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Key To Successful Stakeholder Relationship Management In The Oil And Gas Industry

By Jimmy Ahmed

Introduction

Since the 1980s, some major changes relating to the management of Safety, the Environment and Stakeholder Relations have been taking place in the Petroleum Industry, resulting in poor and unhealthy business relationships between Oil and Gas Companies and the various stakeholders in the Industry. Safety and environmental management are now very well integrated into all aspects of the business processes and operations. One key area that is still undergoing embedment and yet to be fully integrated into venture management, and which has the potential to add lots of value to the business towards sustainability is Business and Stakeholder relationship management. The Industry has since realised that the growing costs of managing the fall outs and negative reputation that the poor stakeholder relationships were having on their Business and profitability was unacceptable. This was the advent of “Business Sustainability”, the effective management and coordination of financial, social and environmental (the three pillars of sustainability) risks, obligations and opportunities. The impact of these changes on the Industry has not only been seen in the quality of and increased manning levels but also in the increased costs associated with managing these new focus areas of the Business, albeit, leading to more responsible and sustainable outcomes. This article focuses on one aspect of managing these changes, Stakeholder Relationship Management.

The more successful companies that become Partners of Choice, and clinch better oil and gas deals with major resource holders, are those with a good reputation on having built and are maintaining sustainable relationships with host governments and other stakeholders; relationships based on trust, respect and a win-win mindset. It is therefore fair to say that ‘any relationship that is not based on a ‘win-win’ formula will not be sustainable and will end up in ‘Acrimony’.

Many companies in those days felt they knew what the society and stakeholders needed without the need for effective engagements and consultations. In some cases, the Companies were already operating in the countries before the Independence of those countries, so adapting to the new system with local host governments was a novel idea. Over time, friction in the relationships developed, between the Companies on the one hand and the governments, the host communities, Non-Governmental Organisations (NGOs) etc. on the other hand, leading to major reputational issues, high down time and production losses in the business. Something needed to give or be done to change the dynamics. Chief Executives who should be spending most of their time managing the business were spending almost 100% of their time managing crisis, mostly caused by poor relationships with their Business Partners, Host Governments, host communities, NGOs, Regulatory authorities and the NOCs.

What Changed and why?

With increasing oil prices, increased profitability of the Industry and increased social and environmental awareness of the impact of the industry on society and the environment came “lots of interest and pressure” from Resource owners, (mostly Governments), Non-Governmental Organisations (NGOs), Business Partners in Joint Ventures and host communities. These interests and pressures were of a varied nature, from demanding: a bigger share of the profits by resource owners and host governments, more transparency from Business Partners, more inclusiveness by host communities and more sustainable social and environmental practices by the industry.

The following are some of the issues and root causes of the changes:

  • Lack of shared objectives and goals, lack of trust, and unmet expectations on the part of Stakeholders and Business Partners. Governments are committed to their people to provide social services while oil and gas companies want to invest in projects that will deliver the highest returns on investments for their shareholders.
  • Changes to Petroleum fiscals Laws and Regulations by Host Governments and Resource owners mostly targeted at resource control and increasing Government take.
  • Structural Tension caused by irreconcilable differences between the current reality versus the visions and goals of the Partners in the business relationship. Creating appropriate action plans to move all Parties from where they are, to where they want to be, often times increases the tension, requiring lots of formal and informal meetings and engagements. For example, in some developing countries, the Governments want some of their gas resources utilised for local/domestic consumption and power generation at gas sales prices much lower than oil and gas companies can get from exporting the gas. Governments also expect the oil and gas companies to spend their resources on domestic gas projects that do not rank high in Operating Companies’ economic project list.
  • Outdated fiscals, Petroleum Laws and Regulations requiring review in the light of changes that have taken place in the business environment over time. The fiscal terms of some of the contracts were incentivised and put in place to attract investors during periods of high-risk investments with the companies bearing all the risk. Companies wants to stretch the duration of incentives while resource owners feeling that the investor has more than recouped the invested capital, hence the need to remove/reduce the incentive earlier granted.
  • Increased Commercial disputes and mistrust between Business Partners in Petroleum Ventures leading to Arbitrations and court cases caused by perceived lack of transparency of the Operator and perception of Operator making ‘profit from cost’ using their home offices or proxy companies.
  • Host Communities impacted by the activities of the Industry agitating for more inclusiveness, sometimes in violent ways, alleging not being carried along by the Operators. Expectations of Industry to replace or act as governments in the Communities where they operate to provide infrastructure needs etc. mostly in developing countries.
  • NGOs constituting themselves into Industry “ombudsmen”, to ensure that the industry operated responsibly, ethically and in a sustainable manner for the benefit of society.
  • Perceived arrogance of oil and gas companies and their staff in dealings with host government officials and external stakeholders.

