QA/QC Fail

He Who Pays the Piper

This article is refreshing in the honesty of the words reported:

Quality in the supply chain is the biggest concern for Shell when it comes to its giant Prelude floating liquefied natural gas project off Australia, according to the project’s director.

The sheer volume of individual contracts involved in the LNG project off the north-east coast of Western Australia also, however, causes problems for those in the supply chain, leading to delays.

When pressed during a conference session on megaprojects what was his major concern with Prelude, project director Didrik Reymert identified a lack of the requisite quality in some parts of the supply chain when Shell started making enquiries for contracts.

“We found a lot. It’s probably not more than most projects do… But sometimes I’m a bit surprised,” Reymert told the ONS audience.

Reymert insisted that it was quality rather than the speed of delivery that was the driving force behind getting Prelude up and running. “That comes down to the robustness of the design and the quality of the manufacturing and fabrication, and the quality check that we are going to do during start-up,” he said.

I say refreshing because the quality in the supply chain is a major issue on any project, and it’s not often acknowledged.  The shear complexity and length of modern supply chains makes it extremely difficult to trace materials beyond 2-3 subcontracting layers, a process made more difficult by some subcontractors consisting of subsidiaries selling to one another.  I have been on a project where valve bodies were found to be cracking shortly after commissioning, and an exhaustive and costly investigation going back miles in the subcontracting chain identified a certain mill in China knocking out dodgy ingots with falsified certificates.  This sort of thing is extremely difficult for an oil company to manage.

Let’s leave that aside for a minute and allow me to digress.  I once read a newspaper report which quoted a US army officer speaking about alleged prisoner abuse on the part of an American unit during the Iraq War.  He said that any infantry unit takes on the personality of its company commander, usually a captain but sometimes a major.  If the company commander is aggressive and wants to take the fight to the enemy, then the men under his command will adopt this approach on the front line.  Conversely, if the company commander is thoughtful, laid-back, and considered then his men will be too.

An analogy can be drawn with contractors and service providers in the oil industry in that their behaviour is shaped by, and a reflection of, the operating companies.  This is a point which is barely understood at any level of management in oil companies, if at all.

Going back to the earlier point about supplier quality in a project, while appreciating it is very difficult to manage due to the complexity of global supply chains (not to mention local content laws), few companies ensure the basic steps are taken to ensure robust QA/QC compliance on a project.

The first of these ought to be a clear message from the Project Director that quality is of importance or – even better – a priority.  Yet in most instances the contractor is asked to reduce his costs without a preference as to where the knife should fall.  There is an old adage that you can have a project fast, cheap, or good: pick any two.  When a contractor is asked to reduce his costs it will be either schedule or quality which suffers as a result (he is never going to reduce his profit margin).  If the schedule is fixed, and it always is, then this leaves only quality to make way.  Unless the client is very specific in how this cost cutting should take place (e.g. we’ll provide you with office space, so take that provision out of your quote) then the contractor will choose whatever is most convenient to him without telling anyone.  It might be a reduction in wages, or a decision to use Chinese switchgear instead of German, or maybe he’ll skip a few steps on a functionality test.  Whatever he does, by asking him to reduce his prices across the board without properly indicating where they think a surplus lies, an oil company is indicating right up front that quality is of secondary importance to them.

Not that they’d ever admit it, but it is better to look at what decisions oil company managers actually make, rather than what they say, to get an understanding of their priorities.  I once asked the manager of a major oilfield project whether quality took precedence over schedule, and he said:

“Yes, quality is very important, but we cannot accept any delays and costs need to be minimised.”

Which was about as useful as an email from HR in response to a question on travel expenses.  In this case he intended to make every project decision himself so establishing a preference for his subordinates to work to wasn’t deemed necessary,  but the contractor got the message: fuck the quality.  The results were as you’d expect.

Having been a part of major project teams at every step from FEED to commissioning, I am fairly confident that I have identified one factor that determines more than anything else the quality of product an oil company will receive from a contractor, and that is the level of supervision they put in place.  This is why on every oil and gas project the client spends enormous time, money, and effort in recruiting a team with the necessary skills to supervise the works, along with a robust QA/QC organisation who are given all the necessary support to guarantee the quality of the final product.

