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Nestoil: New Milestones in Pipeline Construction

12 Oct 2010

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Since the signing into law of the Nigerian Oil and Gas Industry Content Development Bill (2010) in April by President Goodluck Jonathan, indigenous service companies have continued to demonstrate capacity to execute complex jobs in the oil and gas sector. Chika Amanze-Nwachuku writes on the recent successful completion of $1.1billion pipeline project for Shell Petroleum Development Company (SPDC) by Nestoil Limited, as a major milestone in the Nigerian content

Background
In 1990 the Federal Government began the agitation for increased local content in the industry. It had then set a target of 45 per cent by the end of 2007 and 70 per cent by the end of this year.    The 2007 target could not be met owing to reluctance on the part of the multinational companies to involve indigenous operators in their activities. But the passage of the Nigerian Content bill in April by President Goodluck Jonathan brought a remarkable progress in the level of indigenous participation in the oil and gas industry activities.

Prior to the passage of the bill, oil companies operating in Nigeria, in defiance to the Nigerian Content guidelines, moved their drilling rigs to countries that have facilities that are even inferior to those in Nigeria for maintenance. It was learnt that over 300 vessels working in the Nigerian Oil and Gas theatre, were being maintained outside Nigeria.
Indigenous companies, including Nestoil, were excluded in the award of repairs and construction of products pipelines for the Pipeline and Products Marketing Company (PPMC), a subsidiary of the Nigerian National Petroleum Corporation (NNPC) as foreign companies were considered by Joint venture (JV) partners as having the capability to execute the construction of pipelines in the upstream and downstream of the Nigerian oil and gas company.

Therefore the successful completion of $1.1 billion pipeline project of Shell Petroleum Development Company (SPDC) by Nestoil Limited is a major milestone in the Nigeria content, which has brought to an end domination of foreign oil companies in the construction of mega pipeline projects in Nigeria.
According to the President of Nestoil, Dr. Ernest Azudialu-Obiejesi, “the completion of the Kolo Creek-Rumuekpe Trunkline (NCTL) project is significant because it was the first time a wholly Nigerian company was awarded a contract of this magnitude in a very difficult terrain and completed it successfully.”

He noted that the contract was awarded at a time when there was heightened insecurity in the oil-rich Niger Delta, which literally brought the Nigerian petroleum industry to its knees, and which elicited concerns as to the company’s ability to deliver on schedule. Despite the security concerns, the contract was delivered on schedule.
 
NAPIMS Inputs
Despite the dominance of foreign companies, indigenous capacity was not completely eroded. Group Executive Director, Exploration and Production of the NNPC, Mr. Phillips Chukwu, while serving as the Group General Manager National Petroleum and Investment Management Services (NAPIMS) in his wisdom, recommended the selection of Nestoil to undertake a project.
This later served as reference for the company’s consideration for juicy projects by other JV partners led by Shell Petroleum Development Company (SPDC).

According to the Company Secretary of Nestoil, Mr. Nnaji Igwe, the first pipeline project executed by the company was the Kolo Creek-Rumuekpe Trunkline known as the KCTL project.
The pipeline project of 20” by 38 kilometre (KM) upon completion by Nestoil was commissioned by SPDC in 2009. The bold step involved the award of the upgrade and modification of the Edjeba sewage Treatment Plant Contract to Nestoil several years ago by NNPC/SPDC.

The successful completion of the project led to the award by SPDC of Egbeleku Engineered landfill project, the Otumara flowstation debottlenecking works, the Opokushi flowstation upgrade, engineering, procurement, installation and procurement (EPIC) development of the Shell 1A hospital in Port Harcourt. Other projects include upgrade works at Adibawa flowstation, Oguta flowstation and the Biseni-Adibawa bulkline project.
By executing these projects perfectly and according to schedule, Nestoil has shown that it was able to build capacity steadily by successful completion of one project after the other without litigation or conflict, which is the order of the day in the oil and gas industry contracts.

Again, the development is a testimony that if indigenous companies are given the opportunity to secure more jobs, they will definitely become experts in areas of specialisation.
The Director, Centre for the Study of African Economies, Oxford University, Prof. Paul Collier, and the Commissioner for Economic Affairs, African Union Commission, Mr. Maxwell Mkwezalamba, led other professionals to brainstorm on a theme ‘Can Africa trade with Africa?’.
During the panel discussion at the weekend in Washington DC, they observed that the development and growth of an economy depends on commitment to developing and growing capacity of indigenous entrepreneurs.