A recognised best practice to manage and foster Business Sustainability is Stakeholder Engagement. It leads to organisations learning from customers, employees, host communities, Host Governments, Partners etc. The engagements are not unidirectional, only pushing out messages, but form the basis for gathering business intelligence, understanding the business environment, other Parties’ positions and needs, finding common grounds and involving stakeholders or taking their needs too into decision-making. These engagements also help to build mutual trust in the relationships between the Companies and their various stakeholders.

The Petroleum Industry already had relatively small in house Teams or Departments and or external groups (Legal Firms and Lobbyists) that managed what was in those days referred to as External Relations or Public Affairs. These were mostly small teams of a few staff, often perceived to be “dead woods”, headed by a middle level Manager, mostly managing Corporate social events, with no voice at all in senior Management. They also led the organisations in managing these engagements with their limited understanding of the discourse at the time, sometimes supported by lobbyists, particularly when it came to proposed changes to Petroleum, Environmental, Safety or Fiscal Laws and Regulations with potential to impact the profitability of the Companies. These teams were essentially “Door Openers or Gate keepers”! That was the level of attention the companies felt this aspect of their businesses needed at the time.

Where we are today

As the realisation of the need for very strong and effective business and stakeholder relations management grew in the Industry, Relationship Management teams in these companies grew beyond imagination, in some cases with more staff than some Technical(Petroleum engineering and Exploration) departments put together! While those functions were in the past staffed mostly with “staff that were no longer needed in core functions”, today, those functions are staffed with the brightest and best, high potential staff. – ‘High flyer high potential’ technocrats and staff that should be busy managing Assets or Business Functions to improve the bottom line and grow the business are now sent to manage these Relationships. In some cases, as development assignments for the high potential staff, in preparation for senior management roles, same as with a stint in Safety Management.There is also a Stakeholder Relationship management staff on most senior management teams, and /or top management meetings.

These changes to the way Stakeholder relations are managed have also increased the cost of doing business but the very positive impact of these costs on sustainability and profitability are now also very obvious. Besides increased staff costs, Corporations are having to spend more on logistics too, including the use of private jets and company guest houses by Executives outside of operational bases, to attend numerous and sometimes very unnecessary impromptu crisis management meetings with various stakeholders within countries and globally. Some of these costs and inconveniences can be avoided by having structured engagement plans and programmes in place. The cost benefit analysis of these increased spending is now clearly seen as having positive impact on the profitability and sustainability of the business.

Suggestions and Recommendations

Companies will have differences in their understanding and management of their stakeholders but one aspect comes out as best practice today which is, that it is not an area to be neglected as a core aspect of managing non-technical risks to achieve sustainability of the business.

  • Effective management of stakeholder relations should not be put at the back burner but must be built into the business and venture processes from inception (feasibility stage of the project) right through to project abandonment.
  • Carry your stakeholders along in whatever you do to always have a shared understanding and build trust. Engage proactively with all stakeholders and do not decide what you think is good for them. The relationships and engagements must also be maintained and carried out in an ethical manner and based on mutual respect.
  • NOCs and resource owners are getting smarter and wiser, trying to get more or claw back value from their resources, so ensuring fair deals in win-win business relationships throughout the venture life will create a “goodwill credit” for the companies during difficult economic periods or for consideration in new ventures.
  • The era when Relationship Management positions were filled with “Dead woods” or people the company did not know what to do with is long gone and any company that does not understand that will lose a lot of value. The Business and Stakeholder Relations teams should have a mix of core Business staff (Senior Technical professionals versed in the Key business processes who can more convincingly engage stakeholders and are empowered / trusted to make some key decisions)and staff skilled in interpersonal and People skills. The teams should also be represented in the top management of the companies with a seat at top management meetings where business deals and issues are discussed. Organisations and companies that have realised the value these positions bring to the business have elevated them to the levels of Executive Directors.
  • Even in small companies or ventures with Partners, the importance of ensuring that all Parties are kept happy with timely and transparent information, to guide their decision making, for approvals of business plans and budgets should not be underestimated.
  • If critical skills and knowledge gaps exists in the capacity of your venture Partners, particularly with the ‘senior’ partners, mostly National Oil Companies (NOCs), the Operator should have a skills and knowledge acquisition programme in place to bridge the gaps and make them competent to fully understand the Business processes and be effective Partners. This can save valuable time in removing bottle necks in your achieving timely targets.
  • If contracts are meant to be reviewed periodically, all Parties MUST ensure that these reviews happen as planned or delays agreed in formal engagements, to avoid problems that could arise from perception of a party deriving undue benefits from the delay.Some contracts may give undue advantage to a party in the venture at some stage of the project, but ensuring that contract review clauses are adhered to in a timely manner will help to sustain the relationship and enhance trust.
  • For small companies who need to manage staff numbers, they need to identify critical stakeholders and develop appropriate relationships management strategies, i.e. whether and which stakeholders the company would directly manage, and/or use consultants to manage others.