Actually, they don’t.  With an eye on their staffing costs oil companies usually recruit a team of insufficient numbers consisting of people who are firstly cheap and secondly perhaps able to do the job, sort of.  Then with an eye on the schedule they prefer to turn a blind eye to potential QA/QC issues rather than implement lengthy prequalification and inspection procedures and order reworks due to non-compliance.  I have personally witnessed a major oil company representative instruct a contracted QA/QC engineer to accept a set of valves which had been delivered without certificates in order to meet a project schedule.  Despite his job being threatened, the QA/QC engineer stood his ground.  Many do not.

I’ve even worked on a major, multi-billion dollar project as a senior member of the supervisory team where I have been told not to concern myself with critical engineering and construction activities because “they are the contractor’s responsibility”.  Which is true, just as the exam results of my teenage son are his responsibility, but I still show an interest because if he flunks out and can’t get a job it is me who will ultimately pay.

So what efforts do you think the contractors, who are being pushed on costs and schedule, will put into QA/QC if the client haven’t bothered putting in place any supervision because it’s apparently not their concern?  Very little.  Conversely, I once worked with a guy who meticulously inspected every element of a contractor’s work and made them completely redo everything if it was not exactly to specification.  They quickly learned that it is better to get it right the first time.

The problem, like so many others, is one of managerial cowardice.  Faced with a near-impossible project schedule and escalating costs, it is an easy option to bury your head in the sand and hope you get through to commissioning and start-up without any quality issues coming to light.  Once it’s handed over to operations it becomes their problem, and your annual appraisal remains unaffected.  It takes courage to delay a project activity by ordering reworks, and such courage is rarely found in a modern oil and gas project manager.  As the original article says:

One delegate representing an Austrian contractor currently working on the piping package for the unit’s swivel function put it to Reymert, however, that suppliers are facing constraints when trying to complete assignments, not least due to a lack of communication.

“Sometimes what we have seen is that it was difficult to find people at Shell with whom we could talk on a high technical level to get some questions answered,” he argued.

“Sometimes you are talking about minor issues, which can delay projects by weeks or even months … It would be great if we had a more direct approach to Shell to discuss, for instance coating issues.”

No individual’s career has ever suffered from kicking a question around a dozen oil company departments and then blaming the contractor for the subsequent delay.  But making a decision?  Now that’s dangerous.

It is good to see that the Prelude project director has identified quality issues as a serious concern on major oil and gas projects.  Whether oil companies do what is necessary to address them is another matter entirely, but the ball is firmly in their court.

Brother, can you spare a dime?

Oh, how lucky those Russian pensioners are!

Russian oil behemoth Rosneft has asked the government for more than $41 billion to help it ride out the effect of sanctions imposed against it and Russia by the US and European Union, according to a report.
Company president Igor Sechin has laid out five suggestions for support from the federal government, with help from the National Welfare Fund one possibility, local newspaper Vedomosti reported on Thursday, citing four unidentified government officials.

According to the Sovereign Wealth Fund institute:

The main purpose of the [Russian National Welfare Fund] fund is for the guarantee of the voluntary pensions of the citizens.  In addition, to help balance the budget of the Pension Fund for the Russian Federation.

I wonder if it is in the interests of Russia’s pensioners to “invest” almost half of their pension guarantee in propping up a bloated, inefficient, state oil company which has found itself unable to raise capital due in no small part to the behaviour of its chairman in his role in the Russian government?

One of the primary purposes of the National Welfare Fund is to insulate the country from oil price shocks, i.e. it is specifically intended to be invested in anything but oil companies.  By sticking half of it into Rosneft, the fund will be extremely exposed to fluctuations in the oil price, not to mention dependent on the financial performance of a company which is facing increasingly heavy sanctions.

But who gives a fuck about the pensioners?  Streetwise Professor calls it correctly:

I really don’t think that Sechin has become convinced that the sanctions do in fact pose a serious threat to Rosneft. This is just his way of trying to let no crisis go to waste, and get his hands on Russian government monies.

