August 10, 2022

Why NNPC GMD Mele Kyari Deserves A Thumbs Up

11 min read

One year ago, Mele Kolo Kyari was appointed the 19th Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) by President Muhammadu Buhari.

The GMD, who clocked one year in office recently, has continued to receive accolades from oil and gas industry stakeholders not just for the new dawn of transparency and openness in the hitherto corruption-ridden Corporation, but for putting in place and implementing robust strategies to transform the NNPC and enhance its potential and capacity to compete favourably with other national oil companies around the world.

A geologist by profession, Kyari has the experience, he has the training; he is not new in the industry, having worked with NNPC and the Nigerian oil and gas industry for over 33 years.

He was prior to his appointment, the Group General Manager, Crude Oil Marketing Division of the NNPC and Nigeria’s Representative at the Organization of Petroleum Exporting Countries (OPEC).

In just 12 months in office, Kyari has made remarkable progress in implementing the five-step strategic roadmap for NNPC’s attainment of efficiency and global excellence, tagged Transparency, Accountability and Performance Excellence (TAPE). The GMD unveiled the roadmap on assumption of office. The five steps for realizing the objectives of TAPE, according to the GMD are that: The NNPC will open up its systems to public scrutiny; Its operational processes would be transparent and accountable to the Nigerian people and the government; The new system would operate along with well-defined operational processes, benchmarked against established global best practices by world-class oil and gas companies; the NNPC will set the right operational cost structure, to guarantee value-addition towards its sustained profitability, and the corporation will set achievable goals, priorities and performance standards and criteria, by developing suitable governance structures for its strategic business units, and the entrenchment of team-spirit, work ethic and collaboration with all key stakeholders to achieve set corporate goals.

 

Industry watchers, who spoke on his one year in office, applauded the achievements he has recorded within a short time across all segments of the Nigeria’s oil and gas industry – Upstream, Downstream, Gas & Power as well as the corporation’s various interventions in other sectors of the economy.

Upstream Sector

Kyari inherited an upstream sector bedeviled by sundry challenges. Before he came on board, revenue from crude oil exports had been at low levels even as oil production volumes dropped to 1.9 million barrels per day lower than the 2.3 million barrels per day capacity in the 2019 Federal Budget.

Also, investments in new projects in the industry were at very low ebb owing to growing uncertainties over the poor operational environment.

The situation was worsened by the unresolved Petroleum Industry Bill (PIB) as the long wait for the passage of the oil and gas industry bill by the National Assembly, had elicited uncertainties among existing and prospective investors in the industry, resulting in investment lull.

Another major challenge was the delay in the final investment decision (FID) for the construction of Train 7 of the Nigeria Liquefied Natural Gas (NLNG) plant, which NNPC is the principal partner. The long delay in the FID for the gas expansion project had resulted in the huge setbacks witnessed in the sector as project partners could not reach a consensus on certain fundamental issues.

Besides, there were sundry unresolved disputes that involved some communities in the Niger Delta region and some oil companies, which hampered oil exploration and production activities in the region.

But there is light at the end of the tunnel, as Kyari through his strategic leadership and series of meetings and consultations with relevant stakeholders and organisations, has been able to resolve most of the lingering issues with a view to positioning the sector to steady growth part.

Boosting NPDC Output

Over the past few years, the Nigerian Petroleum Development Company (NPDC), NNPC’s production arm had struggled to attain its set 250,000 barrels per day target as workers were denied access to critical oil fields due to lingering disputes with host communities.

But series of interventions by the GMD has resulted in the amicable resolution of the issues that hampered NPDC’s quest for increased oil production. The company attained a new peak output of 331,400 barrels of per day on May 28, 2020. In the 2019 financial year, the GMD ensured the NPDC maintained a unit oil production cost of $16.5 per barrel per day.

Other key achievements recorded by NNPC under Kyari’s watch in the last one year included the discovery of Oil in the Kolmani River-II Well, which is expected to significantly boost its oil production capacity.

Kyari also initiated the dialogue that restored normalcy in Belema Community to pave way for production at OML 25. Operations at the oil mining lease (OML) 25, known as the Kula oil field, was shut down on August 11, 2017, following a dispute between Shell Petroleum Development Company (SPDC) and a local oil company, Belema Oil Producing Limited (BPL) over interests in the operations of the oil field in the Belema Community area.

Owing to the dispute, the oil platform in Belema community in Akuku-Toru local council area of Rivers State was occupied by protesting women and youth, who alleged neglect and lack of development in the area. Two months after he assumed office, the GMD had mobilized all the parties in the dispute to the table, resulting in amicable resolution of the dispute.

