Nigeria: Rescuing Collapsed Oil Facility

6 April 2021

The hope of the dormant Kaztec Engineering's fabrication yard in Lagos State coming back to life was rekindled recently during the Senator Magnus Abe-led Presidential Inter-Ministerial Committee on Assistance to Kaztec Engineering visit to the site of the critical oil and gas support facility.

The recent crucial visit by the Senator Magnus Abe-led Presidential Inter-Ministerial Committee on Assistance to Katzec Engineering Limited (KEL) to the company's fabrication yard at the Snake Island, Lagos State has rekindled the hope of the over $600 million facility coming back to life after six years of inactivity.

The facility licenced to KEL with Addax Petroleum as KEL's technical partner, had been dormant since 2015 when Addax Petroleum had some tax and audit issues with the federal government.

The case resulted to the declaration of a force majeure on the project by Addax Petroleum and since the last six years, the facility has continued to rot as no activity is going on there.

The fabrication yard is one of the major oil and gas support facilities in Nigeria and has the platform construction for the drilling of about 19 million barrels of oil from Antan and Ofrima/Udele fields.

However, four of the company's vessels in the yard, namely Ekulo Cheyenne (a DP barge), Ekulo Spirit, Ekulo Tornado and Ekulo Explorer have been lying fallow for six years, leading to the deserting of the place by both the foreign and indigenous crew there.

Abe, a member of the board of the Nigerian National Petroleum Corporation (NNPC) had led members of the committee on an on-the-spot assessment of the state of the facility to ascertain the level of collapse and to make recommendations to President Muhammadu Buhari on how to assist the company to revive the oil facility.

The president, who was worried over the collapse of major oil and gas support facilities across the country and indicated interest to reverse the ugly situation, had directed that the ministry of petroleum resources set up the inter-ministerial committee specifically for the Kaztec Engineering's facility.


Formed over 14-years ago as a wholly indigenous Engineering, Procurement, Installation and Construction (EPIC) oil and gas contractor in Nigeria, KEL was to specifically provide integrated engineering, construction, installation, hook-up and commissioning services to government, National Oil Companies (NOC), International Oil Companies (IOC) and independent operators for onshore and offshore upstream oil and gas developments in Nigeria.

The now collapsed fabrication yard was expected to be a one-stop-shop for the fabrication of onshore and offshore platforms (FPSO refurbishment, hulls, jackets, topsides, caissons, and piles), living quarters, electrical buildings, process vessels, skids and small modules, as well as corrosion protection services of structures and offshore hookups.

It was also intended to provide facilities like pipe mill, pipe coating, dry and floating dock, logistics, supply base and skills development and satisfaction of all the project delivery needs of oil and gas companies doing business in Nigeria and provide jobs for Nigerians.

At the fabrication yard, KEL has already invested in excess of $600 million in fabrication and marine assets and had, prior to 2015, delivered large complex developments to major clients in Nigeria.

Internal practices and procedures were developed and implemented that enabled the company achieve technically-sound and commercially-practical results, which led to meeting client deadlines and first oil dates.

The oil services firm was a leading member of the Nigerian contracting industry and employed about 1,250 Nigerians at the facility directly during peak operations and a greater quantity indirectly. It provided these highly motivated personnel with technical training and a pathway to supervisory and management positions. International client companies acknowledged that KEL regularly delivered world class facilities. Non-Nigerian employees provided high level management and specialist services for those projects that required this input; these personnel never exceeded one per cent of the work force.

Unfortunately, in 2015, market conditions and other client internal difficulties caused suspension of normal operations at the fabrication yard and almost all personnel were released; fabrication facilities shut down and expensive marine assets and equipment became idle since then.

The company's maintenance budgets experienced depletion, and marine assets fell into a state of serious disrepair. Further investment on the project was consequently put on hold and KEL was transformed from a fast-growing oil and gas contractor to a stressed company.

KEL has been crying for assistance to enable it reactivate the facility and continue to provide its valued industry support services to its clients even as it wants to resume its contribution to the nation's economic growth.

Investments Plans/Update

At the 531 hectares Snake Island Fabrication Yard Development, KEL planned to invest $1billion in a three-phased projects and has already invested over $600 million.

Phase-1 valued at $400 million entails Yard Fabrication Facility to be carried out from August 2015 to 2021. Phase 1A which comprises workshops, warehouse, laydown areas, erection area and 4,000T load-out quay, totalling 180,000m2, has already been completed.

Phase 1B entails yard expansion, comprising workshops, warehouse, laydown area, erection areas, site accommodation and offices for 1,000 personnel and 10,000T load-out quay, totalling 360,000m2.

Similarly, Phase-2 was estimated to cost $450 million for the construction of FTZ Logistics Base including 200m Quay wall, Offices, Training facility and open storage area of 1,500,000m2.

The Pressure Vessel Fabrication Plant was scheduled for completion by 2022 while the Pipe Coating and Pipe Rolling Mill were to come on stream by 2024.

Also, the Phase-3 estimated to gulp $350 million for the construction of VLCC Dry Dock was to be completed by 2026.

Presidential Intervention

Disturbed by the tales of the sorry state of the important oil asset especially considering its estimated $33 billion value to the Nigerian economy over a 10-year period, which has been largely affected, President Buhari swung into action to rescue the dying facility. The president must have been more worried by the spillover effect of over 3000 workers on the facility disengaged by the shutdown of the facility.

He must have also been ruffled by the extent of local capacity endangered by the stoppage of work at the KEL's facility and the high amount of foreign exchange that may have been wasted on sourcing the kind of services rendered by the company abroad over the last six.

