Opening Remarks

It is my pleasure to thank each and every one of you, who has contributed immensely to the modest success achieved by NAPIMS in 2007. Indeed there were challenges in virtually all areas of our business but you worked hard and were very resilient to ensure that NAPIMS lived up to expectation. Thank you.

As we have just entered 2008, it is imperative that we all join hands and continue to work hard. Indeed the challenges we experienced in 2007 will not go away overnight.

Challenges in respect of security situation in the Niger Delta region; challenges in respect of inadequate funding of JV operations; challenges in terms  of ensuring harmonious relationships with our host communities; challenges in ensuring strict compliance to due
process in our contract administration, etc. These challenges are real, and we must square up to them if we are to excel.

Operational Performance

From the operational side, together with our partners we set out to achieve a lot. However, two major issues hampered, and continue to hamper our operations: The security situation in the Niger Delta has been a major threat to our operations. As you may well be aware in March 2006, one of our partners, SPDC, had to shut-in its entire operations in the Western Niger Delta, deferring over 400,000 barrels of crude oil and its associated gas per day.

Little progress has been made in bringing back the shut-in production, as security continues to be of primary concern. The government in its 2008 appropriations proposal to the National Assembly has proposed a budget of over N400bn to security in the Niger Delta. This is the first time such a bold step is being taken by government, and we only hope that significant progress towards minimizing the security threat will be achieved in
the year 2008.

Following closely to security is the issue of funding. You all are aware of the several projects that have been jointly committed to with our JV partners. These projects are multiyear in nature, and once committed to, will require sustained funding.
In 2006, supplemental budget was received from government, easing the difficulties a little. No such provision was given in 2007. At year end, it is estimated that a shortfall in government equity funding will approach $1.6bn.

The projected shortfall in government equity funding for 2008 is currently estimated at $3.8bn. Indeed most of you were a part of the engagement process that has led to the streamlining of the 2008 work program, which gave rise to the current projected short fall. The government has permitted NNPC and the Ministry of Finance to work together to secure debt funding in order to bridge the projected funding shortfall.

All hands must be on deck to ensure NAPIMS is positioned to meet all the specific requirements that may be imposed by the creditors. At the moment we are still working with the National Assembly, to ensure that the additional debt funding is also appropriated.

With the issues of security and funding adequately tackled, it is my firm belief that the JV
operations will experience reserves and production growth in the medium to long term. Hopefully, between the second and third quarters of 2008, both Agbami and Akpo will deliver their first oil.

With the increased prospect of discovering hydrocarbon in commercial quantity in Chad and Niger Basins, the Frontier Exploration Services (FES) is currently in the process of producing a strategic plan/work programme that will produce the roadmap for further exploration activities in the Chad Basin.

NipeX

In line with the vision of NipeX to provide an industry platform for fast, efficient and transparent supply chain transactions between the Buyers of goods and services and their Suppliers, we successfully on-boarded over 400 tenders unto the NipeX system – these tenders are at different stages of the contracting process.

To date, over 1600 Suppliers have bought in to the system by making payments for the NipeX JQS Registration. In order to further create awareness and stimulate the usage of the electronic contract processing system, nine supplier awareness workshops were held in five strategic locations of the country with over 5,000 industry participants. Creditably, the number of visits to the NipeX Portal increased from 5,689 in January 2007 to 27,252 in November 2007.

IT/Communication Systems

The petroleum industry is Technology and ICT intensive. In the spirit of continuous improvement, and the increasingly challenging environment in which we operate, efforts are on to improve our techniques. In this regard, we have completed a pilot project on Electronic Document Management.

The implementation of Internal Messaging System is ongoing as well as Petroleum Economic Evaluation Programme (PEEP) project. The installation of Video Conferencing Equipment is at an advanced stage and shortly, we shall have the intranet facility fully deployed.

However, at our NipeX location, we have fully deployed Local Area Network and PABX systems to enhance both internal and external communications

Community Relations

Inspite of our drive to help meet the world’s current and future energy needs, we strive to adopt global standards and best practices to ensure operations are carried out in an environmentally and socially responsible manner.

