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IOCs not against passage of PIB – Shell MD

by Editor

October 6, 2014 | 5:49 am
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Mutiu Sunmonu

In recognition of his nearly four decades of invaluable service to Nigeria’s oil and gas industry, Mutiu Sunmonu, the managing director of Shell Petroleum Development and Production Company (SPDC) and country chair of Shell Companies in Nigeria, was recently honoured with the prestigious commander of the order of the Nigeria (CON). In this interview with PHILLIP ISAKPA, editor BusinessDay, and OLUSOLA BELLO, energy editor; Sunmonu responds to questions that cover the Petroleum Industry Bill (PIB), crude oil theft, Shell divestment and purported exit from Nigeria, UNEP Report, among other issues. Excerpt:

Q:I want to begin by congratulating you on your recent investiture as a commander of the order of the Niger…

Thank you so very much.

It must be very fulfilling to be so recognised after a period of service of nearly 40 years… surely you walk taller now…

Well, it feels nice that one is recognised for the little contributions on a platform offered by Shell. I admit I’m not that tall, but I’m not short either.

What does CON mean to you?

First of all, it is a national honour, but it is also a title, and I try not to be carried away by titles. But more than that, I see it as a call for more service to my fatherland.

Coming to Shell, people find it hard to believe that Shell is not pulling out of Nigeria…

Well, they better believe it, Shell is not leaving! I think we’ve given this assurance long and often enough to the point where people should really believe that we’re here for the long haul. I hope you can give me the chance to prove the same point during this interview.

Critics point to the divestment process as proof of your pulling out…

Not at all! The divestment does not present any proof of pull-out or even, if I may be emphatic, any intention to do so. The divestment of our equity in a few blocks that leaves us still operating onshore, swamp and offshore cannot be taken to prove a pull-out. Don’t also forget that, at the same time, we’re increasing our presence offshore.

What actually is the driving force behind the divestment?

Thank you. The divestment is part of a strategic portfolio review that is intended to strengthen Shell’s position and future in Nigeria, and also allows indigenous companies to enter the upstream oil and gas business.

The enhanced focusing of our portfolio in Nigeria offers us an opportunity to concentrate on where we can create most value together with government and our other partners. In Nigeria as elsewhere globally, we seek to be the most competitive and innovative energy company.

You say the divestment is partly to help grow local capability, but oil blocks in the Western Niger Delta were sold to mostly Nigerian companies who were in partnerships with foreign funding and technical partners without consideration for the host communities and host states…

I’m happy you said that the blocks were sold to Nigerian companies – it means that one of the objectives of the divestment is being achieved. Coming to the issue about community involvement, I want to say that nobody was excluded from the process.

Mutiu Sunmonu

Mutiu Sunmonu

Over 100 consortia and groups including those who claimed to represent community and local government interests expressed interest and they were all assessed against our criteria. A body or group representing community interests with the right technical and financial capability can take over and run assets, and indeed, as a Nigerian, I will like to see this happen.

Could you enlighten us on how many blocks you’ve divested from?

In the previous divestments between July 2010 and November 2012, SPDC sold its interests in OMLs 4, 38, 41, 26, 42, 40, 34 and 30.

How many more blocks are you selling in the current divestment exercise?

The blocks being sold are OML 18, 24, 25, 29 and the Nembe Creek Trunk Line.

Did current Shell staff bid as potential investors for the blocks that will be divested?

No.

What is the selling price of the blocks?

This information will become available after the divestment has been completed and all conditions fulfilled.

Are we expecting more divestments?

I will not like to speculate, all I can say is that the strategic review is an ongoing process and we will make further announcements as and when appropriate.

There is this widely held belief that Shell Nigeria is not very ethical when it comes to managing oil spills in the country. What dictates your company’s policy in handling oil spills?

The SPDC Joint Venture operates a robust asset integrity programme which involves routine monitoring and maintenance of pipelines. To prevent operational spills, we operate an environmental programme designed to ensure that equipment and infrastructure are kept in good conditions. This programme conforms to global Shell Group standards and the international Standards Organisation (ISO) guidelines.