Indigenous Banks’ Support
Oil and Gas projects are capital intensive. It is a common knowledge that capital is a major challenge in the execution of projects by local companies. Little wonder that most Nigerian companies with brilliant ideas have not been able to grow and build capacity due to financial constraints.
Speaking on his bank’s support to Nestoil’s projects, Executive Director of First Bank of Nigeria Plc, Dr Alex Oti said the bank decided to provide financial support to the services company in the execution of Shell’s $1.1 billion project after full examination of its submitted package.

This support, he said, was provided in recognition of financial discipline exhibited by the management of Nestoil since the establishment of the company as a service provider in 1991. “The reputation of the company in terms of previous achievements recorded in project delivery gave us the confidence for the funding support because our investigation revealed that the management are  professionals, transparent and eager to deliver projects as at when due”, he said.
For Azudialu, the virtue of the company as mentioned above was  the main reason why First Bank of Nigeria Plc and  Intercontinental Bank Plc provided substantial funds that enabled the company to procure construction equipment, marine vessels, welding equipment, lay-barge, pulling equipment and special purpose dredgers.

Benefits to Nigerians
The feat achieved by Nestoil has further confirmed that Nigerian companies, if given financial support, can handle such projects efficiently and effectively
As the Nestoil boss puts it “we are not just celebrating the completion of the pipeline project, but the fact that a purely local company owned, staffed and managed by Nigerians and supported by local suppliers and sub-contractors has delivered a massive project ahead of schedule ”.

The company’s sub-contractors disclosed that over 2,000 jobs were created directly and indirectly during the execution of the pipeline project. This, according to them, also helped to retain the dividend of the project within the country compared with the execution of similar projects in the past by foreign services companies that engaged in repatriation of profits back to their headquarters outside the country.
Besides, Federal Government bid to increase oil production in order to boost  the nation’s revenue, has yielded result, as the completion of the NCTL pipeline project has enhanced the evacuation of 600,000 barrels per day (bpd) of crude oil from 14 flowstations by SPDC.

The project, executed by Nestoil, also empowered host communities economically and socially via community development projects, restoration of the environment and development of indigenous manpower.
The retention of the dividend of a project by indigenous companies within the local economy has been the focus of the Federal Government, which resulted in the setting up of the Nigerian Content Division by the NNPC and the signing of the Nigerian Content Bill into law six months ago.

Nestoil has continued to expand for greater efficiency, with the emergence of new subsidiaries following the successful execution of one project after the other including the KCTL project of last year and NCTL in 2010.
These subsidiaries include B&Q Dredging Limited with formidable fleet of 11 dredgers, Hammakopp Consortium Limited and Energy Works Limited engaged primarily in pressure vessel fabrication and power projects. Others are Gobowen E&P, which acquired 40 per cent stake in the Oriri Marginal field in Oil Mining Lease (OML) 88 and where it is working as a technical partner, and in conjunction with Goland Petroleum Development Company, the operator of the field.

Conclusion
At infancy, Nestoil, after shifting from the initial plan to engage in blending and marketing of petroleum products, based on the opportunity by NNPC/SPDC, has grown to the level of concluding preliminary negotiation with Damen Shipyards of Holland with respect to the construction of a floating dry dock in Abuloma, Rivers State.
According to Azudialu, the problems associated with maintenance of marine fleet contributed to the plan of the company to set up this proposed dry dock.

Speaking at a dinner organised by his company to celebrate the successful completion of the NCTL project, the Nestoil Chief noted that the celebration of the delivery of the project on schedule, using mainly Nigerians in an indigenous company, will assist other IOCs to develop positive attitude towards indigenous operators with technical and financial capabilities as capable of handling complex projects in the oil and gas industry.
He said: "Nestoil, driven by the belief that with proper encouragement from policy makers, support from bankers and access to contracts provided by major players like the NNPC, Shell, Mobil, Total and Chevron, among others, affirms that there is success for any focused indigenous company”.

Speaking in the same vein, Managing Director of Intercontinental Bank Plc, noted that indigenous companies will become successful if they focus on building integrity in various areas of specialisation.
He added: “If there is no track record of project delivery, it would have been very difficult for Intercontinental Bank to support Nestoil. Sustenance of this achievement is needed so that the company and others can move beyond the shores of Nigeria in competing for oil and gas projects in neighbouring oil producing countries”.

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