As s result, Buhari rose to the occasion and mandated that the Abe-led committee just like other committees on the project, be set up to find ways to arrest the situation.

Addressing journalists during the tour of the facility, Abe stated that the president had indicated his determination to revive the moribund facility.

He said the president had indicated his awareness of the ugly state of the important oil facility and responded by directing the setting up of the committee in order to find ways to assist the company to bring the facility back to life.

According to Abe, the facility was projected to generate over $33 billion values in both revenues and foreign exchange savings to the federal government over a 10-year period.

He added that when it was functioning, the facility provided over 3,0000 direct jobs and over 10,000 indirect jobs to Nigerians but that all those jobs have been lost due to the inactivity of the facility.

This, he explained, prompted the president to direct the setting up of the committee under the supervision of the ministry of petroleum to look out for areas of possible assistance to Kaztec Engineering for the revival of the facility.

He said members of the committee were drawn from the ministries of justice, finance; industry, trade and investment; the Nigerian National Petroleum Corporation (NNPC), and the Department of Petroleum Resources (DPR), amongst others.

"This is the Inter-Ministerial Committee on Assistance to Kaztec Engineering, set up by the President of the Federal Republic of Nigeria to look at ways and means by which the federal government can legally assist this company to come back to life", he said.

The chairman of the inter-ministerial committee said what has happened to the Kaztec fabrication yard was a national tragedy in so many ways.

He noted that, "not only is the economy negatively impacted, but at a time when we are trying to save foreign exchange from every means possible, it is quite disheartening to see that there are a lot of things here that could help this company save millions of dollars in foreign exchange that is actually lying waste."

Abe thanked President Buhari for setting up the committee, pointing out that such action "actually shows that he is in touch with the realities of what is happening in the economy, in this country, and that he is doing everything possible to see that the Nigerian economy is not negatively impacted unduly by the current happening".

He stated that Nigerians should indeed be grateful to the president for the initiative.

He lamented that the facility had been in such bad state for over six years and nothing was done about it until the intervention by the presidential committee.

Abe said the committee is also made up of technocrats and people with expertise from their ministries, whose inputs would be material to the recommendations of the committee's report.

He assured Nigerians, particularly, the 3,000 direct workers of the company in the facility, the 10,000 ancillary dependants as well as the banking partners, that the president was on top of the situation.

"He has set up this committee to make recommendations and advise him on what can be done, and we are doing that, and definitely, far-reaching recommendations will be made to enable us recover from this national tragedy," Abe said.

Speaking on how soon the committee's report would be submitted to the president, the senator said the committee has been working tirelessly on the assignment given to it and that the report was almost ready.

"Very soon. As soon as we interface with the minister of petroleum. We will submit the report very soon. We have done a lot of work, I can assure you", he noted.

Comeback Plans

At the moment, KEL is anxious to resume operations, implement further planned investment, and remobilize its labour force at the facility.

The Director of Engineering at Kaztec Engineering Limited, Mr Mike Simpson, who guided the committee on the tour, said the facility was being built to be the first fully-owned indigenous fabrication yard in the country.

Simpson said some of the unutilised equipment in the facility included a Dive Support Vessel, Pipe Laying Vessel and an already constructed Jacket, which could be used for oil and gas operations.

He said the Phase 1A of the project, comprising workshops, warehouse, laydown areas, erection area and 4,000T load-out quay, had been completed.

"Kaztec's future planned investment and manpower remobilisation is entirely dependent on previously committed projects being activated such as pre-fabricated Antan Facilities that could be readily adapted for use in other field developments, Ofrima/Udele Project if now applicable, and other projects that could benefit Nigeria using Nigerian contractors," Simpson said.

He said the company needed the support of the inter-ministerial committee in the form of activation of previously committed projects that were suspended and new projects that will ensure that a steady workflow was necessary for their return to the market.

He added that the expertise accumulated during the firm's years of operation was completely retained in their internal practices and procedures and ready to be put back into use.

"KEL is capable of restarting with little or no learning curve - we are still in continuous touch with our released personnel.

"KEL's $600 million investment in construction assets is ready to be put back to work for Nigeria. Patronage of the upstream oil and gas industry is vital and your assistance in this matter is urgently and respectfully requested," Simpson noted.

Urgency Earlier Validated

However, during a similar visit to the fabrication yard over a month ago, the Director of the Department of Petroleum Resources (DPR), Mr Sarki Auwalu, had harped on the need for government to swing into action and rescue the economically impactful facility from continuous collapse.

Auwalu at the time had expressed displeasure that the Kaztec facility had not been operational since 2015, pointing out that the company was licensed by the DPR to provide support services to the oil and gas sector.

He said due to contractual issues, critical equipment in the facility were currently not being utilised for the benefit of Nigeria and Nigerians.

"The industry depends on facilities like this to actualise their investment because it is like a support system for the oil and gas sector.

"Our visit here is that we see an edifice that we licensed and it is dormant, but we are going to make it active because we see it as an opportunity to grow the oil and gas industry," he said.

The DPR boss stated that the facility, when functional, could play a significant role in supporting and driving the federal government's gas utilisation, penetration and expansion programme.

According to him, "We have issued several licenses for modular refineries that needs fabrications. We cannot allow this kind of facility to remain under-utilised."

Auwalu noted that due to the shutdown of the facility, some of the fabrication jobs that could be done at the facility were being shipped to China to the detriment of the Nigerian economy.

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