PARTNER CONTENT/ANALYSIS

By: Omotayo Giwa and Dimeji Bassir

What is hydrocarbon metering?

Metering involves the measurement and monitoring of fluid quantities, such as oil, gas, or other hydrocarbons. Metering plays a critical role in the oil and gas industry, ensuring accurate measurement of hydrocarbon quantities. It provides essential data for production, billing, and financial calculations.

Two key concepts in metering are custody transfer and revenue assurance.

Custody transfer refers to the transfer of ownership of hydrocarbons between parties, typically from the producer to the buyer. Accurate metering during custody transfer ensures a fair exchange and proper allocation of financial responsibilities.

Revenue assurance focuses on ensuring that the correct revenue (including royalties, taxes etc) are collected for the hydrocarbons transferred. It involves measures to prevent revenue leakage, inaccuracies, or fraud throughout the metering and billing process.

Accurate metering, custody transfer, and revenue assurance are crucial for maintaining trust, financial stability, and regulatory compliance. They contribute to the overall efficiency, transparency, and sustainability of the oil and gas industry.

Advanced metering technologies, such as flow meters and automated systems, enhance accuracy and reliability. Best practices include regular calibration, quality control, compliance with industry standards, and independent auditing.

NUPRC’s (foreign company) OEM approach

Nigerian Upstream Petroleum Regulatory Commision is committed to deal with issue of metering errors by ensuring that Original Equipment Manufacturers (OEMs) licenced directly as agents of the Commission, will be responsible for deployment and maintenance of metering facilities across the country’s oil and gas facilities for transparency in hydrocarbon accounting. This reform measure offers a paradigm shift from the trajectory in Nigeria’s hydrocarbon measurement since oil was discovered here in Oloibiri in 1956 and it aligns with a fundamental principle of Justice “Let no one be a judge in his own case.” Besides, the quest for increased oil and gas production must be matched with efficiency management.

Why do we call it a foreign company approach?

“ We do not have local meter manufacturers. All meters used in Nigeria are from foreign Original Equipment Manufacturers (OEMs). So, the approach to directly license OEMs for metering calibration and maintenance will depend on foreign companies “

What if the OEMs have local partners?

The local companies will end up simply being rent takers and this will stifle competition and innovation. There are a limited number of OEMs and the few companies that have the local partnerships with them will benefit only from the rent. If there is knowledge transfer, it will be product specific and limited to a few individuals that work for the local partners. There will be no incentive for broader knowledge acquisition and investment by local companies with little to no job creation and growth. This is an approach for the few and not for the many. It is not an approach that fosters the growth of our local industry.

Who benefits from the NUPRC Approach?

This novel approach by NUPRC certainly helps the OEM, typically large foreign corporations, by increasing their revenue but may not achieve our own national objectives for local content and capacity building. The traditional role of the OEM in industry has not been to ensure compliance. The meter manufacturer is driven to earn money from equipment sales and services, there is a risk that they may prioritize revenue generation over promptly addressing calibration issues or defects in the meters. Their incentive may be to keep the meter in operation for as long as possible to continue earning day-rate revenues, potentially compromising accuracy and reliability. They are being asked to take on a role as impartial umpires, a role that they do not have experience with, but which is beneficial to them as it potentially “lets the lion loose amidst the sheep”.

Misalignment of incentives: The incentives and value propositions of meter manufacturers, whose focus is on sales and revenue generation, can be different from the objectives of ensuring accurate and reliable metering operations. Misalignment of incentives can potentially create conflicts of interest and compromise the integrity of the metering process.

Potential conflicts of interest: There is a risk of conflicts of interest since the OEMs responsible for supplying the meters are also responsible for their deployment and maintenance. This situation could raise concerns about impartiality and transparency in metering operations.

Limited competition: The involvement of OEMs licensed directly by the NUPRC may result in a limited pool of suppliers, potentially reducing competition in the metering sector. This could hinder innovation, limit choices for operators, and affect pricing dynamics.

Dependency on external entities: Relying solely on OEMs for the deployment and maintenance of metering facilities may create a dependency on external entities. This could result in reduced control over critical operations and potential delays in response times for maintenance and support.

Calibration and quality control challenges: Verifying that the meters are accurately calibrated and maintaining consistent quality across all OEMs can be challenging. Ensuring effective calibration and quality control mechanisms to meet industry standards and regulatory requirements is essential.

Local content and capacity building limitations: The approach may have limitations in promoting local content and capacity building for local companies. It could potentially restrict the participation of local companies in the metering sector, limiting opportunities for skills development, job creation, and technology transfer within Nigeria.

Potential cost implications: The involvement of licensed OEMs may lead to additional costs for operators, considering the procurement, installation, and maintenance expenses. Careful assessment of the financial implications is necessary to ensure that the costs are reasonable and justifiable.

Transparency and accountability: The principle of “Let no one be a judge in his own case” is a fundamental principle of justice that underscores the importance of transparency and accountability. However, there is no clear separation between the parties responsible for delivering the equipment and services and those responsible for verifying their accuracy and compliance. Such a separation can help maintain the integrity of the metering process and build trust among stakeholders.

