PDO is determined to stay the course and support Oman’s development despite the low oil price environment. Here, PDO’s Corporate Planning Director Ruqaiya Al Hinai talks at length about her important job, the complexity of the business, and how her directorate is responding to the challenges and meeting stakeholders’ needs. Excerpts of the interview:
THIS YEAR YOU HAVE COMPLETED 25 YEARS IN PDO. HEARTIEST CONGRATULATIONS TO YOU ON BEHALF OF THE OGR TEAM. AS YOU LOOK BACK AT YOUR JOURNEY, WHAT HAVE BEEN THE KEY VALUES FOR YOU?
Honesty and integrity are core values which I hold very high. They ensure that within our society and our work, we have a clear and level playing ﬁeld that offers everyone the opportunity to contribute to the best of their ability and serve the nation.
Secondly, I value diversity and inclusion. When you offer people a chance to be heard, it not only improves the plan, but it also strengthens team focus and ownership. It also helps people to understand common objectives while bringing different perspectives to the table. At the same time, individuals and businesses need a clear focus and commercial eye to drive performance and deliver as promised.
Finally, one should be mindful of the environment. As the nation develops, our use of land will become more intensive.
In Oman, “beauty has an address.” Let’s keep it that way.
AS THE CORPORATE PLANNING DIRECTOR, WHAT IS YOUR MANDATE? WHAT IS YOUR ROLE IN THE COMPANY AND WHAT ARE YOUR KEY RESPONSIBILITY AREAS?
Besides managing the internal and external technical interfaces, I am responsible for the co-ordination of PDO’s business plan and economics, hydrocarbon accounting of oil and gas, crude shipment scheduling, new technology implementation plans, business improvement, and gas and water management, as well as renewable energy.
My team works across the full spectrum of PDO’s activities - often behind the scenes to connect the different directorates in PDO. A good example is the alignment of priorities of proposed business plan activities. Nearly all of PDO’s activities are proﬁtable, but our shareholders have funding constraints, particularly in today’s tough oil price environment. PDO needs to phase activities, to align expenditure and production with these needs. To ensure that the ﬁnal proposed programme remains robust in PDO’s matrix organisational structure, we seek buy-in from both the line and function, incorporating both in-house and external capability and exposures.
A separate team is involved with production accounting, crude lifting and third party interfaces. For example, the Mina Al Fahal terminal is designed for the transfer of hydrocarbons, not storage. With slowly changing crude composition, water settling takes longer, limiting our ﬂexibility to cater for late tanker arrivals. A late loading of a tanker is bad; however, a “tank tops” occurrence (a halt to the country’s oil exports) is unacceptable. The risk may be low, but the reputational damage can be huge.
The New Technology team, which I also oversee, is championing new solutions to allow PDO to make step-changes in efﬁciency or unlock new value. Having an idea is good, but implementing a good idea across the Company creates the value. This requires strong change management and full asset buy-in, a challenging task. At the same time, the team fosters relations with Sultan Qaboos University (SQU) and aligns efforts with our shareholders, ensuring that the latest technology is brought to bear for PDO’s advantage.
Finally, water handling and power consumption are often seen as oil production side-streams, evaluated from a PDO cost perspective. Two thirds of our power consumption relates to producing or injecting water. Now take a different perspective: for every cubic metre of gas saved, Oman can add value in another way, be it economic development of the nation or incremental revenue generation through exports. Gas is therefore a precious resource and we need to increase efforts to conserve it, and in doing so support our nation’s development. In short, any gas we save can be channelled into other parts of our economy and society.
KEEPING IN MIND THE SIZE AND COMPLEXITY OF PDO’S BUSINESS AND OPERATIONS, WHAT ARE IN YOUR VIEW THE MAIN CHALLENGES FOR PDO?