Consequently, the traditional injunction that stopped oil production at the OML-25 oil flow station were removed. Thereafter, a proposal of a roadmap for the development of the community was presented to the federal government and the NNPC in a new global memorandum of understanding (GMoU), granting the Belema community right to be involved in the maintenance and security of the oil facilities, while Shell remained the operator, along with its partner, the NPDC. The OML 25 accounts for about 35,000 barrels of crude oil per day that was shut-in as a result of the dispute. The renewed oil production activities in the area was a major boost to the NPDC’s output and the country’s oil production as a whole.

Kyari has in just one year,  executed a funding and technical services agreement (FTSA) as well as  alternative financing deal for NPDC’s OML 13 valued at about $3.15 billion and OML 65 for $876 million. These agreements resulted in 32% and 21% incremental production output in OMLs 40 and 30.

Under Kyari’s watch, 14 companies participated in the auction for the financing and redevelopment of OML 119 operated by the NPDC. The twin offshore block made up of Okono and Okpoho fields located approximately 50 kilometres offshore south-eastern Niger Delta are operated by ExxonMobil.

According to the GMD, the OML 119 is one of NNPC’s critical projects, which aligns with the federal government’s aspiration to boost the country’s crude oil and gas production, growing reserves, and monetizing the nation’s enormous gas resources.

JVs, PSCs Operators’ Costs

The NNPC under Kyari’s watch has saved the government some costs through its revision of joint venture and production sharing contract (PSC) operators’ unit costs, down to $19 per barrel and $18.3 per barrel, from the initial $31 per barrel and $24.3 per barrel respectively.

In the last one year, Kyari had demonstrated commitment to achieving the industry target of reducing oil production cost to an average of $10 per barrel by 2021.

The NPDC, under Kyari’s supervision, has acquired four new oil acreages – OMLs 11, 24, 116 and 98, and has recovered debts for gas supplies totaling about N16.64 billion and $3.55 million.

Also, Kyari has made significant progress in the development of an integrated gas handling facility, with the inauguration scheduled for the third quarter of this year.

 Sustaining Oil Output

Not deterred by the challenges in the oil and gas industry, Kyari has ensured that the National Petroleum Investment Management Services (NAPIMS), the NNPC subsidiary in charge of the government investment interests in the oil industry joint venture projects was able to achieve an average oil production capacity of 1.8 million barrels per day prior to the recent decision by the Organization of Petroleum Exporting Countries (OPEC) to cut its members’ output to boost crude oil prices and stabilize the oil market.

With his backing, NAPIMS has secured external funding for the SPDC’s Santolina 3 projects expected to deliver an average production of 16,300 barrels of oil per day, while also superintending over the resolution of the Escravos gas-to-liquids (EGTL) cost dispute with Chevron Nigeria Limited (CNL).

The settlement agreement is expected to bring additional $2billion to the Federal Government of Nigeria in the next 20 years, while providing about 1.5 million litres of diesel per day to the country.

The GMD was instrumental to the signing of novation agreement between NPDC and the Nigerian Agip Oil Company (NAOC) involving the transfer of OMLs 60, 61 and 63 was formalized.

NLNG Train 7 FID

The FID for the construction of Train 7 of the Nigeria LNG project was delayed for years as the NNPC and other partners in the project could not come together to commit to the development of the project.

Despite the outbreak of the COVID-19, Kyari ensured the NNPC and its JV partners – Shell, Total, and ENI, executed the NLNG T7 FID on December 27, 2019. He also ensured the signing of the engineering, procurement and construction (EPC) contract for the project awarded to the Saipem, Chiyoda and Daewoo (SCD) JV Consortium.

The signing of the contract signaled the commencement of EPC activities for NLNG T7 Project. On completion, the production capacity of the six-train plant would expand exponentially by 35 per cent, from the extant 22 million tonnes per annum (MTPA) to 30 MTPA, and boost Nigeria’s competitiveness in the global LNG market.

The project has the prospects of further attracting foreign direct investment (FDI) in excess of $10 billion to Nigeria aside creating over 12, 000 jobs during the construction phase.

AKK Pipeline Project

Another milestone recorded by the NNPC in just 12 months of Kyari in office, was the flag off the EPC activities on the 614 kilometers-long Ajaokuta–Kaduna–Kano (AKK) pipeline project.

Kyari has showed commitment to ensuring that the project considered to be at the heart of the country’s economic growth is completed on schedule in 2023.

The pipeline project represents phase one of the 1,300 kilometre-long Trans-Nigerian Gas Pipeline (TNGP) project being developed as part of Nigeria’s Gas Master Plan to utilize the country’s surplus gas resources for power generation as well as for consumption by domestic customers.

The TNGP project also forms part of the proposed 4,401 kilometre-long Trans-Saharan Gas Pipeline (TSGP) to export natural gas to customers in Europe.

