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11/25/2011 Stan Onyeador


OIL AND GAS INDUSTRY Oil and Gas is a unique industry. It is very capital intensive. The life cycle from exploration through development to production is very long-from several years to even decades. Thus, investors have to wait for many years, at times, decades, for returns on their investment. The industry is a bane of secrecy. The industry is also controlled by a cabal. Many who talk about the industry know little or nothing about it and those who really know about it do not talk. This may be due to the mega bucks that change hands in the industry at all levels. I sincerely confess that I belong to the group that knows little about the industry. This is however an opportunity for me to talk about the little I know since those who really know have refused to talk. Whilst I was gathering literature for this paper, there was a very interesting paper presented by one Engr. Nnaemeka Nwawka, a former general manager with Shell Petroleum Development Company Nigeria Limited, at the 2000 annual conference of the Society for Petroleum Engineers (SPE) on the exploitation of Nigeria and Nigerians by the international oil companies. The paper could not now be traced. All the other papers presented are in SPEs electronic archives. How that paper, selected by SPE as the best paper for the year could no longer be found, tells a lot about the industry. What we all know is that trillions and trillions of dollars are involved- mega money deals! All participants in the industry benefit and the masses at large seem to know about it- from the old market women to the inexperienced young girls. A well known comedian (Bright Chimezie) once talked about a young girl who accepted to marry a young man who said he works in oil refinery. When after their wedding the girl discovered that he worked in a palm oil processing plant, the young little girl eloped and wanted a divorce on the ground that the guy tricked her. The guy insisted that he did not lie that oil is oil! Please before you misunderstand me, we are talking about Petroleum oil, gas or condensate- hydrocarbons. Why is there so much money in oil business? Oil business is similar to drug business in certain respects. Ivanhoe, (1990) in his article in the OIL and GAS JOURNAL Oct.29, 1990 stated that just as dope prices are set by dope dealers (not by dope addicts), oil importing nations must buy their oil at prices set by competition between oil exporting countries, not by importing nations consumers, planners, or politicians

THE NIGERIAN OIL AND GAS INDUSTRY Oil was first produced in Nigeria in Olobiri, Rivers State of Nigeria in 1948, some 63 years ago, by international oil companies and since then the industry had been controlled and dominated by foreigners with the assistance and collusion of some privileged Nigerians. These foreigners and their Nigerian accomplices have benefited enormously and still benefitting. Thus, for over sixty years of crude oil production in Nigeria, most manpower, plant and equipment, manufacturing, repairs, maintenance, engineering and designs are done abroad or in Nigeria by foreigners. This constitutes a major drain to the Nigerian economy and a major contribution to the sordid state of affairs. The Nigerian economy depends upon the petroleum industry, with the contribution to national revenue exceeding 90%. The turning point came in October 1996 when the former minister for petroleum, His Excellency, Chief Dan Etete, made his landmark speech on the involvement of Nigerians in Oil and Gas industry. Chief Dan Etete asserted that from now, foreign suppliers will have to bid and supply through a local subsidiary or agent. Today, local fabrication yards and local independent producing companies are beginning to emerge since major oil operators are now required to include a mandatory percentage of local content in their bid. The target set by the government for local content is 40% by end 2006 and 70% by 2010. THE NIGERIAN CONTENT PROVISION: Nigerian Content is defined as. . the quantum of composite value added to, or created in the Nigerian economy through a deliberate utilization of Nigerian human and material resources and services . . without compromising quality, health, safety and environmental standards in order to stimulate the development of indigenous capabilities Simply put, Nigerian local content means the development of local skills, technology transfer, use of local manpower and local manufacturing The Nigerian Oil and Gas Industry Content Development (NOGICD) Act was signed into law on 22nd April 2010. This law applies to all matters pertaining to Nigerian Content in respect of all projects and operations or transactions carried out or connected with the Nigerian Oil and Gas Industry. The Act provides for the development of Nigerian content in the Nigerian oil and gas industry, Nigeria content plan, supervision, coordination, monitoring and implementation of the Nigerian content. The Federal Government of Nigeria had earlier in 2001 issued the Nigerian Content policy with a local content aspirations of 40% and 70% by end 2006 and end 2010 respectively, in its drive to increase Nigerian Content in the Oil and Gas sector. NNPC subsequently issued a set of Directives for major supply chain categories at different times between 2005 and 2007 towards the achievement of the set targets.


Part I Nigerian Content Development in Oil & Gas Industry containing 68 clauses on the provisions and applications of the Law Part II Establishment of the Nigerian Content Development & Monitoring Board (NCDMB) with 42 clauses on the structure, roles and activities of the NCDMB Schedule Minimum percentage Nigerian Content (NC) targets expected to be achieved per category of activity in the oil and gas industry

The NCDMB had issued Guidelines for some sections of the Act. TWO CRITICAL QUESTIONS Having gone through Act, the two critical questions that come to mind are: How can one measure the value of Nigerian Human resources employed? How can one measure the value of Nigerian materials, assets and services utilized? The units stipulated in the Act(Schedule) are: Percentage Man-Hours, Volume, Tonnage, Length, Number, Litres, spend, Volume/Man-Hour, Man-Hour/Spend, Man-Hour Spend, Usage, Loan Amount, Man-Hour/Rate, Man-Hour/Tonnage/Rate, Nos of certification obtained, Nos., Contracts, and Area. How reasonable are some of these units especially the Man-Hours considering that the expatriates earn over 1000% of what their Nigerian counterparts doing the same job! In such a situation should man-power costs not be more reasonable?

