A SUCCESSFUL MODEL FOR MANAGING OIL IN

C O N F I D E N T I A L SECTION 01 OF 02 LAGOS 001564

SIPDIS

E.O. 12958: 07/26/14
TAGS: EPET ELAB ECON PGOV NI
SUBJECT: A SUCCESSFUL MODEL FOR MANAGING OIL IN
NIGERIA

1.(U) Classified by CG Brian Browne for reason 1.4(d)


2. (U) SUMMARY. In a July 22 meeting with Ambassador
John Campbell, Ocean Energy Managing Director Raymond
Marchand stated that the Nigerian National Petroleum
Corporation (NNPC) contracting process was protracted
and involved many duplicative steps but was not
corrupt. Marchand related that the chronic violence
in the Delta did not affect Ocean Energy's
operations, which focus on deep-water oil patches. He
was proud that Ocean Energy also was at the forefront
among oil companies in hiring Nigerians to important
positions (i.e., local content) and in funding
community development projects (CDAs). END SUMMARY.


3. (U) Ambassador John Campbell met with Raymond
Marchand, Managing Director of Ocean Energy, in Lagos
on July 22, 2004. CG Brian Browne, Ocean Energy
Drilling Manager David Halloway, and ConOff Bill
Murad (notetaker) also attended. Ocean Energy is the
international arm of the American firm, Devon Energy
Corporation.

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SECURITY
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4. (U) When asked for his approach to security risks
and outbreaks of violence in oil-producing areas,
Marchand explained that Ocean Energy's risks were
minimized by the fact that its focus was on deep-
water drilling, 100 miles out to sea. Headquartered
in Lagos, Ocean Energy further minimized its risks by
maintaining only a skeletal, two-person office near
Port Harcourt. Marchand added that, even under the
most dangerous conditions, "business always
continues," and that, for Nigeria to be successful,
"everyone knows that the oil business must go on."

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RED TAPE
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5. (C) Asked about corruption in the oil contracting
process, Marchand said the Nigerian system was more
cumbersome than corrupt. In fact, Marchand asserted
the system, which involves a series of decisional
reviews as an item moves up the NNPC hierarchy, was
created to check corruption. The truth is that the
Nigerians do not trust each other and closely vet the
decisions of other parts of the NNPC bureaucracy.
Ocean Energy succeeds by hiring former civil servants
and experienced private-sector Nigerians who know the
system well. For example, Ocean Energy recently
navigated the National Petroleum Investment
Management Services (NAPIM) approval process in 13
months instead of the customary 18-24 months needed
to approve the drilling of a well. Marchand credits a
culturally savvy staff, led by a former NAPIM
minister, with reducing Ocean Energy's waiting
period. He mentioned that the current NNPC Managing
Director, Engineer Funsho Kupolukun, was much better
than his predecessor, Jackson Gaius-Obaseki. Obaseki
was self-absorbed and paid insufficient attention to
the internal workings of the NNPC. Kupolukun, on the
other hand, is well-versed, involved, and has made
the NNPC perform more efficiently, though many
bottlenecks still remain. He said that other oil
companies often hurt themselves by grousing and
attempting to push the Nigerians to change their
system. This will only make the process more
dilatory, he stated.

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COMMUNITY INVOLVEMENT
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6. (U) Marchand explained Ocean Energy's successful
approach to local content and community development.
While law requires 50% local content, approximately
75% of Ocean Energy personnel are Nigerian. The
company's drilling team is composed entirely of
Nigerians except for four x-pat managers who rotate
in pairs every four weeks. The entire team of
seismologists who decide where to drill is Nigerian.
Further, Ocean Energy spends up to $2 million per
year in local training and CDPs despite the fact that
they are not yet producing (Oil companies are
required to fund CDPs but only after actual
production). Ocean Energy' community involvmnt is
even more remarkable given that its deep-water focus
makes it less vulnerable to local unrest.

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COMMENT
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7. (U) COMMENT. Ocean Energy's model of working
within the Nigerian system, using a largely Nigerian
staff, and concentrating on deep-sea drilling has
been successful. While other companies that operate
closer to shore may not be able to share Ocean
Energy's sense of relief on security isues, they
perhaps can take a lesson from Marchand and his crew
on how to navigate the NNPC bureaucracy. END COMMENT.

BROWNE