Jimmy Ahmed is a Non-Technical Risk Management Consultant in the Petroleum Industry. He retired as an  Executive Director of Shell Pet. Dev.Co. of Nigeria Ltd.

 

 


Egypt Connects 300, 000 More Homes to the Gas Grid

By Mohammed Jetutu, in Cairo

The Egyptian Government reports it has connected around 305,500 housing units to natural gas between July and September 2019, bringing the number of households connected to the natural gas grid to 10.4Million.

Tarek El Molla, the Minister of Petroleum, says that natural gas was delivered to 178 commercial consumers as well as three factories, during the three month period, while 4,613 cars were converted to run on natural gas, reaching a total of 288,400 converted cars.

Even so, local consumption of natural gas and petroleum products declined by 5.2%, compared with the same period a year before, recording around 19.6Million tons.

The consumption of natural gas represents around 63% of the total local consumption of all petroleum products (diesel, kerosene, gasoline, etc), yet it declined by 4.9% compared with the same period a year before. This is due to the drop in natural gas consumption in power stations by 6%.

 


Oil Companies Work towards the Industrial State

PAID POST

Nigeria’s hydrocarbon sector has largely been about extraction of crude oil for export and importation of petroleum products for consumption.

And when the authorities talk about diversification of the country’s economy, the focus isn’t always about diversification within the hydrocarbon industry itself.

“We should include talk about diversification within the oil industry”, says Ebi Omatsola, founding Chief Executive of Conoil.

This kind of thinking is already enshrined in the draft National Oil and Gas Policies, widely circulated in 2016, but not gazetted.

One company that has actively interrogated the industrial economy through its hydrocarbon assets is Niger Delta Petroleum Resources (NDPR) Limited.

Layi Fatona, who just left the mantle of the CEO, explains in this video.


Angola Needs to Drill More Oil Wells to Produce Gas

By Sully Manope, in Soyo

Angola’s LNG plant has dropped in production as a result of reduced amount of natural gas that come from the crude oil platforms that supply it.

It sounds intriguing, but the plant relies entirely on associated gas: natural gas which cohabits in the same reservoirs as crude oil.

ALNG’s production capacity is 5.2 Million Tonnes Per Annum (5.2MMTPA). The train can process up to 1.1 billion cubic feet of natural gas per day,

Diamantino Azevedo, Angolan Minister of Mineral Resources and Oil is quoted by Angolan state news agency Angop, as saying that additional investments are needed in drilling more oil wells in the country, in order to increase the natural gas that is channelled to ALNG plant “to reach the installed production capacity.” The minister reportedly added: “This is a challenge that Angola LNG and the country have to take on, in order to achieve capacity and maintain project stability over a long period of time”.

The immediate challenge to Mr. Azevedo’s wish is the immediate status of Angolan rig count. Angolan rig activity figures had crashed from robust 22 in September 2015 to 4 in August 2018, according to the August /September 2018 edition of the monthly Africa Oil+Gas Report.

Angolan LNG has had its fair share of challenges since it came on line in 2013. Barely a year after commissioning, it faced an extended plant shutdown of more than two years from April 2014 to June 2016 to fix a number of design issues that caused an incident on 10 April 2014

That situation led Chevron, the operator, to create an internal project management system to better track contractors and subcontractors on major projects. Chevron is the largest stakeholder in the facility, holding a 36.4% interest, with partners that include Sonangol, 22.8%, and BP,  ENI and TOTAL, with 13.6% each.

 


Seplat Signs Commercial Agreements on 300MMscf/d ANOH Project

Seplat has cleared one major hurdle toward Final Investment Decision  regarding the Assa North/Ohaji South (ANOH) gas project, located in Rivers State, Nigeria’s largest natural gas holding state.

The London listed company signed, together with the Nigerian National Petroleum Corporation (NNPC) and other related companies, the Shareholder Agreement and other Commercial Agreements for ANOH Gas Processing Company (AGPC) project on  Monday, 13th August 2018, at the NNPC Towers, in Abuja, the country’s Federal Capital.

The signed Shareholder Agreement will govern SEPLAT and Nigerian Gas Processing and Transportation Company (NGPTC) respective interests in the AGPC incorporated Joint Venture.