Sechin no doubt believes that he can exert far more influence and power over the Russian government than he can over foreign bankers and traders. Bad, empire building investments; sweetheart contracts with favored supply firms; and tunneling funds are all easier when the main obstacles are government bureaucrats who can be bought off or threatened with horrible fates. The challenges are greater when outside investors and creditors are involved.

Indeed, life is a lot easier when you hold power with your mates:

Rosneft refused to publish Sechin’s income declaration for 2013 this June, despite Russian President Vladimir Putin signing a decree in July last year ordering state-controlled companies to disclose payments to top managers.

Laws are for the little people, as are decrees.

Meanwhile, the news just gets better and better for Russia’s pensioners:

Russia has been steadily rolling back a pension reform launched in 2002 under which Russians were supposed to save towards their own retirement.

Under the current system, funds paid by employers for each employee are divided into two parts, with the first going straight to current state pension repayment and the second to the employee’s individual pension saving account.

The second part is usually invested in financial instruments by state or privately-managed funds.

Russia’s government has approved a plan to use contributions to employees’ privately-managed pension funds to plug budget holes for a second year running.

The diversion of funds helps to plug budget shortfalls for now, but would increase the long-term burden on the state as the population ages.

I can see another round of bitter disappointment and childlike expressions of hurt coming on which will rival those seen after the collapse of the Soviet Union.  And I’d give a shit, were most of the population not four-square behind Putin and Sechin and cheering them on at every step.

I really don’t think that Sechin has become convinced that the sanctions do in fact pose a serious threat to Rosneft. This is just his way of trying to let no crisis go to waste, and get his hands on Russian government monies. Sechin has always fought tooth and nail against Medvedev’s repeatedly shelved plans to sell off a big stake in Rosneft: he doesn’t want nosy western investors cramping his style. The sanctions, and their alleged impact on Rosneft’s ability to borrow in the west, gives him an opportunity to show the door to pesky western creditors as well. Sechin no doubt believes that he can exert far more influence and power over the Russian government than he can over foreign bankers and traders. Bad, empire building investments; sweetheart contracts with favored supply firms; and tunneling funds are all easier when the main obstacles are government bureaucrats who can be bought off or threatened with horrible fates. The challenges are greater when outside investors and creditors are involved. – See more at: http://streetwiseprofessor.com/#sthash.7vb5h7iU.dpuf
This is just his way of trying to let no crisis go to waste, and get his hands on Russian government monies. Sechin has always fought tooth and nail against Medvedev’s repeatedly shelved plans to sell off a big stake in Rosneft: he doesn’t want nosy western investors cramping his style. The sanctions, and their alleged impact on Rosneft’s ability to borrow in the west, gives him an opportunity to show the door to pesky western creditors as well. Sechin no doubt believes that he can exert far more influence and power over the Russian government than he can over foreign bankers and traders. Bad, empire building investments; sweetheart contracts with favored supply firms; and tunneling funds are all easier when the main obstacles are government bureaucrats who can be bought off or threatened with horrible fates. The challenges are greater when outside investors and creditors are involved. – See more at: http://streetwiseprofessor.com/#sthash.7vb5h7iU.dpuf
This is just his way of trying to let no crisis go to waste, and get his hands on Russian government monies. Sechin has always fought tooth and nail against Medvedev’s repeatedly shelved plans to sell off a big stake in Rosneft: he doesn’t want nosy western investors cramping his style. The sanctions, and their alleged impact on Rosneft’s ability to borrow in the west, gives him an opportunity to show the door to pesky western creditors as well. Sechin no doubt believes that he can exert far more influence and power over the Russian government than he can over foreign bankers and traders. Bad, empire building investments; sweetheart contracts with favored supply firms; and tunneling funds are all easier when the main obstacles are government bureaucrats who can be bought off or threatened with horrible fates. The challenges are greater when outside investors and creditors are involved. – See more at: http://streetwiseprofessor.com/#sthash.7vb5h7iU.dpuf
Ming the Merciless

King for a Day

Several years ago I found myself stuck in some far-flung oil town over Christmas.  As the holidays approached, one by one the company management flew home and handed over to a skeleton crew who would keep things running in their absence.  Due to no other reason that I was literally the only expat left in the office that particular day, on 28th December I was put in charge of an entire operational department.

