industry, Nigerians and all stakeholders.

Supporting Ministerial Priorities

Aligning with the president’s thoughts, Sylva said the centre was a testament to the successes achieved in the nine key delivery priorities rolled out for the oil industry growth and sustainability as mandated by the president at the beginning of the administration.

He said the ministry has continued to implement sustainable reforms and policy directions in the Nigerian oil and gas industry targeted at driving optimum value from petroleum resources for Nigerians.

“The National Oil and Gas Excellence Centre which is being commissioned today is a testament to the successes achieved in this regard. NOGEC has been carefully designed to support the achievement of the ministerial priorities – significant amongst which are cost reduction, increase in production, and value maximization in the industry,” he stated.

Sylva said the centre, which is under the direct supervision of the DPR, would leverage the existing capacity of the National Data Repository (NDR) as the principal data warehouse of the industry to drive initiatives that would enhance safety, value and cost efficiency across all operations in the Industry.

He added that the establishment of the centre was not only a response to a safer, cost efficient and sustainable oil and gas industry, but also a strategic move to position Nigeria as regional and global leader in cost efficiency, breakthrough solutions and value- added services for the industry.

The minister of state for petroleum said NOGEC will help the country to achieve reduction of annual cost of operations in both offshore and remote locations by 50%, adding that the projected 50% reduction will also lead to the realisation the $10 per barrel oil production cost target.

Sylva said: “Let me take a few moments to highlight the main elements of each of these centres to underscore its role in driving cost reduction, increasing production and enhance value for the Industry.”

“Search, Rescue and Surveillance (SeRAS) is a flagship programme of the Centre designed to enhance safety management, emergency preparedness & response and routine transportation for bed space management. SeRAS will therefore drive cost reduction and improve operational efficiency across the Industry.”

“Conservatively, it is projected that upon full implementation of SeRAS, the annual industry expenditure for offshore and remote locations flight logistics and emergency response will reduce by 50% – a significant gain towards our target reduction of cost-per-barrel across our operations.”

He also said the National Improved Oil Recovery Centre (NIORC) on the other hand, was designed to promote the implementation of improved and enhanced oil recovery technologies/methods to arrest the incidences of production decline and resultant high cost in many assets especially in the matured Niger Delta Basin.

“In essence, NIORC will trigger secondary and tertiary recovery operations in the industry. The Centre will collaborate with operators, global technology centres, international oil and gas regulators and other relevant parties to leverage experiences and best practices for application in Nigeria.”

On the Oil and Gas Alternative Dispute Resolution Centre (ADRC), Sylva noted that that was created to arrest the prevalent value erosion attributable to sub-optimal development or non-development of oil and gas assets due to lingering disputes in the industry.

According to him, the ADRC shall offer arbitration, mediation and conciliation services by utilising industry’s technical experts who will provide fair and balanced resolutions of industry- related disputes from an informed position.

Sylva further said: “By the same token, the other two (2) units namely, the Integrated Data Mining and Analytics Centre (IDMAC) and the Oil & Gas Competence Development Centre (CDC) are structured to position Nigeria as a top-tier destination for credible, bankable and investment grade data in oil and gas and to serve as regional hub for competence development respectively.”

“These centres will provide cost-effective data and analytics solutions for investors, financiers, operators as well as resources for oil and gas capacity building and trainings.”

Earlier in his welcome address, the DPR Director, Auwalu, thanked the president for granting the necessary approvals for the establishment of NOGEC and for graciously approving the relocation of the Department’s Head office to Abuja. He said such approvals created the opportunity for the setting up of the ultra- modern and state-of-the-art integrated NOGEC.

Auwalu, however, commended the Nigerian oil and gas industry for its tenacity and resilience in the face of several challenges, pointing out that the journey to NOGEC began with the express mandate of the president for the industry to reduce cost, improve efficiency and create employment.

“Based on these directives and the ministerial delivery priorities, the Department of Petroleum Resources (DPR) identified five (5) key initiatives that will help to achieve the intent of Mr. President’s mandate. It is pertinent to note that the entire oil and gas business is hinged on revenue and safety, which provide the basis for identifying the five (5) initiatives that form the pillars of NOGEC,” the director said.

According to him, the centre encompasses industry-focused programmes that will drive strategic mediation in operations, skills and competence development, use of Big Data, Internet of things (IoT) and Artificial Intelligence (AI) for decision making, deployment of proven technology for secondary and tertiary oil recovery as well as coordinated response for emergency.

Auwalu added: “Today, we have concluded the framework and implementation modalities for successful take-off of these Programmes within the National Oil and Gas Excellence Centre due for imminent commissioning.”

“We have no doubt that the Industry now has the resource and platform to interact, cooperate and collaborate on salient industry issues that remain impediments to cost reduction, safe operations and optimum value optimisation.”

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