First of all, let me place the scale of PDO’s operations in perspective. We manage the operations for 1.25 million barrels of oil equivalent production per day from 184 oil ﬁelds and 339 reservoirs. Together with third party crude, PDO manages the transportation and shipment of 330 million barrels per year. Our annual spend exceeds $7 billion and looking at the oil alone, PDO operates around 8,000 active wells, over 18,000 kms of pipelines and ﬂowlines, and 21 production stations. PDO directly employs around 9,000 staff and more than 45,000 indirectly through our contractors.
The main challenges for PDO can be broadly classiﬁed into three categories.
First and foremost is to “Stay the Course.” This means that PDO needs to keep generating value whilst it continuously improves its operations, ensuring that it makes the best return on investment. For the technical area, this focuses on three strategic priorities, where the leadership directly interacts at a working level to drive value improvement taking the “practical reality on the ground” fully into account. This involves:
• Asset Integrity and Process Safety to ensure that our assets are safe to operate, at all times. Some of PDO’s assets date back to the 1960s, and additionally produced ﬂuids have become more corrosive over time. From this perspective, maintaining Process Safety is a signiﬁcant challenge. The activity is of vital importance for personal safety and a pre-condition of delivering value.
• “Sweating our Assets” which refers to the necessity of making the most of all of our existing assets (reservoirs, wells, facilities). This initiative drives value in a fully integrated manner and prioritises activities on a short, medium and long-term basis.
• “Delivering new projects/assets as intended” which is crucial to ensuring that new investments return value as planned. The management of change and alignment with operations are important, not only to deliver projects safely, on time and within budget, but to deliver the value as intended.
The second main challenge is supporting Oman’s development. This is not only through cash generation, but through active stimulation of alternative local solutions. This includes social investment and our National Objectives programme, which covers job creation and vocational training of Omanis to international standards. PDO has initiated a national initiative to embed “In-Country Value” in contracts to ensure more of the wealth of the oil and gas industry is retained in Oman.
This involves levelling the playing ﬁeld in a transparent manner between local and international competition. A more recent focus is on the stimulation of renewable energy and contractor staff redeployment (absorbing the impact of redundancies due to changes in the business environment).
Last but not the least is, naturally, PDO has had to act strongly and decisively in response to the low oil price environment, which became a reality in the second half of 2014. So far, we have managed to minimise long-term value loss.
DESPITE THE CURRENT LOW OIL PRICE ENVIRONMENT, HOW IS PDO MANAGING TO MAINTAIN ITS FOCUS ON SUSTAINABILITY AND INITIATIVES IN SUPPORT OF OMAN’S DEVELOPMENT?
Although oil prices have been low for over two years now, our activities continue to be economically attractive in their own right. Sustainability is a key driver at PDO and despite the challenges presented by the global economy in the short to medium-term, we will not be distracted from this focus in the way that we manage the business. This is crucial to understanding the Company because we are here to serve Oman and deliver value to all our stakeholders.
I have already mentioned a number of initiatives, but I’d like to go into a little more detail on renewable energy. The Sultanate has ﬁnite resources and, just like our neighbours, Oman is in a prolonged phase of development, and we need to keep delivering revenue for the nation so that it can continue on its path of sustainable prosperity and stability.
However, we also need to be constantly aware of the need to be stewards of the environment and energy management as well as champions of sustainable development. For example, gas has an important role to play in powering Oman, with demand increasing as the population grows. The oil business, on the other hand, will become more energy intensive, mainly due to two factors. Firstly, we progressively produce more water (currently for every barrel of oil we produce, six barrels of water come with it) and water management is energy intensive. Secondly, enhanced oil recovery (EOR) will become an ever more important pillar of our production portfolio as the oil becomes more difﬁcult to extract from our aging ﬁelds and the Sultanate’s complex geological subsurface. The challenge is that thermal EOR methods require signiﬁcant quantities of gas to generate steam. In short, at some point, we could either face a gas shortage or, at the very least, gas prices will rise.
