Tackling Operational Disruptions in Oil and Gas Industry

…the increasing labour-related disruptions of the activities of operators in Nigeria’s oil and sector has added to the security-related operational shutdowns, pipeline vandalism and crude oil theft prevalent in the oil producing region will worsen Ease of Doing Business in the country…

 

 

 

A recent revelation that the oil and gas-producing fields in Nigeria are shut down for 80 -160 days yearly because of operational-related incidents, revealed the kind of enormous challenges that made Nigeria a high-risk environment for the oil and gas industry.

A former Director of the Department of Petroleum Resources (DPR), and Lead Consultant to the National Assembly on the Petroleum Industry Bill (PIB), Mr. Osten Olorunsola told the industry stakeholders recently that oilfields in the country were shut down yearly for as long as 160 days on account of various operational challenges.

Olorunsola, who spoke in Abuja, at a roundtable on the PIB organised by the Nigeria Natural Resource Charter (NNRC) and Media Initiative on Transparency in Extractive Industries (MITEI), had explained that no other oil and gas-producing country experienced the kind of production disruptions suffered by Nigeria.

According to him, most oil producing countries recorded just about 30 and 45 days of production downtime and produce hydrocarbon for an upward of about 330 days.

This, he explained, was not the case in Nigeria where he noted that frequent pipeline breakages and uncertainties in security of assets, amongst other issues, were responsible for the lengthy operational downtime the country currently records.

“You can imagine being in business and you can’t do anything for two years, and you have staff and you just pay them salaries for two years – you must be a generous NGO (Non-governmental Organisation). In terms of real operational shutdowns, we are seeing something between 80 and 160 days, which is not good,” Olorunsola said.

“There are operations around the world where production days – you can almost guarantee 330 days; you can’t do all through the year because you have scheduled maintenance and all that, but usually it does not last more than 30 and 45 days; anything more than that is not good,” he added.
Olorunsola cited the case of the Trans Forcados oil pipeline, which was down for two years, shutting in production from oil fields, following the subsea bombing of the asset by the Niger Delta Avengers (NDA) in February 2016.

He added that in 2018 alone, some trunklines had been shut down for up to 84 days, thus impeding oil production.

Despite the efforts of the federal government to improve the country’s ease of doing business, operators in the oil and gas industry are challenged by security issues with the attendant cost premium, which falls outside their direct sphere of influence.

Insecurity, especially in the oil-producing Niger Delta region, poses the greatest threat to the survival of the oil and gas industry in Nigeria, inflating the costs of projects beyond global average.

Unlike the operators in the Gulf of Mexico, Persian Gulf, and the UK Red Sea, the oil and gas producing companies in the Niger Delta, which largely dominates the Gulf of Guinea, rely on costly transportation options such as helicopter transport and aviation for personnel and goods, as a result of the insecurity of Nigeria’s waterways.

The challenge of insecurity, added to overregulation and bureaucracy, as well as inadequate infrastructure, have increasingly impacted on the competitiveness of Nigeria’s operating environment and denied the country huge investments.

For instance, while Nigeria lost her influential position as the supplier of up to 10 per cent of the Liquefied Natural Gas (LNG) sold in the global market on account of lack of new investments in LNG in the country, the Italian oil and gas major, ENI, which has visible presence in Nigeria, is investing $8 billion to develop a gas field off the coast of Mozambique.

The company had committed to a deal signed in 2017 to build two LNG terminals in Cabo Delgado, the northern province of Mozambique to make the country a major supplier of LNG to the Asian market.

Precisely in June 2017, Eni signed an agreement with the Mozambique government to develop its portion of the Coral South LNG project where the Italian giant would be responsible for financing, construction, drilling and installation services.

This development came when the proposed Olokola LNG in the border town between Ondo and Ogun States, Brass LNG in Bayelsa State and the Train 7 of the Nigeria LNG Limited have remained on the drawing board for close to two decades due to loss of investor appetite, occasioned by the risks peculiar to the Nigerian environment.

Increasing labour-related challenges
As the Nigeria’s oil and gas industry contends with the security challenges, which cost them to defer the production of about 400,000 barrels of oil equivalent per day in 2016 and spent $500 million on security services to safeguard their workers and equipment in the same year, the oil workers’ union are increasingly worsening the challenges in the operating environment by frequent disruptions of operations in protest against what they perceive as injustice against their members.