As part of the on-going asset management programme, SPDC JV is replacing hundreds of kilometres of flowlines and pipelines. All of SPDC JV’s major facilities have been independently certified to ISO-14001 with safety and integrity verified through regular independent assessments and audits. So when you talk of best practice, I can say with all sense of modesty that Shell is out there in front.

Kindly give us a sense of the level of crude theft in the Delta.

As someone who has spent all his working life in the Niger Delta, it gives me pain me to see the destruction to the environment caused by crude theft and artisanal refining. Each time I go on an overfly, my heart bleeds for an environment that is being blighted and community lives that are being impoverished by a few muscle men who have decided to steal our collective wealth.

As I say all the time, this is a national tragedy. Estimates of the volumes being lost to theft vary widely but the Nigerian government estimated crude oil theft and associated deferred production at over 300,000 barrels of oil per day (bopd) in 2013.

On average, around 32,000 bopd were stolen from SPDC JV pipelines and other facilities in 2013, whilst the joint venture lost production of around 174,000 bopd due to shutdowns related to theft and other third-party interference. This theft equates to billions of dollars in revenue losses for the Nigerian government and the joint venture. As I said earlier, crude theft is also contributing to an environmental tragedy in the Niger Delta.

How would you react to what some people are saying that the volume of stolen crude oil as claimed by some IOCs is bogus and that, if the figures are true, some of the companies would not be surviving today?

Well, speaking for SPDC, the figures I’ve just mentioned represent the true picture of crude oil theft from our operations in the Delta.

Why don’t you just shut down in all onshore production in Nigeria to deal with crude theft?

We shut in production as determined by the facts on the ground in order to effect repairs and ensure the integrity and safety of our operations and facilities. That is our primary focus and responsibility. But please let’s be clear about the implications of what you are asking for; a more generalised shut-in of all production across the delta would have potentially very serious consequences for the Niger Delta and the economy.

As you know, oil production accounts for approximately 20 percent of gross domestic product, 95 percent of foreign exchange earnings, and about 65 percent of budgetary revenues. The decision to shut in production completely would require the concurrence of all the partners.

SPDC, a minority partner is the operator on behalf of all the joint venture partners with the NNPC as the majority partner, representing the interests of the state.

Why don’t we see people convicted of crude theft?

We also wish to see the conviction of those responsible for theft. However, as you know, the responsibility for securing convictions rests with the state and its relevant institutions.

It is alleged that Shell and other IOCs operating in Nigeria constitute a major stumbling block to the passage of the Petroleum Industry Bill (PIB). What’s your take on that?

This can’t be true. While I cannot speak for the oil and gas industry, Shell welcomes and supports government efforts to improve the transparency, efficiency and functioning of Nigeria’s oil and gas industry as envisioned through the PIB.

However, SPDC aligns with the rest of the industry on concerns that some of the fiscal and non-fiscal provisions of the Bill are uncompetitive thus putting at risk and making unviable most of the planned projects in the industry. We hope that the final bill would be one that would unlock much additional investments that Nigeria’s rich resource base truly deserves.

What are the critical steps Nigeria should be taking now to secure continuous development in the upstream sector pending when the PIB gets passed?

Again, I can only speak for SPDC and not all the oil majors. Speaking as a Nigerian, my mind is clear on the steps we need to take; introduction of what I would call “inviting” fiscal policies, security and respect for the sanctity of contracts. In any case, these are the building blocks of business anywhere in the world.

As the PIB is still stuck, what measures can the government put in place temporarily to attract investment in the sector?

These are the same steps that I’ve just outlined, they are, by no means, ad-hoc. We must keep on working hard to attract foreign investments through competitive fiscal policies and a safe and secure operating environment. I tell people that Nigeria is not the only investment destination in the world. As an investor, you will naturally be interested in the destination that promises the best return on investment.

Shell signed a deal with the natives of Alaska in the US in July this year, enabling the natives to share directly in profits. Is there any hope for similar arrangements in Nigeria?

This is a commercial arrangement with corporate indigenous entities, and not a revenue or profit sharing deal. It is an agreement with a group comprising seven private business entities, not tribal organisations.

