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STAKEHOLDERS MANAGEMENT IN THE NIGERIAN OIL AND GAS PROJECTS: CHALLENGES AND PROSPECTS
ABSTRACT
Nigeria is blessed with natural resources, and oil and gas are some of them. The country earns most of its external revenue from exporting these two commodities. Oil and gas play key role in the country’s economy, as a matter of fact; oil constitutes the major source of income. The study aimed at identifying challenges faced in managing stakeholders’ expectation by the industry practitioners in Nigeria during project delivery. It is also sought to understand the approaches usually adopted to resolve them and identify the gaps that could be improved upon to bring about better relationships among the stakeholders.The methodology adopted is based on survey research, an approach credited with effective means of putting research data together. The survey is carried out using online questionnaire for data gathering to acquire the necessary information from sample population drawn from project organization of Shell Nigeria. The result of the exercise shows that project organizations are more focused on managing challenges that could emanate from contracting and procurement activities above any other issues because apart from funding, the next critical success factor to a project is the ability to manage services, materials, equipment supplies, and contractual obligations. They are more focused on managing cost escalation and mitigating against safety issues that may arise from poorly managed relationship with those stakeholders that provide this set of services. They based their convictions on their risk exposures on past projects and the industry at large that if relationships with Engineering Procurement Construction (EPC) contractors are not properly managed, it could result in disaster that could have impact on people, environment, asset, and reputations, as well as cost them their License To Operate (LTO).The next set of stakeholders whose issues are given necessary attentions are the government regulatory agencies, and the joint venture partners who most often are on the same pedestals with them because they must have keyed-in into the value propositions at the project formulation stage. This goes to explain why relationships with host communities usually anything but smooth because their issues are often seen as secondary at this stage and they sometimes linger into the operational phase of the asset.
CHAPTER ONE
INTRODUCTION
1.3 Background to the Study
Nigeria produces oil and gas in commercial quantities and substantial part of these are for export. The country is one of the top two producers of the commodities in Africa. Commercial production of oil in the country is dated back to 1958 at Oloibiri, one of the rural settlements in the Niger delta region of the country (NNPC,n.d; Edo,2013; KPMG, 2013), with early production figure put at about 5,000 barrels a day. Current production is estimated to be about 2.2million barrels per day and as at reserve audit figures of 2012, proven reserves for crude oil, natural gas, and non-associated gas are estimated to be 37.2 billion barrels, 165 trillion standard cubic feet, and 75.4 trillion standard cubic feet (NNPC, n.d) respectively. The local market has the presence of both international oil companies (IOC) and indigenous producers who are active players in the exploration and production to serve both the local and international markets. These commodities play major role in the country’s economy, they are the major sources of income, and the country earns most of its foreign exchange through their export (Giwa-Osagieand Ehigiato, 2015).
Delivering Oil and Gas project in an emerging economy and a multicultural environment like Nigeria could be thought-provoking. There are so many factors that often confront players in the industry (Okpanachi, 2011). Some of these do have significant impact on project timeline and invariably cost overrun thus making it exceptionally challenging to deliver projects in this sector (Aaron, 2012). One of such factors identified as a major one, is the challenge of managing different stakeholders in the industry. This group comprises of the industry regulators, services providers, environmental watchdogs, indigenous land owners, and financial sponsors. Their influences are of great importance and the outcome of collaborative efforts and engagements with them often decide the success or failure of project in the industry.
Freeman and Evan (1990)defined stakeholders as parties or interest groups that extend services or resources to an organization or have stake in contemplated actions planned to be taken by an organization. Stakeholders play major roles in the industry and their buy-in and cooperation on any project in the sector are part of the critical success factors. The key stakeholders who have major influence on project delivery in Nigeria oil and gas environment are Joint Venture Partners, Government regulatory agencies, suppliers and contractors, Host Communities, Business Sponsor / Steering Committee, and Non-Governmental Organization (NGO). Projects in the sector often run into hiccups when issues with these stakeholders are not resolved as soon as they come up during projects lifecycle.