I had two issues to deal with that day.  The first concerned a rather agitated local contractor (who somebody had let in the building unescorted, and when I found him he was wandering alone around our conference room), who wanted to discuss some urgent business with me.  The chap’s company was in the business of chartering vessels, and they’d had one chartered to us for the past couple of years but the contract was shortly coming to an end.

He opened the discussion by saying our company management was fully aware of the problem, discussions had been going on for a few weeks, and he was waiting for a favourable response from us.  Not having a clue what he was on about, I asked him to explain.

He said the vessel’s certification ran out on 3rd February, and for its renewal it needed to be taken to South Africa for dry docking.  A vessel cannot sail without certification, and it was a 6 day sail to South Africa, but before it could sail it needed to come into our supply base to unload all the equipment on board which would take a few days.  And he had been urgently trying to get us to commit to taking the vessel off the field and unloading the equipment at our supply base by 25th January.  He had met with the management several times and high-level meetings had been held, but nobody had committed to anything, no decision had been taken, and he was left in the dark.  This did not surprise me in the least, as this adequately described the situation on any issue on any given day in our company.

So I told him to sit tight while I went and got the vessel’s work schedule.  After pulling it off the server, I looked at it and found it was working on location right up until 30th January, after which it would go to the supply base, unload, and be handed back.  I went back to the chap in the conference room and showed him the schedule.

He took a look at it and said “That doesn’t work for us, we need the ship back by 27th January.”

With what I thought was impeccable logic, I asked “Well what does the contract say?”

He knew, which surprised me, but said “The contract says you need to hand the ship back on 3rd February, but that’s no good for us.”

“So” I said, “what you’re looking for here is a favour?”

To which he said in a voice used to giving instructions “We need the ship back on 27th January, so you need to change your schedule because we can’t sail it without its certification and…”

I interrupted him: “The contract lets us keep it until 3rd February.”

What this clown had done was rent a ship from its owner and then charter it out to us.  But his contract with the owner stipulated that he had to return the ship to the dry dock in South Africa, and he’d overlooked this when chartering it to us.  If they didn’t get the vessel back to its owner in time, they faced crippling penalties.  This mistake happened because he was not a genuine oilfield service provider, but the mate of somebody well-connected in the local government who had instructed my employer to use him.  Chalk that up to another triumph of local content legislation.

Situations arise occasionally when one party to a contract has made a potentially costly error and needs a favour from the other party to resolve it.  Without any legal obligation to do so, the party – in this case me – has to take into account such things as behaviour, attitude, and general helpfulness of the other in the execution of the contract works to date.  (This is why it is a very good idea for each party to ensure relations are amicable throughout the contract period, but this never happens.)  So before I made any decision I decided to call one of the guys in the supply base to see what kind of contractor they’d been.  Here’s what he said:

“They’ve been utter pricks.  They’ve been ripping us off on the hire rates right from the beginning, the vessel is unsafe, they don’t comply with anything we ask them to do, they are always complaining, and they treat us like we’re their contractor.  We’d never have used them, but we were instructed to by the government.”

Now these assholes were instructing us to change our schedule to suit them.  I gave him the good news:

“We’re sticking to our schedule, you’ll have the vessel back on 3rd February as per contract.”

The guy gave me a filthy look, and I went back to my office, leaving him sat there.  I assume he went home at some point.  When I got to my office I called one of the general managers, a senior local:

“I had this bloke come to see me today about that vessel that’s coming off charter.  I told him we’re gonna stick to the contract.  S’okay?”

“Yes” he replied, “I don’t know why this discussion has been going on so long.”

I was going to answer that in his entire management team there is neither a clue nor a set of balls, but thought the better of it.  But I was glad to help out.

The second issue I dealt with was a company director calling me up and asking me to send him – urgently – some updated schedule or other detailing minor activities which no director should be concerning himself with.  I sent him the one from the previous week and changed the date, and never heard anything back.