The AGPC incorporated joint venture, in which Seplat and NGPTC hold 35% each, is the midstream company that Seplat has always talked about. Patterned after the NLNG, in which NNPC, Shell, TOTAL and ENI hold equity, AGPC will buy natural gas from the upstream JV: the NNPC/Seplat JV in Oil Mining Lease (OML) 53, and process and deliver both dry gas and several products to customers in the domestic market.

“The execution of these Agreements is an important precursor to the Final Investment Decision (FID) for the ANOH project”, Seplat says in a release.

There are other conditions precedent to the FID, of course, and the timeliness of the completion of plant and inauguration project all of the depend on these conditions, but the agreements signed on Monday, especially the completion of incorporation of the AGPC incorporated Joint Venture, have been collectively close to 12 months in the making.

AGPC is being promoted by the NNPC and Seplat to develop, build, operate and maintain the Company “as a world class Organization delivering on its objectives”, the NNPC said at the event. Seplat, on its part, explained that the ANOH Gas Processing Plant is a milestone project which aligns with the gas infrastructure development initiative of the Federal Government of Nigeria.

The company assures that the AGPC would deliver the project on schedule within the next eighteen months and achieve its objective of being a major gas supplier to the domestic market.

 

The Agreements signed were:

  • AGPC Shareholders Agreement between AGPC, NGPTC and SEPLAT;
  • AGPC Share Subscription Agreement between AGPC, NGPTC and SEPLAT;
  • Wet Gas Sales and Purchase Agreement between NNPC, SEPLAT and AGPC;
  • Gas Sale and Purchase Agreement between AGPC and Nigerian Gas Marketing Company (NGMC);
  • Gas Marketing Agreement between AGPC and NGMC.


Ogbele Scouts For More Domgas Clients

The Nigerian independent, Niger Delta Exploration and Production (NDEP),is hoping to expand its supply of natural gas from its Ogbele field far beyond the requirements of its two offtakers.

The company’s only domestic gas offtaker is PGINL- Power Gas Industries Nigeria Limited, which compresses the gas and uses it to generate power in offsite industrial locations.

But the “anchor” client for NDEP’s100Million standard cubic feet of gas per day capacity processing plant is the Nigerian Liquefied Natural Gas NLNG Ltd in Bonny, to which its supplies 35MMscf/d.

NDEP has prided itself for five years as the only non NNPC JV partner and the only indigenous company which supplies the NLNG system.

Now the company’s ambition has soared above the satisfaction it derives from being the only indigenous company supplying gas to an export project in a country where there is energy deficit on account of gas supply constraints and where industrialisation can take off on the wings of natural gas production.

“Currently, we are negotiating a few more offtake agreements and as soon as those are completed and they are ready to offtake gas, we are obviously in good stead to deliver gas”, Layi Fatona, the company’s Chief Executive Officer, told me in a recent interview. “I have always said that we have the most Unencumbered-Ready-To-Deliver-Gas among the indigenous companies”.

Fatona says he cannot name the names of companies that NDEP is currently negotiating Gas Purchase agreements with, “because negotiating a gas deal is an extremely tricky thing. But at least currently today, we have a reasonable number of interested parties who are discussing with us aggressively”.

The Full Interview with the CEO of NDEP is in this link.


Israel Replaces Egypt as Gas Exporter to Jordan

By Toyin Akinosho

300MMscf/d to Jordanian power utility over a 15 year period
American independent Noble Energy will be exporting gas from Israel to the Jordanian power utility, National Electric Power Company Ltd. (NEPCO) of Jordan from 2017.

The gas will be flowing from the 16 trillion Cubic feet Leviathan field, located in the Mediterranean Sea, off the coast of Israel.
The execution of a gas sales and purchase agreement (GSPA) to supply natural gas for consumption in power production facilities, follows a previously-announced agreement with the Jordan Bromine Company and the Arab Potash Company, which will establish first gas exports to Jordan from the Tamar field (also in Israel), in late 2016.

→   Read the rest of this entry


In Salah South Commences Gas Production

In Salah Gas, a joint venture between Sonatrach, BP and Statoil has started up its Southern Fields project.

It is the latest stage in the development of seven gas fields in central Algeria. The In Salah Gas joint venture commenced production in 2004 from three fields in the north of the area: Krechba, Teguentour and Reg. The Southern Fields project involves the development of four dry gas fields: Gour Mahmoud, In Salah, Garet el Befinat and Hassi Moumene.  Developing the Southern Fields will maintain planned production at 318Billion cubic feet   (9Billion cubic metres) per annum.