There is another way, a better way..

Independent Metering Auditors

Licensing of independent metering auditors by the NUPRC to ensure compliance at metering facilities. These auditors, operating independently from the meter manufacturers, can provide unbiased assessments and verification of meter accuracy, calibration, and compliance with standards. This holds several potential benefits.

Impartial oversight: Licensing independent metering auditors ensures an unbiased and impartial assessment of metering facilities. These auditors can objectively evaluate the accuracy, reliability, and compliance of the meters, free from potential conflicts of interest.

Expertise and specialization: Certified and licensed auditors bring specific expertise in metering systems and standards. They possess the knowledge and skills required to effectively assess the performance, calibration, and overall quality of metering facilities. Their specialized focus can contribute to more thorough and accurate audits.

Enhanced accountability: By establishing a licensing framework, the NUPRC can hold metering auditors accountable for maintaining professional standards and conducting audits with integrity. This helps ensure that auditors adhere to prescribed methodologies, follow regulatory guidelines, and provide reliable assessments of metering facilities.

Consistent standards and best practices: Licensed auditors can help promote consistent application of standards and best practices across the metering sector. They can ensure that metering facilities meet regulatory requirements, industry guidelines, and international standards for accuracy, calibration, and reliability.

Continuous monitoring and improvement: Regular audits by licensed metering auditors can facilitate ongoing monitoring and improvement of metering facilities. Auditors can identify deficiencies, recommend corrective actions, and provide guidance on enhancing the performance and efficiency of the meters. This contributes to continuous improvement in the accuracy and reliability of metering operations.

Stakeholder confidence: The involvement of licensed metering auditors enhances the credibility and trustworthiness of metering operations. Audits conducted by licensed professionals add an additional layer of assurance that metering facilities are accurate, reliable, and compliant with regulatory standards. This can enhance stakeholder confidence in the accuracy and integrity of metering facilities. Operators, investors, and regulatory authorities can have increased assurance that hydrocarbon measurements are being conducted in a transparent and trustworthy manner

How do we ensure independence?

We can incentivize the independent metering auditors. Not by creating hurdles that discourage investment in knowledge and expertise but by rewarding expertise and continuous improvement. However, incentives are not enough to ensure the effectiveness of independent metering auditors. NUPRC should establish a comprehensive regulatory framework that includes thorough auditor qualification processes, ongoing performance evaluation, and mechanisms for reporting and addressing potential conflicts of interest.

What should we expect of licensed auditors and how do we ensure their independence?

Professional ethics and reputation: Licensed auditors will be bound by professional ethics and a commitment to upholding the integrity of their profession. Maintaining a strong reputation for impartiality, integrity, and accuracy is essential for their credibility and long-term success in the industry.

Regulatory oversight and accountability: The NUPRC, as the regulatory authority, can establish clear guidelines and standards for licensed auditors. They can enforce compliance, conduct audits of auditors themselves, and take appropriate disciplinary action in cases of misconduct or breach of professional conduct. The threat of regulatory scrutiny can act as a strong deterrent against biased or unethical behavior.

Market competition and trust: The metering sector operates within a competitive market environment. Independent auditors who consistently demonstrate impartiality and integrity are more likely to gain the trust and preference of operators, regulators, and stakeholders. Maintaining a competitive edge and securing future business opportunities can serve as an incentive for auditors to adhere to ethical practices.

Long-term sustainability and growth: Independent auditors recognize that their success relies on the trust and confidence of the industry. By consistently performing thorough, unbiased audits, they contribute to the overall improvement and reliability of metering operations. This, in turn, supports the long-term sustainability and growth of the metering sector and the auditors’ own professional growth.

Legal and contractual obligations: Licensed auditors may have legal and contractual obligations to perform their duties impartially and in accordance with established standards. Breaching these obligations can lead to legal consequences, damage to their professional reputation, and potential loss of their license.

Industry Collaboration with financial auditors:  ICAN as a professional accounting body, has extensive experience in financial auditing and assurance. Leveraging ICAN’s expertise can help establish comprehensive auditing standards and methodologies specifically tailored for metering operations. This ensures that the licensed auditors adhere to recognized professional standards, promoting accuracy, reliability, and consistency in revenue assurance. This collaboration can help ensure robust control mechanisms and address potential revenue leakages.

Driving local content, knowledge transfer, research and innovation

Local content and capacity building: The licensing of independent auditors can create opportunities for local companies to participate and excel in the metering sector. Local auditing firms or professionals can obtain licenses and build expertise in metering audits, leading to the growth of local capacity and capabilities. This contributes to local content development by fostering the involvement of indigenous companies in critical areas of the metering value chain.

Technology and knowledge transfer: Collaborative efforts between licensed auditors and local companies can facilitate technology and knowledge transfer. Auditors can bring international best practices, expertise, and advanced metering technologies to the local industry. Local companies can benefit from exposure to these practices, gaining insights into the latest metering advancements and enhancing their technical capabilities.