It was fun playing manager.

Boko’s Harem

I have witnessed two motorbike accidents in my life.  The first occurred in Bali, Indonesia.  I was travelling in the back of a taxi when a downpour started, and a girl in her late teens on a scooter skidded in a traffic jam at low speed and went over on her side.  I was two cars behind her, and after a few seconds of wondering what had just happened I told the taxi driver to stop and jumped out to help.  By the time I got to her, 5-10m away, all traffic had stopped, one man was picking up her belongings, another two were helping her to her feet, two more had gotten her scooter upright and were wheeling it into a nearby gas station, and a dozen more were stood nearby willing to help, the expressions on their faces and body language displaying obvious concern for her welfare.  From what I saw, she was fine but obviously shaken up.

The second occurred in Nigeria on a busy road on my way to work one morning.  A girl had just come off the back of an okada (an unofficial motorbike taxi) and had skidded along the road some way.  She was bleeding badly and screaming in agony.  As we drove past on the other side of the road, I saw Nigerian youths stripping her of clothes, telephone, and belongings and disappearing into the crowd.  Nobody was inclined to help her, and people just stood and watched as she was robbed blind.  I heard similar accounts from people who had been involved in car accidents in Nigeria, who told of being robbed while still in the wreckage or by the police on the way to the hospital.

Back in May of this year 200 schoolgirls were abducted by Boko Haram in the north of Nigeria.  Among all the (often hysterical) reporting that took place at the time, there was an elephant in the room which went unmentioned by any media outlet covering the story.  That is, the abductions were a symptom of the appalling state of Nigeria, a mere continuation – albeit escalated – of the depravity, violence, and backwardness that one encounters on a daily basis anywhere in the country.

This abduction of the 200 schoolgirls and their (presumed) subjection to physical, mental, and sexual violence is unique only by virtue of its scale, audacity, and the tenuous links it has with the perpetrators’ political aims.  But are we to believe that Nigerian girls of similar ages are not subject to the exact same treatment on a daily basis up and down the country, only on a lesser scale and without the perpetrator making political hay?

The response by the West was pathetic, due either to appalling naivety or desperation of its leaders to not offend Nigerians.  Some suggested getting the Nigerian army to assist, as if they had been American girls taken from a suburb of Phoenix and the Arizona National Guard was being asked to help.

Nigeria is on most measures a failed state, a situation caused entirely by the fact that a huge majority of its population is incompetent, dishonest, amoral, greedy, lazy, and corrupt.  Other sub-Saharan Africans detest Nigerians, as the streets of their main cities are filled with Nigerian criminals and more thrown into their jails.  It is a certainty that Boko Haram members hold positions in the Nigerian army; it is a certainty that many Nigerian soldiers will be sympathetic towards Boko Haram; it is a certainty that elements of the Nigerian army knew about the abduction in advance; it is highly likely that elements of the Nigerian army have supplied Boko Haram with weapons and information, either for ideological reasons or for money; and it is a certainty that out of every 100 Nigerian men in the area, 99 will be looking to make a quick buck out of the situation somehow.

This abduction did not come out of a clear blue sky to a functioning society.  The West’s response, if they were going to make any at all, should have been to first call Nigeria for what it is: an utter basket-case where almost every individual from the feckless president down is a despicable shit who would sell out his best friend for ten bucks rather than get off his arse and do an honest day’s work; and then to say, quite accurately, that the 200 girls are lost forever, that the fault lies squarely on the shoulders of Nigerians (Boko Haram or not), and they should all hang their heads in shame.

Instead, we got this:

nigeria11n-7-web[1]

with the comment “In these girls, Barack and I see our own daughters” presumably (what other similarities are there?) due to the color of their skin.

Pathetic Twitter campaigns and opportunistic photos by politicians wives were never going to get the girls back; a refusal to acknowledge the true nature of Nigeria will ensure it happens again.  Which it has.