Whilst PDO cannot stop these trends, we have raised our game to reduce our energy footprint as much as possible. Optimising oil recovery is part of our normal business, but since 2010, PDO has been using wetlands at Nimr to treat produced water, saving on water injection, disposal and treatment costs and energy consumption. PDO is actively expanding this initiative and is looking at how we can use the treated water to grow crops which are more resistant to its salt content. Internally, we have raised the game on water management through a governance body reporting directly to our executive Managing Director’s Committee.
More recently, we kicked off the deployment of solar steam generation through our Miraah project at Amal. In the pilot which preceded this, the generation of solar steam by using parabolic troughs housed in a greenhouse proved extremely reliable.
By upscaling the venture and entering into a longer partnership with the contractor GlassPoint Solar, PDO has made the application of solar energy for thermal EOR steam economically viable. The project is currently in the construction phase and ahead of plan and we are expecting the ﬁrst steam to be generated next year. We are already looking to further expand this initiative. On the power generation side, PDO has actively been upgrading power plants, systematically reducing gas consumption per produced barrel.
On the question why PDO can retain focus, the answer is very simple: when taking the long- term view and considering the wider sustainability picture, the initiatives are good business for PDO and Oman.
IN CONTINUATION OF THE PREVIOUS QUESTION, WHAT HAVE BEEN THE EFFECTIVENESS OF MEASURES TAKEN, IN THE LAST TWO-AND-A-HALF YEARS, TO SIGNIFICANTLY IMPROVE PDO’S COST AND OPERATIONAL EFFICIENCY?
First of all, I need to highlight that PDO has been on a journey of continuous business improvement using Lean methodology to streamline our processes and reduce waste for a long time. This means taking consistent small improvement steps across all aspects of our business to achieve our aspirations. In 2014, and before lower oil prices became a reality, a leading benchmark on operational efﬁciency recommended that PDO should focus on production efﬁciency and reliability, as its unit operating cost was already considered to be world class. This message strongly aligns with the priorities I outlined earlier.
With the low oil price environment kicking in, PDO, with the support of the government and private shareholders, refocused on generating more short-term cash ﬂow, whilst safeguarding value. We have maintained our course on the big projects which we had already started executing. On the remaining activity, we have signiﬁcantly rephased projects with large upfront cash sinks and long pay-backs and rapidly accelerated well activity, with pay-backs of less than a year. As an aside, early monetisation of new exploration discoveries alone added 3,000 bbls/d to production in 2015. The combination of these efforts meant that last year we managed to meet, and in many cases surpass, expectations right across our business.
We are currently exceeding our new long-term production plateau of 600,000 bbls/d – which we reached well before our 2019 target. This achievement means we should add around 300 million barrels of production over the next 10 years. Compared to last year’s plan, we also reduced Capex by 20%, kept the Opex budget ﬂat (despite increasing salary costs and inﬂationary pressures) and, on a like-for-like basis, managed to signiﬁcantly increase the cash ﬂow to our shareholders.
IN YOUR JOB, YOU NEED TO MAINTAIN A BALANCE BETWEEN THE MINISTRY OF OIL & GAS, SHAREHOLDERS, CONTRACTORS AND VARIOUS DIRECTORATES WITHIN PDO, AND ALIGN THEM TOWARDS ACHIEVING THE OVERALL CORPORATE OBJECTIVES OF PDO. HOW DO YOU MANAGE TO MAINTAIN THIS FINE BALANCE AS EVERY STAKEHOLDER HAS ITS OWN PRIORITIES AND CONSTRAINTS?
This is a complex question, which I’ll break down by stakeholder grouping.
First of all, we have our shareholders, who need PDO to deliver maximum value at the lowest possible cost. We engage with our shareholders on many levels and maintain their trust by showing how we manage the business in a transparent manner. We share our improvement areas and show how we plan to up our game. Our vision is “To be renowned and respected for the excellence of our people and the value we create for Oman and all our stakeholders” and driving our actions in line with this vision helps to unite our diverse shareholder base.
