In trying times, look to alignJuly 21, 2020
Dimeji Bassir, CEO of Ofserv, talks to The Energy Year about the importance of stakeholders sharing a vision for cost-cutting and the prospects for hard-hit Nigerian companies in the marginal fields bid round. Ofserv is an oil and gas services company that works at all stages of the country’s hydrocarbons value chain, particularly in drilling, surface/sub-surface engineering consulting and facilities maintenance/inspections.
How has the crisis impacted your activities?
Our clients are operators and we are a service provider, so we have to be aligned with their strategy. Being on top of the food chain, they have always been the ones setting the direction but now they also seem to be trying to figure things out as they go along, since such a situation has never happened and there are no previous lessons learned. The industry has adjusted in very drastic ways – first and foremost from a health perspective, such as following social distancing guidelines. Operations offshore had to be scaled back as personnel offshore had to be reduced.
In March 2020, we were talking about mobilising to one of the FPSOs for an “urgent” intervention and inspection work needed to be done. Today, this has been put on hold, as it does not impact the production of oil directly, so they have cut the capacity down to one-third of personnel onboard, only keeping those directly responsible for pumping oil. What this means for us is that we cannot execute such projects, nor bank them.
There is no visibility on when this situation will change. We are keeping close to the client, trying to understand their thinking and align with them on what kind of support we can provide them on this unprecedented journey. Technically and technologically, we are looking at some of the ways by which they are intending to change their operating model and rely as much as possible on technology and digitalisation.
To what extent can you accommodate further rate reductions?
There is one magic number which has been thrown around, 40%, which presupposes that there were 70-80% margins or more to start with. But the reality is, prices never went back up to their pre-2015 levels. In Nigeria, rate reductions are approached in a reactionary way. We need to align and seek out existing opportunities to challenge certain legacy practices through a fundamental shift in operating philosophy. How do we rethink the prevailing operating and contractual models to derive efficiencies? Where do we have redundancies? Where and how can risk/reward be better aligned between client and contractor?
For example, in the way we drill wells, what aspects are considered nice to have as opposed to absolute necessities? Thinking about it this way, you would likely end up with higher cost efficiencies. But the mentality is: I am the big dog and you do my bidding as the contractor – go on, cut 40% of your rates. This is totally different from the scale-down approach, where there is a stakeholder alignment in terms of a shared vision and a shared goal, where you cut a lot of the redundancies and there will be a general realignment across the stakeholders.
Where do you carry out more work in this current situation?
We were privileged to have provided Nigerian content support to Saipem at the bid stage for NLNG Train 7 and are poised to be part of the success story on the project going forward. Naturally, there is a lot of attention on that project and competition among service providers is intense. It is an obvious area of opportunity for us because of our engineering, design, procurement and construction capabilities. We recently formed an alliance with a technically strong engineering company that offers niche services out of North America and India. They also had the Train 7 project on their radar, and were looking out for a Nigerian partner.
It is a great match for us as we have limited capabilities in some of the areas where we have been supporting Saipem in the bid stage, such as providing training on engineering design software. Organically we could take this forward a little bit, but on a larger scale our alliance with Ingenero greatly solidifies our position.
Could the Train 7 project serve as an example that will further digitalisation?
Looking at plants, digitalisation comes into play where the industry begins to look at areas where they can design some IoT-type aspect into a project. The managing director of NLNG asked the question of how could they retroactively introduce some digital concepts into the existing LNG trains. This is purely from an operational and maintenance perspective. It is critical to infuse that kind of thinking from the beginning.
However, regarding the activity of design, I can give you a good example. I know a number of Nigerian engineering companies who were unable to execute any work for the first two months of the lockdown, primarily because their offices were locked down, and all their data were on physical servers in the office. Now you ask yourself the question: Why have cloud-based servers not been adopted yet, after being around for at least five years? Perhaps it is a cultural thing, or the industry in general not being forward-thinking enough.
What are the prospects for indigenous companies in the marginal fields bidding round announced in June?
Speaking of Train 7 or the new bidding round, the current president supports these initiatives as he sees them as positively projecting Nigeria’s image and benefitting Nigerians in many ways. As a company we see an opportunity here, and regarding digitalisation there is a lot we are contributing to the process from our subsurface consulting capabilities.
Funding sources for the petroleum industry are thinning out globally. Exxon and Shell, as massive and strong as they are, today are going through very challenging times in their ability to fund capital projects. So you can imagine the level of challenge for those Nigerian companies who would be the beneficiaries of the marginal fields. I think funding will be extremely challenging for them. But if on paper the process is transparently executed and results in a few Nigerian companies being awarded marginal fields, then it is a good thing.
The Nigerian government is obviously supportive of Nigerian companies taking on these fields. You want to encourage them rather than be too punitive when they have not met the minimum work requirement. While overall it is not auspicious in terms of timing, we will see where the bid round goes.