Some of the issues associated with these stakeholders are:
· Shortage of competent local manpower, poor state of infrastructure to support project works, environmental issues, long contracting cycle, influence of global economic climate, and corruption (Idemudia, Cragg and Best, 2010) at every facet of the value chain within the industry. These are some of the issues operators would contend with in the industry to deliver projects.· Social issues rooted in agitations within the host communities (Nwagbara and Brown, 2014) clamoring for better living conditions vis-à-vis provision of infrastructural and social amenities to compensate for exploitation of their God giving resources. These communities are predominately settled in the Niger Delta area of the country where most of the country’s oil and gas deposits are found. However, exploitation of these resources has not really impacted positively on the living standard of the people in the area.
Over the years, they have been saddled with major infrastructure deficiencies, alarming unemployment rate, and quite a large number of unskilled youth. All these developmental shortcomings often bring about the issue of marginalization thus leading to resentment and sometimes violent agitations. Poverty level as a result of underdevelopment in the region is on the high side even though its vast amount of oil and gas reserves serves as major source of revenue for the whole country. World Bank puts the GNP per capital of the region at less than national average especially for women (Okpanachi, 2011). The clamor for better living condition and the push for inclusiveness in the industry by these communities do lead to civil unrest and in most cases, create unsafe environment that often degenerate to disruption of project works, vandalism of equipment and facilities of companies undertaking project work in their domain. Destruction of oil and gas infrastructure, drilling rigs confiscation, attack on personnel, blowing of pipelines, and worrisomely kidnapping and abduction of foreign workers in the industry for ransom (Kupolokun, 2004) are some of the social ills that over the years emanated from this economic imbalance.
· Attitudinal issues and lack of enterprise first behavior on the part of regulatory bodies are some of the issues amongst others that often mitigate against project delivery in the industry. All these factors often result into high cost of project delivery with the additional cost emanating from schedule overrun and mitigation cost to cover the envisaged risks. However, most of these issues are traceable to lack of willpower on the part of government to come up with policies and enabling environment that will nurture the industry (Anifowose, Lawler, Horst and Chapman, 2012).he research work is being undertaken to take a holistic look at the challenges the industry is facing in delivering projects in Nigeria with focus on the last16 years. Even though the projects are generally seen to be beneficial to the economic growth of the country and yet they are exposed to risks that often frustrate and sometimes, cripple such projects.
A couple of these issues are linked to long period of neglect, frustration, marginalization, and particularly, exploitation (Moruku,2012) of the host communities; and opportunistic parties do take advantage of the political environment and agitation for social infrastructure (Nwagbara and Brown, 2014) within the host environments to perpetrate theft and kidnapping of oil workers (Anifowose, Lawler, Horst and Chapman, 2012; Moruku, 2012). Project delivery in Oil and Gas industry is capital intensive and the risk sets which are somehow more pronounced in this environment do result in additional project cost to cover risk outsourcing and security documentation (Giwa-Osagie and Ehigiato, 2015). Reluctance on the part of foreign banks to commit to project funding in the country due to the risk perception level (Giwa-Osagie and Ehigiato, 2015) is also born out of the issues identified to be militating against growth in the industry.
1.4 Statement of the Problem
Nigeria is blessed with abundance natural resources, and Oil and Gas have been among the key ones and have occupied the center stage of the nation revenue drive (KPMG Nigeria, 2014; PWC, 2014) since the mid twentieth century when they were first discovered in commercial quantity. Unfortunately, growth in the sector has not been commensurate with the level of revenue derived from it over this period due to some of the issues identified above. The role the industry plays in the nation’s economy exposes it to greater stakeholders’ participation in its development and operations. Project delivery in the sector which plays a critical role in production growth has always been at the receiving end of these issues. In view of the above, this research work is being carried out by the author to look at the challenges and problems faced in managing stakeholders in the course of project delivery in Nigeria using the experience of Shell companies in Nigeria (Shell Nigeria Exploration & Production Company, and Shell Petroleum Development Company of Nigeria) in the last 16years (since 2000) as a case study
1.6 Aim and Objectives of the Study
The aim of this research work is to take a critical look at some of the stakeholders’ issues that often constitute hindrances to project delivery in the industry in recent times.