Pass me a white feather

Recently I watched one of Hollywood’s latest outputs, a film called The East which concerns a blonde chick who infiltrates some anarchist-environmentalist group bent on holding unethical corporations to account.  The premise was pretty lame to begin with: apparently it’s based on the experiences of the director and lead actress from when they joined an anarchist collective, whatever one of those is.  Why they thought this would be a good basis for a film I don’t know, but I found it both dull and predictable.

Naturally, one of the targets of the anarchists in the film was an oil company, whose depiction was about as realistic as the oil companies in Syriana.  The oil company seemed to be operating some sort of petrochemical plant onshore USA, and children (but no adults, it seems) were dying of arsenic poisoning from polluted water.  An executive of the oil company claimed independent analyses had all declared the water clean; where the EPA was in all of this wasn’t mentioned, but you’d have thought they’d have at least shown an interest in dead children.  The subtext was that the government was quite happy for this oil company to pollute the water and kill children.  “If only,” say the guys battling to get the Keystone XL pipeline approved.  Anyway, these anarchists kidnap the executive of the oil company and chuck her in a lake beside the petrochemical plant, and she shits herself because at exactly 3am a load of effluent spews forth from an 8″ pipe, presumably containing arsenic.  The explanantion given is that this is a by-product of something or other and “the people want cheap power”.  So we have an oil company producing “power”, which I take to mean electricity, in a petrochemical plant with an arsenic by-product which they don’t want to treat, and so dump it in a nearby lake.  In the USA.

Okay, so we’re in Captain America territory for believability, but that’s not my point.  What I think Hollywood – or rather, a decent scriptwriter or author – is missing is that you could write a reasonably compelling drama about an oil company polluting an area and/or killing people without having to draw cartoon villains.  I suppose realism isn’t important when your target audience will believe pretty much anything (the reaction to Syriana proved that), but if somebody wanted to write a story whose accuracy would perhaps give it greater longevity if not immediate box-office success, there is enough material out there.

The thing is, oil companies do pollute and they do kill people.  Just the mechanism for doing so is not how it is portrayed in Hollywood, or commonly believed. Trust me, there is no western oil company executive anywhere who says to his board, or thinks to himself, “Fuck the environment, and fuck the safety and wellbeing of our employees and the citizens outside the fence.”  That just doesn’t happen.

What does happen is a mixture of incompetence, managerial cowardice, pressure to produce, pressure to cut costs, and forced compliance with corrupted local content laws results in fatalities, injuries, and spills which should never have happened.  “Every accident is avoidable” is a common rallying cry in oil industry HSE departments, which is true but the phrase is misused to imply that accidents will be avoided even if they continue working as they are.  “Accidents are inevitable” would be a more accurate slogan, given their actual working practices.

I suppose somebody could make a film about a man being killed in an accident on an oilfield caused by stupid and dangerous work practices, but he wouldn’t be employing much imagination in doing so.  Lots of jobs are dangerous, and people die doing them every day.  But a clever writer might want to weave a tale of a worker’s death being caused by the type of cowardly, bureaucratic, and utterly callous decisions made on a daily basis by managers in oil companies whose names you would certainly have seen on forecourts.

One such example sticks in my mind.  A Thai engineer was working on a site in Africa as a contract worker for a major oil company.  As with all contract workers (as opposed to staff employees), his actual employer was a manpower agency and he was seconded into the oil company.  In order to comply with local content legislation, the manpower agency was local; it was simply not permitted to hire people through foreign agencies.  In keeping with the characteristics of other local companies in this particular country, this agency was run by people (locals) who were utterly dishonest, and forever lying and cheating in their dealings between the oil company and the employees in order to maximise profit for the owners.  In their contract with the agencies, the oil company insisted that they provide in-country medical assistance for each employee, including medical evacuation.  In such a backward and dangerous country this was essential, and no employee would come without such cover.