Drilling of 26 planned southern field wells began in 2014 and is planned to continue until 2018. The project’s scope includes a new 500MMscf/d gas dehydration central processing facility close to Hassi Moumene, brown field modifications to existing processing facilities at Reg, Teg and Krechba, 150 km of carbon steel export pipelines, 160 km of 13% chrome corrosion resistant alloy infield flowlines and the drilling and tie in of the 26 new wells.

Production is planned to ramp up to the planned peak of 14.1 million cubic metres per day (500 MMscf/d) as wells in the Hassi Moumene and Garet el Befinat field are brought on line between February and April 2016.


Ghana Signs for 500MMscf/d LNG Import

By Toyin Akinosho, Publisher

Most gas supplied in Ghana have flowed to the Takoradi (Western region) Power cluster; now electricity projects in Tema in the east can be sure of supply..

Ghana’s state hydrocarbon company has signed an agreement aimed at importing Liquefied Natural Gas (LNG) beginning from the end of 2016. The ‘Tema LNG project’, so named because it will be located in the port town
Quote25km east of Accra, the country’s commercial hub, “will have the scalable ultimate capacity to receive, store, regasify and deliver, at steady state, about 3.40 million tons of LNG per year, equivalent to 500 million standard cubic feet of gas per day, utilizing a state-of-the-art dedicated floating storage and regasification unit (FSRU) moored off-shore Tema”, says Ghana National Petroleum Corporation (GNPC).

The project will be delivered by Quantum Power, a pan-African energy infrastructure investment platform, with which GNPC has signed Heads of Terms.

The GNPC/Quantum LNG Supply agreement-reported and widely disseminated by GNPC itself – discountenances an earlier report, quoting Ecobank’s Dolapo Oni, that West African Gas Ltd (WAGL) – a 60/40 joint venture between Nigerian National Petroleum Corp. (NNPC) and Sahara Energy Resources – has contracted the Tundra FSRU from Golar LNG for five years, to import gas into Ghana.

Most gas distributed in Ghana, either from import (West Africa Gas Pipeline) or produced in the country (Jubilee field) go directly into the power cluster in Takoradi and environs in the west of the country, whereas electricity projects in Tema in the east are gas starved.

The government targets 5,000MW of electricity, which is about doubling the current output, by 2017. The country has ordered two thermal generating barges with total capacity of 450MW, from Turkey.And ongoing gas-fired power plant projects include a 360MW capacity plant that is additional to the current 200MW capacity at the Chinese owned Sunon Asogli plant, 230MW thermal plant at Kpone, near Tema and a new  plant being built by TAQA, Abu Dhabi’s National Energy Company, to increase an existing plant by 110MW, all grossing 1,110MW on top of the exiting 1,245MW. When these are completed between 2016 and 2017 they will collectively require total gas volume of at least 300 million standard cubic feet of gas per day (300MMscf/d).  This is where the challenge is: what is currently imported and generated in country is not up to 200MMscf/d.

Of the Tema LNG Project, the GNPC says: “An associated sub-sea and onshore pipeline will deliver the natural gas to GNPC and its customers onshore. The project, comprising a capital outlay of over $550Million, will be implemented on a build-own-operate-transfer (BOOT) basis with the assets transferring to GNPC after the Project’s 20-year term”.

As the Ghana’s national gas sector aggregator, “GNPC is leading Ghana’s efforts to develop the gas-to-power value chain supporting the Government’s vision of energy security for accelerated economic growth”, say Alex Mould, GNPC’s Managing Director. “The Tema LNG Project is a critical component in achieving this vision as it allows for the diversification of fuel supply sources, enhancing flexibility and reliability.  It guarantees GNPC contracted capacity of 250 million standard cubic feet of gas per day, for regasification of competitively priced LNG.”

q2Commencement of operations is scheduled for the end of 2016 and, given its design, the Tema LNG Project has a built-in scalability, which would make it play an increasing role in meeting Ghana’s growing energy demand; providing the Ghanaian power generation industry with a highly reliable and clean fuel supply to meet projected power and industrial needs over the next 20 years.  The Tema LNG Project will provide GNPC with the flexibility to manage volatility in power demand and fluctuations in domestic gas supply, while mitigating the effect of unpredictable rainfall on Ghana’s power balance.

The Tema LNG Project has been under development for three years, involving some of the world’s most experienced engineering teams collaborating on an innovative design to address the specific maritime challenges in the Gulf of Guinea, while assuring optimal year round operability.  The terminal, which will be located 12 kilometres off Tema’s shore allows for cost efficient refuelling and regasification without affecting maritime and port traffic.

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