1) To investigate the external factors that are identified and often constitute major impediments to project delivery in the organization in the last 16 years.
2) To examine how often Shell Nigeria encounters externally generated problems and what are the impacts on project in terms of cost overrun and schedule slippage.
3) To find out the steps often taken to resolve them and how successful have they been over the years using these approaches.
4) To determine if the organization had cause to abandon projects as a result of some of these issues.
5) To establish if there is there hope of improvement in the industry with regard to external challenges and what does the future hold in terms of minimizing these challenges.
1.7 Research Questions
A couple of questions that the research seeks to answer are:
1.What are the external factors that are identified and often constitute major impediments to project delivery in the organization in the last 16 years?
2. How often does Shell Nigeria encounter externally generated problems and what are the impacts on project in terms of cost overrun and schedule slippage?
3. What are the steps often taken to resolve them and how successful have they been over the years using these approaches?
4. Has the organization had cause to abandon projects as a result of some of these issues?
5. Is there hope of improvement in the industry with regard to external challenges and what does the future hold in terms of minimizing these challenges?
1.8 Feasibility
The researcher has an insider in the industry and working with one of the major multinational oil companies operating in the country. This provides an opportunity to leverage on this to have access to firsthand information through the available official channel within the organization providing the sample data population. Data gathering is done through the available internal and external network within the chosen organization. This research work is carried out using constructionist epistemological approach to enrich the quality of input into it. The essence of this is to ensure that perceptive knowledge given by the insider is balanced with the understanding, view and experience of other players in the industry (Easterby-Smith, Thorpe and Jackson, 2012). This not only enhances the quality of the outcome but also presents opportunity to incorporate broader view and facts within the industry into it.
1.9 Framework
Two major frameworks are deployed in the course of this research work. They are mainly; Stakeholders’ Management and Risk Management frameworks. In order to be able to isolate the dataset that is of importance to the project, use of theoretical framework is deployed. This approach enables the researcher to focus on defining the specific framework to adopt in the data analysis and interpretation.
1.6.1 Stakeholder management framework
Managing stakeholders throughout the course of a project is crucial and the framework provides the required leverage to the research work by coming up with the necessary guidelines to follow in managing this group with divergent interest on the project. This allows for management of stakeholders through a formal process on the research work thus providing an avenue for performance improvement (Yang, and Shen, 2015). Identification of stakeholders with responsibilities on economic, cultural, legal, ethical, and environmental issues is critical to successful project execution. This is to be able to come up with proactive measures to deploy in managing their expectations.
1.6.2 Risk management framework
Use of qualitative and quantitative methods are adopted to carry out risk assessment on the research problem(Lee, Lee and Kim, 2013). The identification and evaluation of issues associated with stakeholders’ interest in project delivery in this sector is carried out using empirical analysis method with data put together through the use of questionnaire survey. The two-framework chosen for this research work are anchored on the premises that project delivery in the oil and gas industry in Nigeria has a lot of stakeholders’ interest to put into consideration to be successful in such undertaking, as a result, a suitable framework is chosen to manage the interaction with the set of stakeholders being interfaced with during the project work. This is to ensure that individuals rights and spaces are not encroached upon without the necessary permission and authorization in place. Secondly, risk management framework is required to be able to envisage and curtail any potential privacy and data protection issues that may arise in the course of data gathering and analysis as well as the final presentation of the research findings and recommendations. Oil and gas project delivery activities in Nigeria environment being looked into in this work are exposed to great influence from many key stakeholders with divergent interest because of the major economic values of the commodities to the society. They carry along substantial risk profiles that need to be proactively managed and mitigated against even when doing research work that probe into the sector. Hence, the need to have these two specific and relevant frameworks in place to manage any identified potential risks in the course of the research work.