Knowledge is the key to effective participation of quantity surveyors in the Nigerian oil and gas industry. One may ask what kind of knowledge? The required knowledge ranges from non technical general knowledge to technical detailed knowledge of certain aspects of the work done in the industry. Knowledge of the Technical, Economic/Financial, Commercial, Organizational, and Political aspects of oil and gas industry prospects and projects: the Business environment, Subsurface, surface, Operations, Infrastructure generally, with special emphasis to Nigerian Oil and Gas industry are prerequisites. Quantity surveyors need to understand the overall life cycle of exploration and production (upstream) down to refining (downstream) to project life cycles and activities performed at each stage of the life cycle. Critical to effective participation is an understanding of the process and the plants and equipment required- These are prerequisites for successful development of costs and schedules of activities and operations. Since one cannot cost or schedule or procure what you do not know or understand! Cost engineers must understand what they are costing, project planners must understand what they are

planning and procurement specialist or buyers must understand what they are contracting to purchase. It is as simple as that! A process facility, such as oil production and refining, can be viewed as consisting of two parts: the process component and the facility component. The process component consists mainly of process equipment, instruments, and piping. The facility component consists mainly of buildings and structures, Ventilation and Air-conditioning, lighting, roads, gantries, etc. The knowledge of quantity surveyors is vest in the area of facility and probably nil in the process area. Some process plants are dominated by facility component, such as pharmaceutical, whilst others are dominated by the process component. Petroleum exploration, development, production and refining are dominated by the process component. You see why we need to do a lot of work to be of relevance in the Nigerian Oil and Gas industry and profit from the Nigerian Oil and Gas Industry Content Development Act, 2010. QUIZ 1-Process Component 1. What is Process Flow Scheme (PFS)? 2. What is Process Engineering Flow Scheme (PEFS)? 3. What is Process Utility Flow Scheme (PFS)? 5000 Naira for each correct answer! QUIZ 2-Facility Component 1. What is an Architectural plan? 2. What is a Structural plan? 3. What is a Plumbing plan? 0 Naira for each correct answer!

OIL AND GAS PRODUCTION OVERVIEW: FROM WELL-HEAD TO REFINERY/EXPORT PLATFORM The diagram below (figure 1) shows a simplified schematic view of oil production from the well-head to refinery or export platform. Figure 2 shows the overall life cycle of oil and gas exploration and production. The quantity surveyor should first of all understand the language of oil and gas from investment appraisal stage through exploration to production and abandonment to be able to participate in the industry. We cannot participate in what we do not understand. Figure 1: COMPETENCE AREAS REQUIRED BY QUANTITY SURVEYORS FOR EFFECTIVE PARTICIPATION IN OIL AND GAS: 5

1. General knowledge of oil and gas industry generally with special emphasis to the Nigerian Oil and Gas industry. 2. Working Knowledge of Oil and Gas Exploration and Production (EP) life cycle from exploration to abandonment 3. Detailed knowledge of Oil and GAS PROJECT LIFE cycle from project initiation to project closeout. 4. Typical Process Facilities Project Team 5. Understanding of Flow Sheet symbols 6. Working Knowledge of Construction technology and schematic designs of oil and gas facilities 7. Engineering/Construction Project Planning and Control 8. Cost Engineering Principles and Practices 9. Contract Management in Oil and Gas a. EPIC type contracts: Engineer-Procure-Install-Commission b. Tendering in Oil and Gas: Separation of Technical with Commercial tender in tendering and evaluation 10. Procurement in Oil and Gas a. Material , Plant & Equipment


GENERAL OVERVIEW KNOWLEDGE OF OIL AND GAS INDUSTRY GENERALLY WITH SPECIAL EMPHASIS TO THE NIGERIAN OIL AND GAS INDUSTRY Technical, Economic/Financial, Commercial, Organizational, and Political aspects of oil and gas industry projects: the Business environment, Subsurface, surface, Operations, Infrastructure generally, with special emphasis to Nigerian Oil and Gas industry.

TYPICAL OIL AND GAS EXPLORATION AND PRODUCTION (EP) LIFE CYCLE FROM EXPLORATION TO ABANDONMENT A typical Oil and Gas EP life cycle consists of the following stages: Exploration Appraisal Development Production Abandonment (Decommissioning and Restoration) The Quantity Surveyor should have the overview knowledge, the essence and a working knowledge of what happens at each stage including the terminologies used.

For any oil and gas prospect exploration some critical questions needs to be answered, such as the following: Where are the hydrocarbons? How much volume is present? How much volume can be produced? At what rates can it be produced? And lastly what are the risks and uncertainties?