Research and innovation: Licensed auditors can actively engage in research and innovation within the metering field. Their involvement can contribute to the development of new methodologies, improved standards, and innovative solutions. This promotes research and development in metering technology, benefiting the overall industry and driving advancements in accuracy, efficiency, and reliability.

Compliance with local content policies: The approach aligns with local content policies by ensuring that metering audits are conducted by licensed auditors, which may include local firms or professionals. This supports the objective of promoting local participation, job creation, and technology transfer in the oil and gas sector.

Working with local service companies and OEMs

Nigeria has reputable local service companies that can also calibrate and maintain meters. NUPRC’s foreign OEM approach is a judgment on the competency of local service companies and the trained metering professionals in the country. We should not throw the baby away with the bath water. We must continue to grow the capacity of our local service companies and we also need foreign OEMs. We are not stopping foreign participation. We want foreign investment.

Collaborative oversight: The NUPRC can establish a framework that combines the involvement of local service companies and OEMs with the auditing and regulatory oversight of licensed auditors. Local service companies and OEMs can be responsible for supplying and installing metering equipment, while licensed auditors ensure compliance, accuracy, and reliability through independent audits.

Quality assurance and calibration: The local service companies and OEMs can be tasked with ensuring the proper calibration and maintenance of the metering equipment they supply. Licensed auditors can then verify and validate the accuracy and performance of the meters during their audits. This collaborative approach ensures that metering facilities meet regulatory requirements and industry standards.

Local content and capacity building: The integration of local service companies, OEMs and licensed auditors can contribute to local content and capacity building objectives. Local companies can partner with OEMs to manufacture, assemble, or provide support services for the metering equipment. At the same time, local auditors can gain expertise and participate in auditing activities under the guidance of licensed auditors, fostering local capacity and knowledge transfer. There are lots of opportunities to train and certify both the local service companies and the local auditors to build local capacity.

Technology transfer and innovation: The involvement of OEMs can facilitate technology transfer by bringing advanced metering technologies to the local industry. Licensed auditors, in collaboration with OEMs, can assess the suitability and performance of these technologies, driving innovation and continuous improvement in metering practices.

Compliance and transparency: The combination of local service companies, OEMs and licensed auditors enhances compliance and transparency. Local service companies and OEMs ensure that the metering equipment meets regulatory standards, while auditors independently assess and validate the accuracy and reliability of the meters. This dual approach strengthens the confidence of stakeholders in the integrity of hydrocarbon measurements.

Independent Metering Facility Providers

In addition to independent metering auditors, the creation of companies to provide independent metering facilities will enhance the industry and create new opportunities. This will involve operators contracting specialized metering facilities companies to provide and maintain the metering equipment and related services

Independence and impartiality: Engaging independent metering facilities companies introduces an additional layer of independence and impartiality to the metering process. These companies are focused on providing accurate and reliable metering services, separate from the operators’ interests. This can help ensure unbiased measurement and minimize conflicts of interest.

Expertise and efficiency: Metering facilities companies specialize in metering solutions and have the necessary expertise to design, install, calibrate, and maintain the metering infrastructure. By leveraging their specialized skills and experience, operators can benefit from more efficient and effective metering operations.

Cost-effectiveness: Contracting metering facilities companies can potentially be cost-effective for operators. Instead of investing in acquiring and maintaining their metering infrastructure, operators can rely on the expertise and economies of scale offered by specialized companies. This allows them to focus their resources on core business activities.

Local and foreign investment: The approach of engaging independent metering facilities companies can encourage both local and foreign investment. Local companies can establish and grow their businesses by providing metering facilities/services, fostering job creation and economic development. Foreign companies can also participate in the market through partnerships or investments, bringing in advanced technologies and expertise.

Partnership opportunities: Metering facilities companies can collaborate with OEMs through leasing arrangements or partnerships. This allows OEMs to provide their equipment or technology to the facilities companies, while the companies handle the installation, maintenance, and operation. Such partnerships can leverage the strengths of both entities and drive innovation and efficiency in metering operations.

Regulatory compliance and standards: Independent metering facilities companies are expected to adhere to industry standards, regulatory requirements, and best practices. This ensures that accurate measurements are obtained and reported, maintaining compliance with regulatory bodies and supporting transparent and reliable revenue management.

This collaborative work is a summary recommendation on NUPRCs strategy on reduction of metering inaccuracies in the industry, thereby improving revenue assurance for the Nigerian Government. It was championed by Dimeji BASSIR (Ofserv) and Omotayo GIWA (QuadDynamics Ltd).

They have over 60 combined years of experience working locally and internationally in the oil and gas industry. They are also backed in their respective companies by several professionals with extensive experience, locally and internationally, in the oil and gas industry.

The recommended strategy underpins the adoption of real-time, remote monitoring and analytics tools which will aid in the rapid detection (from a central command center) of errors, irregularities, or losses in the measurement process in between audits. In short, an early warning system that helps in identifying trends, patterns and detection of potential engineering fraud.

Contact us at partnernhmf@gmail.com

1. To discuss this paper
2. For a detailed plan and strategy which includes stakeholder engagement, workshops, audits, gap analysis, benchmarking studies etc.

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