Our environmental policies and guidelines are geared towards reducing the negative impact of operational activities on the environment. The objective is to painstakingly minimize and, where possible, completely eliminate all negative impacts in our drive to protect the environment.

We have developed framework and guidelines for improved community engagement and sustainable development. Our commitment to sustainable development and the stability of operations in the Niger Delta in particular is the central premise of this philosophy.

This cuts across educational sponsorships, healthcare, sports development, arts and culture to ensure that our stakeholders especially our host communities are major partners in the business. In the light of the above, most of our joint venture partners effected a change in their community interface strategy with a new concept of Social Corporate Responsibility to their host communities called Global Memorandum of Understanding (GMoU).

This is a comprehensive agreement between the Operator and any group of Communities (clusters) within a geographical area of its operations. The agreement shall specify the Operator’s activities, benefits etc to Communities over a 5 year period and this will enable the host communities take charge of their own development which includes identifying, planning and executing the projects.

The PSC companies are also working closely on the need to synergize their Sustainable Community Development activities in the oil and gas industry. NAPIMS endorsed this Strategy noting that it would eliminate the duplication of efforts and enhance resource utilization as the Operators can engage in more concrete projects for the benefits of a larger population of the people.

Therefore, as we go into 2008, we will strive to work more closely with the Operators in the areas of sustainable community development as this is one way to ensure the much desired security that will create a peaceful coexistence with our host communities.

Staff Welfare

In line with our collective drive to optimize available human and material resources, we engaged in taking advantage of the provisions of the JOA and PSC to train staff in various skills. We have in this regard trained a total of 262 personnel overseas. Also during the year, about 427 staff benefited from the training programmes organised locally.

The year also witnessed heavy movement of staff into and out of NAPIMS. About 100 staff were transferred to NAPIMS with about same number posted out.
In furtherance to the implementation of the project PACE recommendation, there was a slight structural change. We now have in place a full fledged Human Resources Department as well as an Admin Services Department.

All these are geared towards better performance and improved welfare services to the staff.

Though we have been able to settle the JV/PSC Operations Divisions in a relatively conducive office, Management is strongly pursuing our agenda to relocate NAPIMS to No. 36, Garrard Road.

Re-structuring of NNPC

As you all are aware, a few months ago the Federal Government set up a committee headed by the Honorary Adviser to the President on Petroleum, Dr. Rilawanu Lukman to restructure the Oil & Gas Industry in line with the Oil & Gas Sector Reform proposed by the BPE, including NNPC, for more efficiency and effectiveness. The restructuring as it affects NNPC is hinged on three facts:

1	That NNPC becomes fully autonomous, free from Government interference, relieved of regulatory and policy functions and be fully and truly commercial;
2	That NNPC as a Corporation should be able to leverage on the assets under its care to borrow the much desired funding to get JV operations going without the need for government to continue to put in funds annually
3	That NNPC should be poised to eventually taking over operations of the vast majority of these assets.

While the committee is yet to conclude its assignment, certain aspects are almost certain. The current NAPIMS will be excised from NNPC and will be given full autonomy with its own board for timely decision making.

NAPIMS which may be renamed National Oil & Gas Asset Management Services (NAMS) or Agency (NAPAMA) will become the concessionaire in all the PSCs, and will therefore oversee all activities in the PSC. NAMS will also be a cost regulator, taking charge over the cost structure of both the JV as well as PSC assets with a view to minimizing cost and thus maximizing government revenues. It will maximize the Royalties and Taxes accruing to government.

Under the new restructuring proposal, NNPC will become a fully integrated National Oil Company called National Petroleum Company of Nigeria (NAPCON). Government equity in the existing JV assets will be transferred to NAPCON to enable it leverage on these assets to raise the required financing.

The NAPCON will have its own Board for timely decision making, and will also appoint Board members to the Boards of each of the JV companies. To effectively monitor activities in the JV companies, and also to participate fully and directly in these activities, NAPCON will also take up reserved management positions.