Secondly, from an internal perspective, the various directorates and individual functions have their own set of priorities. We align these through our “One PDO” approach. This forces all staff to consider what’s best for PDO. By outlining PDO’s key objectives in a “One PDO” scorecard, we strengthen ownership of joint performance. The thematic approach I outlined earlier is also of great help to make the right connections and focus across the organisation. It’s amazing what can happen if you bring the right people into the room and just get them to talk about their blockers and barriers which limit their performance.
On contractors, the collaborative environment and long-term relationship plays an important role. Yes, a good contract is a pre-requisite; however, secondly, we have to work together through a difﬁcult business environment. PDO has chosen a more collaborative approach to reduce contract costs. Contractors understand that costs need to go down, yet they also need to be solvent, meet their shareholder objectives and pay employees. There certainly is a stick-and-carrot element in the relationship and the balance may shift with time as circumstances dictate. At all times, PDO is keen to maintain its business principles and remain a reliable partner with clear objectives. This fosters a long-term relationship with its contractors, which has proven to be mutually beneﬁcial.
IN YOUR OPINION, WHAT ARE GOING TO BE THE KEY GROWTH DRIVERS FOR PDO IN THE COMING YEARS AS THE WORLD CONTINUES TO BE INCREASINGLY DRIVEN BY DISRUPTIVE TECHNOLOGIES AND, SIMULTANEOUSLY, OMAN MAKES AN AGGRESSIVE PITCH TOWARDS ECONOMIC DIVERSIFICATION?
A disruptive technology could be the complete displacement of conventional energy by an alternative energy source. Let me put that to one side for the moment on the basis that this is unlikely to occur overnight.
Secondly, we welcome disruptive technologies, particularly if these support us to produce hydrocarbons more safely and efﬁciently. It is our job to be on top of innovation and leverage these technologies and implement them to our competitive advantage. Whilst this is a challenge for a company the size of PDO, we are well set-up to lead or follow innovation. We do this by mapping our technology challenges and are very clear on how these would add value to the business.
Next, we share these challenges externally, either through university collaboration or a direct approach to academia, our shareholder organisations, major service providers, technology institutes or our colleague operators in Oman and the region. Aside from this, we go external via our Technology Provider Hub, where anyone can offer solutions to the stated challenges.
Similarly, Oman’s drive towards economic diversiﬁcation is fully supported by PDO with a wide range of measures that include creating jobs and opportunities outside the oil and gas sector. Incremental local activity needs to be powered, which is exactly the business that we are in.
But let me now come back to the core of your question: “what are going to be the key growth drivers for PDO in the coming years?”
The answer is locked up in the priorities that we discussed earlier, but driven by our core stakeholders’ needs, mainly the government and people of Oman. They determine the pace of development within which PDO can optimise its activity. Whilst new big oil and gas discoveries will become less frequent, PDO has very large discovered volumes originally in place to chase, some 65 billion barrels in the case of the Company’s block 6 concession. This is despite over 50 years of production, and there remain many opportunities to chase.
The growth will come from a mix of development options.
First is the improvement of the ongoing developments with water ﬂooding offering relatively low unit technical cost opportunities. This will be coupled with the optimisation and efﬁciency improvement of the current assets in the form of asset rejuvenation projects.
Second is the monetisation of smaller new oil and gas accumulations, effectively leveraging our existing infrastructure. One can expect standardised mini developments, which are supported by an infrastructure backbone to provide power, water injection and production evacuation across promising trends. This will be labour intensive, particularly in terms of wells. These developments would typically come in between $15-25/bbl.
Finally and inevitably, EOR will play an important role. Given the increased cost, these developments need to be carefully phased, so that the Company maintains its drive on the above mentioned two points and can position itself to deal with the more complex operations associated with EOR.
For Oman’s development, we are together on the same boat, the people of Oman, government, PDO and other stakeholders. In PDO, we are proud to serve Oman by generating wealth in the safest and most efﬁcient way, to the best of our ability. We welcome all constructive suggestions and partnerships to achieve our goals.