HOST COMMUNITY ENGAGEMENT ENHANCES OIL PRODUCTION -Engr. Felix Amieye-Ofori
Community relations between oil companies and their host has always been greeted with frigid welcome and not many are successful in oil exploration activities. This has led to vandalism, theft and disruption of production.
In similar vein, lack of trust between the host community and oil producing companies has been responsible for endless unrest in oil producing areas. In this interview, the Managing Director/Chief Executive Officer, Energia Limited, Engr. Felix Amieye-Ofori, explained how his company transformed the host community and made the members to see themselves as part owners of the company. They see projects embarked upon by the company as a source of economy to them. He revealed that engaging the host community sustains production and cited example of Forcados where Nigeria lost 20 million barrels when it was shut down due to attacks from militants. He spoke to energy correspondents in Lagos on sundry issues.
Usually, many companies, including the International Oil Companies (IOCs), have one problem or the other with their host communities. Why is yours different?
Frankly, this is a good question and I think this is also what government, through the Host Community Bill, is trying to address because the people are becoming aware that it is better to be partners and stakeholders and not as benefactor where I give you some money and you go. Whenever there is a bit of agitation from the people, we give some envelopes to the Chiefs. Energia does not do that because the company makes them feel that the oil is in their land, and it is for their own good. It is for their children and for their future. The community royalty that we are paying is broken down into community projects, and trust funds. Part of it is saved for future investment and entrepreneurship for the community. There is a part for sustainable projects and infrastructure. So, the people are involved round the clock. Our host community see our operations as a source of economy and are also involved in the protection of our facilities.
Occasionally, they fight among themselves if there is anybody trying to disrupt our activities. If someone sends a letter with the intent to disrupt our activities, the community will return the letter and write to us that they don’t support his intended action and that we should disregard it. We have been able to operate with them to a level that they see us as part of them without disrupting production. They see the pipeline as theirs, they see our project as a sustainable one and we recruit them to monitor the pipelines as well. They clear the pipeline Right of Way (RoW) themselves and also work as contractors in our facilities.
In terms of employment, we have about 25 per cent of our workforce from the community. All menial jobs go to local contractors. Besides, we do bursary and give scholarship as well. We have development consultant who is working with the host community to create a soft loan in form of cooperative to empower the women in the community which is quite commendable. They understand that one barrel produced from our operation is empowering the community and this model is working. You may think that you are losing, but by the time you shut down production or your pipeline is blown up, you will realize that it is cheap. For instance, look at what happened when Forcados (pipeline) was shut down, we lost as much as 20 million barrels. But you are not going to spend that much money to keep peace. Host community needs to feel the impact of oil companies operating in their domain.
How did you do it?
We have trust board and parliament. The parliament is all the segment of the community while the trust board is made up of selected individuals with corporate experience. The trust board approves the project and it has project committee. The parliament is made of the community where they discuss what project to be executed. We are represented on both sides. There is always high level of transparency and of course there is community development committees that interface with these institutions. So, we don’t just spend money, we give the institutions to manage the affairs.
Part of the medium to long term plan of Energia Limited is to have a refinery. What is the state of the refinery?
Frankly speaking, what has slowed it down is cash issue. If we have been producing and there has been no challenge, by now, we should have gone far. We have got approval from the Department of Petroleum Resources (DPR), we have done our field work, DPR wants us to get involved into detailed engineering after which we start fabrication. But we had a slight hiccup with fund. Once your source of revenue goes down, your project is affected.
In Nigeria, due to enormous fund involved in oil and gas project, banks are slow to lend money and of course there is a bit of risk of foreign fund coming into the country. Once the environment is clear and the Petroleum Industry and Governance Bill (PIGB) is passed, we have to re-visit issues pertaining to the refinery. The project is capital intensive. We have our own crude and there will be no need to source for crude, but the capital expenditure (capex) is a bit heavy. The reason for the pipeline is for us to solve interruptions. If you have refinery, you will continue to produce irrespective of what happens to the pipeline. Energia will not be involved in the downstream, its refinery is to sustain the company’s upstream operations. As long as the refinery is built considering the petroleum situation in the country, we produce crude, refine and sell it while production will be sustained. The challenge is that we buy in dollar and sell in naira but the federal government has come up with measures to assist operators with the naira-dollar parity especially for those who need money offshore.
You can’t source for dollar at N360, it won’t work. That’s why we are collaborating with the Ministry of Petroleum Resources, the Central Bank of Nigeria and other government agencies.
What will be the capacity of the refinery?
We started with full stream products which includes Premium Motor Spirit (PMS), Automotive Gas Oil (AGO) and Dual Purpose Kerosene (DPK). At some point, due to cash constrains, because it will cost not less than $100million, we decided to scale down to modular refinery in order to produce AGO, DPK and others. But as soon as we have enough fund, we will scale it up. We have space for large scale refinery and the company is prepared for it.
We saw oil price dropped as low as $30 per barrel, at present, it has risen to above $65 per barrel, how has this impacted on your business?
It is positive but it will take a while before we really feel the impact. This is because they are all indexed. While you think you are producing at $65 per barrel, the refiners will be buying at that price. That means the refiners are buying at higher price. The product will start getting higher and everything will adjust upward, the demand and supply will adjust the price. The transporter will increase charges, service providers who are oil servicing technocrats will also adjust their prices upward and the multiplier effect will erode the margins. So, it is not what you think. If crude price rises to $115 per barrel, I don’t think I will get much benefit because operators in the oil servicing sub-sector will also increase their costs. I don’t want the price to get to $100 per barrel because it will spike up all other costs and the profit margin won’t be much.
Nigerian National Petroleum Corporation (NNPC) disclosed recently that it has reduced cost of production to $20 per barrel, is this cost a true reflection of what is obtainable on the field?
Cost of production is not uniform across the countries. It is purely volume and cost. More volume lesser cost and vice versa. If you look at cost based on geographical location, the Middle East with higher volume has lower cost. The IOCs will probably have lower cost of fund while marginal field operator like me will have higher cost of fund because of lesser volume. You should also consider efficiency factor besides volume. Cost is not only volume but with efficiency. Meaning that you are doing things right. Consider when you are operating in a swampy area, before conveying your product, you need to rent a gun boat, make provision for additional security and all these are aggregated in the cost. This means aside the cost; your environmental and managerial factors must be considered in the cost. Efficiency also includes how you manage your cost. Nobody will like to do business with a bad debtor, he will rather deal with you at higher cost. Cost reduction and cost efficiency is a school on its own. However, if you have much volume, your cost should drop. So, I will say our cost is within the NNPC bracket and it is very low. We are within the NNPC benchmark.