The NAPCON will be required to pay taxes and royalties to government, just like any other commercial entity, and is also expected to declare and pay dividends to its shareholders (in this case the government of the Federation).

NAPIMS was requested to submit a memorandum in respect of how to transition from the present NAPIMS to the new NAPAMA. A presentation has since been made to the committee.

2007 Initiatives

A couple of initiatives wereintroduced in 2007 to assureeffectiveness and efficiency of NAPIMS in the discharge of its mandate. Some of these initiatives include:

1	The introduction of Strategic or long range planning in addition to the annual budgets. The objective was to derive the annual budget from a longer term view of what each company ought to be doing based on the richness of its portfolio
2	The introduction of Appropriations Request (AR) and Authorization for Expenditures (AFE) requests for PSCs similar to the JVCs. This will enable NAPIMS manage the implementation of the approved budgets, but most importantly ensure that projects are committed to on the basis of pre-defined economic and commercial criteria
3	The introduction of a focused approach to staff development. The objective of this initiative was to identify the right people to be trained in specific disciplines. These people were to be sponsored to attain higher degrees in well known universities. This will foster the aspirations of NAPIMS as an organization. A qualifying exam was conducted by a consultant, the results of which are in and will be released as soon as funding for this program is approved by NNPC management.

 

The introduction of strategic planning as a driver of the annual budget has been very successful. As a matter of fact, interacting with the national assembly and even the executive arm of government would have been a nightmare if not for this initiative, especially considering the detailed information requested by these arms of government. As far as the AR & AFE, these were mentioned to the Operators.

However, NAPIMS is putting structures to realize this objective. A team was put together to look at how this objective can be achieved, and preliminary thoughts have been forwarded to management. The issue of staff development is still at the heart of NAPIMS as we transit into a more effective organization. Management will strive to secure the much needed funding for this program, and the results will be released as soon as the funding is secured.

2008 Initiatives

As we go into 2008, we will strive to consolidate on the gains of 2007. The implementation of the AR & AFE will commence in earnest before the end of the first quarter of 2008. Management will strive to secure the required funding for the focused staff development initiative. As we march into 2008, certain new initiatives will be pursued, some of these include:

1	Annual Report for NAPIMS: We firmly believe that NAPIMS as an organization should issue a detailed Annual Report. This should form a one stop avenue to obtain reports of what has transpired during the previous year. This report will be stored in both hard and electronic copies to shorten the time it takes NAPIMS to react to inquiries.
2	Focus on PSC Operations: There is need to focus on the operations of our PSC assets. One such area is the need to insist on budget discipline through the introduction of the notional cash call mechanism for PSC Operations.
3	Together with all the relevant Divisions; Planning will be embarking on the review of Operating Cost Structure of all JVCs & PSCs. The objective of this exercise will be to arrive at an acceptable cost structure for each of the JVs. An external consultant will be engaged to work with the Division to achieve this objective.
4	Closer monitoring of major projects – there will be closer monitoring of the performance of major projects including projects earmarked to supply gas to the domestic market on a monthly basis.
5	Elimination of first line charge – starting from 2008, NAPIMS will no longer endorse the strategy of first line deductions for over expenditures for the previous year. This is necessary if NAPIMS is to insist on budgetary discipline on the part of the operators.
6	Interface with National Assembly – the requirement of the National Assembly (NASS) in the discharge of their oversight functions have continued to grow. In order to ensure that all of the information required by the National Assembly is provided in a timely manner, management will issue new rules of engagement.

 

Meetings

Keeping up with our quarterly meetings as stipulated by the JOA/ PSC Agreements have not been easy due mainly to the growing number of companies which requires additional manpower, particularly with the PSC companies. To date, we have 6 Joint Ventures (JV), 1 Service Contract (SC) and 51 Production Sharing Contracts (PSC) Blocks bringing the total to 58 licenses which translates to scheduling 348 meetings - Subcommittee, TECOM, OPCOM/MACOM for all the companies within each operational year (all things being equal). However, efforts are on to evolve better strategies for accommodating this provision and increase in manpower.