First, the workers brought the operations at the head office of Addax Petroleum in Lagos to a halt following an accusation that the company engaged in anti-labour practices by being insensitive to their health and safety concerns in its operational areas, career progression and development.

Secondly, the oil workers also picketed the French oil major, Total Exploration and Production Nigeria Limited (TEPNG), in Port Harcourt, Rivers State, over an alleged removal of the company’s department responsible for employment from Nigeria to Paris, France.

Also, the operations of Neconde Energy Limited were also disrupted last year over the company’s alleged anti-labour practices, particularly an alleged breach of agreements to pay the workers transfer and severance benefits.

Similarly, last year, the picketing of Mobil Producing Unlimited, an affiliate of ExxonMobil, continued for several days with oil workers threatening to escalate the crisis to Shell, Chevron and Total until the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu had to intervene personally after the failed intervention of the Minister of Labour and Employment, Dr. Chris Ngige.

Even services providers in the oil and gas sector were not spared by the workers, forcing the Petroleum Technology Association of Nigeria (PETAN) to cry out that their members were being forced to close shop.

The case of General Electric was interesting as it was also picketed not because its workers belonged oil workers’ unions but for allegedly owing Arco Group, which the oil workers claimed had prevented Arco from paying the salaries of their colleagues working in the company.
Shell and Chevron in Nigeria had also suffered the same fate over alleged plans to cut jobs and amidworkers’ demands for temporary employees to be given permanent contracts.

Latest case of ExxonMobil
On April 20, 2018, the Supreme Court ruled that all Supernumerary (SPY) police personnel working for Mobil Producing Nigeria (MPN) were employees of the company and thus entitled to all remunerations, benefits, terms and conditions as employees of ExxonMobil.
It was estimated that approximately 925 personnel were affected by the ruling of the apex court.

As a result, the company was said to have implemented a non-voluntary separation programme in July 2018 for the approximately 500 affected personnel, who were still in active service.
In addition to receiving a separation package that includes compensation based on years of service and position, the affected personnel were also said to have been offered assistance from a human resources consultant to help find employment opportunities with a third-party security services provider.

The position of the company was that the activities it undertook to provide compensation packages to the individuals affected by the April 2018 Supreme Court judgment were consistent with the court’s ruling and prior company practices.

The company maintained that it typically retained security services through third parties who were best positioned to provide these core competencies.
On the allegations by the ex-Spy policemen that their jobs were taken over by expatriates, the company had denied that the security services previously provided by the SPY personnel were being replaced with expatriate staff.

Impacts of frequent disruptions
Globally, workers have the right to peacefully protest perceived injustice. But resorting to self-help by restricting the access of other workers to their business facilities are illegal acts that infringe on the rights of others.

Indeed, the use of brute and physical force for blockading offices and operational facilities poses a safety and health risk to the other users of the facilities and impedes critical business activities that support revenue generation, which benefits all the stakeholders – government, companies, host communities and the protesting workers.

Apart from the 400,000 barrels of crude oil deferred in 2016 due to security challenges, according to the Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce and Industry (LCCI), statistics has also revealed that strike action threatens approximately 450,000 barrels of crude oil production, amounting to over $31.5 million daily revenue loss to Nigeria.

Workers’ threat to the oil and gas industry is also a threat to budget implementation, with potential to plunge Nigeria back into recession.

Considering the N12 billion reportedly lost by the telecommunications giant, MTN, to the four-day shutdown of its facilities by the Nigeria Labour Congress, the recent operational disruptions at ExxonMobil also had the potential to hurt Nigeria’s drive for Foreign Direct Investment (FDI) by sending the wrong signals to prospective investors.

There is no doubt that some of these companies flout labour laws, but blockading offices is not the appropriate means of enforcing the labour laws.

The government should set up a mechanism, if it is not already in place, to enforce the Nigeria’s labour laws without the workers resorting to self-help.

In view of the critical role of the oil and gas sector in driving the Nigeria’s economy, it is important that this critical sector is ring-fenced by the federal government from some of these avoidable challenges by making it a strategic national asset.

This would entail clearly outlined and enforced win-win systems of dispute resolution for both the industry operators and their workforce, and also stringent sanctions for frivolous disruptive actions.

 

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