A typical Oil and Gas Project life cycle consists of the following stages: IDENTIFICATION PHASE-PROSPECTIVE PROJECT o project initiation o feasibility study DEFINITION PHASE-FRONT END ENGINEERING DESIGN(FEED) o development plan-surface and subsurface o basis of design o project specification

o o o o

detailed design materials procurement construction commissioning, start-up & handover, close-out & project debrief

TYPICAL PROCESS FACILITIES PROJECT TEAM A typical building or facilities project team is largely made up of Architects, Structural Engineers, Quantity Surveyors, Civil Engineers and Services (or Electrical and Mechanical Engineers). Process facilities, such as oil exploration and production project team, are made up geologists and geophysicists, petroleum and chemical engineers, reservoir engineers, process engineers, piping engineers, Mechanical (Vessels and Machinery) engineers, Instrumentation engineers and Production technologists. Their influence or participation depends upon the process facility design in question. The process engineer prepares the process flow diagrams (PFDs).

WORKING KNOWLEDGE OF CONSTRUCTION TECHNOLOGY AND SCHEMATIC DESIGNS OF OIL AND GAS FACILITIES, SUCH AS: o o o o o o o Flow stations Low Pressure Compression/ Booster Stations Central Processing Facilities Oil and Gas Gathering Flow-lines Oil and Gas Gathering pipelines Major Oil and Gas Pipelines Civil Infrastructure and Power Generation/Distribution

CONTRACT MANAGEMENT IN OIL AND GAS b. EPIC type contracts: Engineer-Procure-Install-Commission c. Tendering in Oil and Gas: Separation of Technical with Commercial tender in tendering and evaluation d. The Nigerian contract lifecycle consists of the following stages: i. Newspaper Advertisement ii. Pre-qualification iii. Short list iv. ITT (Technical bid) v. ITT (commercial bid) vi. Award. WORKING KNOWLEDGE OF CONSTRUCTION TECHNOLOGY AND SCHEMATIC DESIGNS OF OIL AND GAS FACILITIES

ENGINEERING/CONSTRUCTION PROJECT PLANNING AND CONTROL Good understanding of the theory of Critical Path Method and Project Evaluation and Review Technique Understand and use tools of CPM/PERT Planning and Scheduling such as Primavera, Microsoft Project, SAP Project Management, etc (Primavera Project Planner is the tool of choice in the industry) The Practice of Planning The Practice of Scheduling

COST ENGINEERING PRINCIPLES AND PRACTICES Cost engineering is the main function of quantity surveyors that intend to work in oil and gas industry. Cost engineering and quantity surveying are closely related although not quite the same. The quantity surveyors work mainly in building construction whilst the cost engineers scope tilts towards engineering projects. The required skills and knowledge of Cost Engineering includes:

Elements of Cost: Cost dimensions, classifications, types, purchase costs, materials, plant and equipment, labour/salary, overheads and profit, subcontract, pricing, etc Elements of Analysis: Statistics and Probability, Economic and Financial Analysis, Optimization, Enabling Knowledge: Enterprise in Society, People and Organization, Organization Structure, Information Management, Quality Management, Value Management and Environment, Health and Safety and Security. Total Cost Management Process, Planning, Cost Estimating and Budgeting, Resource Management, Value Analysis and Engineering, Risk Management, Procurement Planning and Contract Management, Investment Decision Making, Project Implementation and Performance Management and Assessment

STRATEGIC OBJECTIVES The objectives of the strategy are: To contribute our quota as quantity surveyors towards the growth of the economy through the successful implementation of the Nigerian Content Development Act, 2010. To ensure steady supply of qualified manpower in areas project management and planning, contract and procurement management and total cost management throughout the life cycle of oil and gas investment. To be seem by all the stakeholders and the Nigerian public as a key player in the Nigerian Oil and Gas sector. To contribute in devising a consistent, objective way of measuring and reporting the value of Nigerian Human resources employed and Nigerian materials, assets and services utilized. To provide the relevant statistics and data required by the Act to ensure that the minimum Nigerian content stated in schedule is enforced. To create jobs and future for the younger generation.

STRATEGY FOR BRIDGING THE CONPETENCE GAP 1. NIQS/QSRBN should develop a measurable plan and provide sustainable training/development for Nigerian Quantity Surveyors. 2. Short term strategies a. NIQS/QSRBN to set up a team made up of mainly QSs experienced in Oil and Gas operations to drive the implementation of NCDOGI as it affects the QS b. Training Programmes by NIQS, QSRBN, and private training outfits i. Formal 9

ii. Informal: On-the-job training 3. Medium Term Strategies a. Professional Diploma or Certificate Programmes 4. Long term strategies a. Comprehensive review of QS course content to deemphasize building construction and emphasis engineering construction (Oil, Gas, Power, Telecoms, etc) REFERENCES AND BIBLIOGRAPHY 1. John Orban III, 2006, Money in the Ground: Insiders Guide to Oil and Gas Deals, 4th Edition Meridian Press, Oklahoma City 2. The Nigerian Oil and Gas Industry Content Development Act, 2010 3. Nigeria Oil and Gas, www.nigeria-oil-gas.com 4. AACE International, 2006, Recommended Practice No. 11R-88 Required Skills and Knowledge of Cost Engineering