OGDC looks forward to new board

ISLAMABAD:

A few years ago, Oil and Gas Development Company (OGDC) had been a star performer at the Pakistan stock market. However, in recent years the company has lost much of its market value and its performance has remained lacklustre.

In 2014, OGDC’s share price stood above $2 but in the recent past the share value was hovering around $0.60. Based on the outstanding 4.3 billion shares, the company’s valuation has gone down by over $6 billion.

For decades, OGDC – a big oil and gas exploration company – had been a major contributor to the energy security of Pakistan but in recent years it has been rudderless with its operational performance tumbling down. The company has a very low reserves replacement ratio with no meaningfully large discoveries in the past few years.

Key departments such as prospect generation, reservoir management and drilling lack experienced and qualified personnel. In the recent past, the company failed to induct qualified professionals, even though many were available in the market.

Instead of having a business plan focused on addition to the hydrocarbon reserves, the company’s board has reinforced its adoption of an obsolete planning system, which starts with an arbitrary target for the number of wells to be drilled without regard to the exploration prospects or development opportunities.

These reasons explain much the decline in OGDC’s market valuation, which has caused a loss of billions of dollars to the government that has a shareholding of about 75% in the company.

Based on discussions with well-informed sources and energy experts, a clear picture has emerged. The outgoing board of directors, headed by Chairman Dr Qamar Javed Sharif, not only failed to give direction to the company but also disregarded the much-needed structural reforms.

Sharif, who is also a service provider to OGDC, inducted his favourites and placed them on senior positions in operationally critical areas with the largest budget, such as drilling/ petro-services).

Instead of strengthening OGDC’s core operations and rehabilitating its traditional areas of strength, the board turned its focus towards expensive shale exploration without proper planning. Although OGDC approached many companies for partnership in shale exploration, not a single one agreed to join hands.

Documents revealed that Sharif and other directors forced the management to undertake shale drilling despite a lack of long lead items, causing loss to the tune of hundreds of millions of rupees.

The board had committed to improving OGDC’s drilling performance but instead it deteriorated. It appointed Muhammad Aamir Salim executive director of Petroserv (company responsible for drilling), though he had been recently rejected for an even junior position in OGDC.

The board changed the appointment criteria to ensure that Salim was inducted. He had no prior experience of either drilling operations or well planning – both essential for a leadership position in drilling.

OGDC’s drilling cost has run into hundreds of millions of dollars without any significant discoveries. In fact, in recent years the company has faced certain big failures, which include the Shawa-1 well, on which over 600 days were spent.

The reasons for failure include poor planning and design, inefficient company-owned rigs and incompetent/ inexperienced leadership in the drilling function.

Owing to a lack of qualified professionals and weak business processes, OGDC’s drilling cost, as well as the time taken, is often higher than even some multinationals working under the same geological conditions.

Instead of relying on its own competence and judgement, the leadership of the drilling department has become increasingly reliant on the advice of service companies, which have in fact benefited from OGDC’s drilling problems.

For drilling wells, OGDC has service contracts with Schlumberger (RSS tool) and Cougar (mud motor). Schlumberger’s RSS is an advanced tool for special applications and costs $18,000 per day (almost the same as a rig costs per day) whereas the mud motor costs $3,000 per day and is widely used as a primary drilling tool throughout the oil industry.

According to documents, the board has been encouraging this reliance against the better interest of OGDC with board members directly issuing instructions to officers in the drilling department to steer the award of multimillion-dollar contracts in new areas such as multilateral wells and lump sum turnkey contracts without any feasibility study.

It is widely believed in the company that the board has set an unrealistic target of drilling 45 wells this year against drilling of 25 wells last year, apparently to benefit certain board members with links to service companies.

Human resources is one of the most important and critical areas for any company. Given OGDC’s large employee base and very large gaps in the succession planning process, it was highly important that the board selected a competent leadership.

However, the board in 2019 appointed an unqualified person, Shoaib Baig, as the executive director (HR). He was removed by then MD Dr Naseem Ahmed, which triggered tensions between the board and Naseem.

Eventually, Naseem was removed from his position. NAB is also investigating the appointment of Baig.

Board members leading the controversial appointments include Dr Qamar Javed Sharif and Akbar Ayub, a political appointee. Informed sources revealed that they had been attempting to play an active role in management affairs of the company.

Ayub had previously worked with Pakhtunkhwa Energy Development Organisation, from where he was sacked and was facing inquiries on charges of misuse of authority and illegal appointments.

The Petroleum Division had stopped the OGDC board from making new appointments after receiving complaints about Ayub’s involvement in the recruitment process.

More recently, the board has appointed another controversial person, Shahzad Safdar, as the executive director (HR).

Safdar lacked the senior management experience, which was required for the position of executive director (HR) and was already facing a departmental inquiry as government auditors had declared his appointment at PSO illegal, documents revealed.

The Ministry of Energy is in the process of appointing a new OGDC board and has insisted that it will be free of political appointees and representatives of service companies. A source disclosed that a cleansing exercise was under way in the company.

OGDC’s version

The Express Tribune sent questions to the OGDC board chairman and company spokesperson.

Responding to these, the spokesperson said “all appointments at the senior management level have been made through a transparent process and there is no exception in the case of executive director Petroserve.”

Amir Salim was appointed executive director Petroserve by the board of directors after necessary evaluation by the human resources committee and initial screening and shortlisting by a professional head hunter, the spokesperson said.

“Salim has vast experience of rig management and operations in different jurisdictions. He has worked in multinational companies of repute and is well aware of international best practices and standards.”

The spokesperson stressed that the deployment of latest technology and techniques is vital for enhancing efficiency and economy in oilfield operations. “OGDC, therefore, through a continuous process augments and optimises its operations. Use of directional drilling and RSS technology is part of the company’s operational methodology,” the company official said.

“Services are obtained on the basis of technical considerations after collective deliberations by relevant professionals. It is, therefore, incorrect to suggest that technical decisions are taken by a particular individual or as a matter of personal choice.”

The spokesperson said the lump sum turnkey contract model is now a common place in leading oil and gas companies. “The model is under consideration of OGDC professionals and a firm view on its implementation will be taken once the ongoing review is completed,” the official said.

“This model is designed for efficient contract management, cost benefit and certainty regarding contactor’s liabilities.”

About drilling of multilateral wells, the spokesperson emphasised that it is also a technique to attain efficiency and economy in drilling operations and OGDC will use the technique whenever needed and justified on technical grounds.

“All operational matters are handled by the management as per policy and standards of corporate governance,” the spokesperson said.

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