Oil and gas operations in Nigeria are run under different laws. And coming to the point I made on the divestment programme, this is an area where communities can express interest in our equity and work to qualify with the right technical and financial capability.

What have you done about the UNEP report?

We’ve done quite a lot on all the recommendations relating directly to our operations. The certified 15 oil spill sites which UNEP said required further remediation were re-visited for sampling using the same contractors as UNEP, with nine assessed to be remediated to regulatory levels.

Further remediation was conducted at the other six sites and these have since been re-certified. An inventory and physical verification of assets in Ogoniland have been completed and SPDC is working with its joint venture partners and the government to develop a decommissioning plan for them.

In line with the recommendations, we have completed a comprehensive review of our Remediation Management System and made a number of improvements. Contractors have been re-trained on clean-up and remediation techniques and SPDC has assigned specialist supervisors to a number of project sites to ensure effective oversight and compliance.

In June 2012, we launched a community health outreach programme – ‘Health in Motion’ – in Ogoniland. Under this initiative, delivered in partnership with the Rivers State Government, medical teams toured towns and villages across Ogoniland providing primary healthcare services directly to communities, including eye testing, dental care, blood sugar testing, HIV/AIDS and malarial tests, and minor surgeries. About 35,000 adults and 15,000 Ogoni children benefitted from this initiative.

Wider implementation of the UNEP report’s recommendations will require the Federal Government to provide coordination and governance, particularly in the administration of funds. Continuing crude oil theft and illegal refining are also constraining, and in some cases reversing the impact of actions taken by SPDC since the UNEP report.

Will you prevail on the Federal Government to play its role?

Just last month, I joined more than 200 other stakeholders in Abuja for a workshop on the UNEP report organised by the Ministry of Petroleum. We all heard the minister of petroleum stress Federal Government’s determination to lead action on the implementation of the report. We welcome the resolve for action and are ready to play our part in the process.

What are the critical steps Nigeria should be taking now to secure continuous development in the upstream sector pending when the PIB gets passed?

Again, I can only speak for SPDC and not all the oil majors. Speaking as a Nigerian, my mind is clear on the steps we need to take; introduction of what I would call “inviting” fiscal policies, security and respect for the sanctity of contracts. In any case, these are the building blocks of business anywhere in the world.

As the PIB is still stuck, what measures can the government put in place temporarily to attract investment in the sector?

These are the same steps that I’ve just outlined, they are, by no means, adhoc. We must keep on working hard to attract foreign investments through competitive fiscal policies and a safe and secure operating environment.

I tell people that Nigeria is not the only investment destination in the world. As an investor, you will naturally be interested in the destination that promises the best return on investment.

Shell has trained many Nigerians that are now frontrunners that are active in the indigenous sector. Does it support it retirees to engage in entrepreneurial ventures in the sector?

If you are asking whether we support our retirees to take up roles in the public or private sectors, the answer is no. However, what you will find is that our retirees tend to bring to bear on their post-SPDC endeavours, the skills and competencies acquired while at work. You will see this in virtually all facets of the Nigerian society, and we’re very proud that they are upholding the same tradition of service and excellence.

How is Shell supporting new local entities in Nigeria to fill the gaps that were once occupied by foreign contractors?

The best testimony to our Nigerian content story in Nigeria is that the three Shell companies in Nigeria, The Shell Petroleum Development Company of Nigeria, Shell Nigeria Exploration and Production Company and Shell Nigeria Gas are headed by Nigerian managing directors. I’m also the country chair of Shell companies, and as you can confirm, I’m a Nigerian!

As far back as 2007, SPDC introduced a Community Content initiative to address the needs of communities and community vendors in the provision of goods and services in the oil and gas industry.

The initiative has helped many community contractors in Rivers, Delta and Bayelsa states and other parts of the Niger Delta to improve their processes, boost their knowledge and competence and attract more patronage and capital in areas that would not have been previously possible.

In 2013, Shell Companies in Nigeria awarded more than 90 percent of their contracts to Nigerian companies. This is a testimony to the determination of Shell companies to grow Nigerian content.