The AKK pipeline system that will originate at the Ajaokuta terminal gas station (TGS) in the Kogi state will transport up to 3,500 million cubic feet (MCF) of gas per day from various gas gathering projects in southern Nigeria through Niger and Kaduna States, to terminate at a gas station at Kano State. Aside saving over $300 million for the government, the AKK project would attract over $2billion of FDI.

 Power projects

To boost power supply in Nigeria, Kyari has ensured the completion of the second phase of the Okpai Power Plant, with the first and second turbines scheduled for commissioning in the third quarter of this year.

Kyari also execution funding and technical services agreement (FTSA) with NPDC on OML 11, while taking the FID on the $3.5 billion West African Gas Project (WAGL) to ensure the sustenance of gas supply to power plants in the country and other domestic users leading to attainment of a peak energy capacity of 111,591.83 megawatts-hour.

The rehabilitation, operations and maintenance of the Escravos Crude Oil Terminal is scheduled for December this year. The NNPC, under Kyari, has successfully executed the intelligent pigging of the West African Gas Pipeline project as part of regulatory compliance and flow assurance, which is instrumental to achieving delivery of Nigeria-Gas foundation volume of 133 million BTU and cumulatively of more than 190 million BTU through the pipeline system this year.

The NNPC, under Kyari has recovered over N80billion and $45million owed it, through its subsidiary in charge of gas development and supply, the Nigerian Gas Company (NGC) by gas off-takers.

Downstream sector

In the downstream sector of the oil and gas industry, the GMD has in the last one year, recorded huge milestones in the areas of fuel supply, crude oil lifting contracts, refineries rehabilitation, diversification of NNPC’s Portfolio and revitalizing NNPC’s moribund subsidiaries. He has also instituted transparency in the national daily fuel consumption as well as ensured timely remittances of oil revenues to the FAAC.

Fuel supply crisis was the order of the day in Nigeria prior to his assumption of office. To address the issue, the GMD leveraged on the existing Direct-Sales-Direct-Purchase (DSDP) product supply arrangement he started and sustained while in office as the GGM COMD of the NNPC, to guarantee energy security for Nigerians.

Crude Lifting Contracts

Before he came on board, crude oil lifting contracts were shrouded in secrecy.

Kyari had on assumption of office, vowed to ensure transparency and accountability in NNPC’s operations, and therefore reasoned that announcing the beneficiaries of the contracts, was part of the policy direction of his regime.

Also, to sustain uninterrupted supply of petroleum products, Kyari has showed determination to revamp downstream infrastructure to guarantee availability of 90 per cent pipeline for fuel distribution; ensure automation of the fuel distribution system, and grow NNPC Retail’s market share to 30 per cent.

Also an initiative, “Operation White”, was launched to curb products diversions and smuggling, and ensure adequate petroleum products for homes and businesses.

Under the initiative, a team of 89 officials drawn from various government agencies involved in the petroleum products supply process was inaugurated and tasked with the responsibility of monitoring and tracking fuel distribution and consumption throughout the country.

Refineries’ Rehabilitation

Kyari’s aspiration is to ensure that Nigeria’s four refineries at Port Harcourt, Warri and Kaduna were fully revitalized by 2022, to move Nigeria from a net importer of refined petroleum products to top exporter of the commodity.

Besides encouraging private investors, like Dangote Group and other mini-refineries developers in the country to be involved in the construction of private refineries, Kyari’s bid to undertake the rehabilitation of Phase 1 of the Port Harcourt was to complement the supply of petroleum products from the strategic reserve.

The plant equipment inspection and integrity study rehabilitation of Phase 1 of the Port Harcourt Refinery was completed in December 2019, five months after he assumed office. The technical audit of the Warri Refinery and Petrochemical Company (WRPC) has already kicked off.

 NNPC’s Audited Accounts

On assumption of office, the GMD had declared that the NNPC under his watch would embrace openness, transparency and accountability in its activities. To achieve this, he approved the regular publication of the Monthly Financial and Operational Report of the NNPC that highlight NNPC activities in the different aspects of the industry, which commenced in 2016.

He also authorised the release of the audited financial statements and accounts of all its strategic business units (SBUs) and Corporate Services Units (CSUs). In fact, the GMD made history last month, as he not only concluded the audit of the 2018 Financial Statements to bring up-to-date the NNPC’s books and accounts, but released to the public all audited financial statements and accounts for the year ended December 31, 2018.

In the past, the NNPC defaulted in remitting to the Federation Accounts revenues realized from its operations, fueling its indictment as one of the least transparent oil companies in the world.

All that has changed with Kyari at the helm, as he now ensures timely and regular remittances of all revenues accrued to the Federation Accounts Allocation Committee (FAAC) for onward distribution to the three tiers of government.

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