What are the gaps in the NCD value chain that are not yet visible to local players and what should potential participants be doing to prepare themselves for working with IOCs?

Technology is key in the oil and gas industry. Nigerian companies must keep improving their skills, developing their competence and growing their capacity to remain competitive. This is a global industry and there are no local standards, so to speak. This is why SPDC came up with the idea of focused business summits for Nigerian and community contractors to even grow more.

We organised these summits to link up Nigerian companies with their counterparts in China, India and the United Kingdom so they can explore areas of co-operation in pipelines, valves and fittings, fabrication and construction, Well Engineering, Paints, Instrumentation and Control and Geotextiles and Plastics. Access to funding is also important, and SPDC has introduced innovative contractor financing schemes to help address this problem.

What are the major challenges facing the Nigerian oil and gas industry today and how can these be solved?

I’ve touched on these earlier. It is not just the Nigerian oil and gas industry – all businesses need investments, security, manpower as well as contract and fiscal stability to thrive.

In August, Shell Nigeria Exploration and Production Company Ltd (SNEPCo) announced that it had started oil production from the first well at the Bonga North West deep-water development; what is the significance of this feat to Shell?

This is one more proof that we’re not leaving Nigeria! The milestone showed the Shell leadership role in deep-water and our commitment to further the resources offshore to the benefit of the Nigerian state. Perhaps, the most significant aspect is that this was achieved by a Shell company headed by a Nigerian and with Nigerian personnel and contractors playing key roles.

You may be aware that SNEPCo helped to create the first generation of Nigerian deep-water engineers through the Bonga development which achieved first oil in 2005. The Bonga story gets even bigger and better with the first oil from Bonga North West.

Your vice president for Nigerian and Gabon, Markus Droll had in March reportedly said that Shell was pushing forward to have the final investment decision (FID) on the large-class Bonga Southwest by December this year. Should we expect that to happen before the end of the year?

I will not like to speculate on this project; we will make the announcements at the appropriate time.

Shell is still awaiting the renewal of some expired licenses by the government. What is responsible for the delay in the renewal of those licenses? Is the delay affecting Shell’s investment plan?

The renewal of licenses is a process which is ongoing.

It is believed in some quarters that the divestment of some assets is one of the conditions given to the IOCs to renew their rights on the concessions…

This is not true. Our divestment programme is part of a strategic re-focusing to enable us to concentrate on areas where we can deliver greater value to our shareholders and the Nigerian state.

Could you enlighten us on the social investment strides of Shell in Nigeria?

Nigeria is the largest recipient of social investment by the Shell Group globally. We award secondary school and university scholarships, implement far-reaching GMoU programmes, build capacity of local communities and train youths and women for self-employment in our economic empowerment initiatives.

Shell companies in Nigeria contributed around $180m to the Niger Delta Development Commission (NDDC) in 2013, in addition to taxes and royalties paid to the Federal Government. On top of this, more than $100m was spent by the SPDC Joint Venture and SNEPCo on voluntary social investment in 2013 alone. Our record in CSR in Nigeria will be very difficult to beat.

What are Shell’s future plans for Nigeria?

Shell has a history of over 50 years in Nigeria and has been the pioneer in onshore oil, gas, liquefied natural gas and shallow and deep-water exploration. The enhanced focusing of our portfolio in Nigeria offers us an opportunity to concentrate on where we can create most value together with government and our other partners.

In Nigeria as elsewhere globally we seek to be the most competitive and innovative energy company. Nigeria remains an important part of Shell’s portfolio, with clear growth potential, particularly in deepwater and onshore gas. This strategic review marks another step in re-focusing the SPDC portfolio in particular, our onshore oil portfolio.

You are the 2nd Nigerian managing director of SPDC and country chair for Shell Nigeria; how will you like to be remembered in the annals of the oil and gas industry in Nigeria?

I will like to be remembered as a humane Nigerian who did his best for his fatherland.


by Editor

October 6, 2014 | 5:49 am
12893  |   93   |   0  |   Start Conversation

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