Unfortunately, the oil company used competitive bidding to try to minimise the agencies’ margins, forcing them to cut corners.  The oil company called it “cost savings”.  One of the ways in which they cut corners was to not purchase the medical cover – a practice that still goes on – and that is what this agency did.  The feckless locals who owned and ran the outfit didn’t worry that some Thai was sent to site under the impression he had medical evacuation cover, but in fact had none.  Although strictly in breach of the terms of the contract, the oil company – itself staffed mainly by feckless locals and incompetent expats – had little incentive, let alone the organisational competence, to carry out audits to ensure the agencies were providing all the services they were obliged to.  Also, as I listed at No. 5 in this post, the oil company had no choice but to continue using nonperforming and dishonest suppliers due to local content legislation.  But the situation at the time was that the oil company’s management were in full knowledge of the shortcomings of their agencies, but each individual stated – correctly, but irrelevantly – that the provision of medical cover of contract employees was the responsibility of the employing agency.  That the oil company might have a duty of care to ensure the employees working on their sites were adequately covered and not lied to was not an idea they chose not to entertain. Being staff employees, and hence not exposed themselves, they simply didn’t give a shit.

Then one day the unfortunate Thai was working on a site operated by the oil company when he collapsed.  As it was discovered later, he had had a brain aneurysm.  He was taken to the facility medical bay where the doctor ordered his immediate evacuation to the nearby capital city, which is served by an international airport.  He arrived at the designated (private) clinic in the capital whereupon an almighty row broke out because the agency did not have an agreement in place with the clinic, despite this being a requirement of the contract between the agency and oil company.  The sick man, by now in a coma, was nevertheless admitted to the clinic and given treatment but it was clear he needed to be evacuated to Europe immediately.  The clinic normally would arrange the evacuation, but without the agreement in place they refused: these things cost hundreds of thousands of dollars, which is why the evacuation allowance on most travel insurance policies is substantial.

The agency therefore set about trying to get some agreement in place with the clinic, but like everything else in Africa this was neither fast nor straightforward.  As such, a full day had passed with the man left in the clinic as the two parties squabbled.  Up until this point, the position of the oil company was one of aloof indifference.  As it happened, another Thai was working in the oil company offices in the capital at the time and, as there were only two Thais in the subsidiary, they were pretty close friends.  This chap was boiling with rage at the non-evacuation of his friend and so went to see the project director who was ultimately in charge of both the works on the site and the contract with the agency.  He explained the urgent need to get his friend evacuated immediately and the incompetence of the agency to handle it, and begged him to allow the oil company to use its own agreement with the clinic (that it uses for its own personnel) to evacuate the man, and reclaim the costs later.  The project director replied, with a bureaucratic cuntishness that would have made a Soviet commissar proud, that it was “not the company’s responsibility”.

The sick man was eventually evacuated to Europe after 4 days in the clinic, but by the time he arrived he was brain-dead.  Nobody knows whether a speedy evacuation would have saved his life, but the fact that he was never even given a chance made everyone pretty sick.

Actually no, it didn’t.  The guy was Thai, so few people gave a fuck.  Had he been a European the whole office would have gone apeshit, but a Thai?  Who cares?  (I was once on a site when a Filipino got killed; you could almost hear the relief when the management were told it wasn’t a Western expat.  The result was a few shrugged shoulders.)

What I found particularly vile about the incident was that the oil company management knew full well that the agencies were not fulfilling their obligations, but chose to do nothing about it.  And the employee certainly wasn’t told he wasn’t covered and given the option of going home.  In my mind, the duty of care towards the worker therefore passes to the oil company in the event of such an emergency.  The behaviour of the management in presiding over an organisation that firstly fails to ensure the workers are adequately covered, and then ducking the responsibility when an emergency arises, is not much different from deliberately pouring arsenic into a pond at 3am.  The behaviour can be explained using two words.  The polite one is cowardice, but I prefer cuntishness.

Sadly, this sort of behaviour is commonplace in today’s oil industry, so much so that it can almost be considered standard practice.  The cowardice of individuals protecting their own arses and careers, regardless of the human cost or even common decency, is a giant cancer in the industry and probably one of the biggest contributing factors to fatalities, injuries, and spills globally.  I think I could, just about, stomach a close friend or relative being killed on a drill floor during a dangerous operation.  But to lose somebody because some cunt in an office doesn’t want to shoulder the bureaucratic responsibility his colossal salary is supposed to pay for?  That would have me reaching for a sniper rifle.

There’s a film in there, somewhere.

Uganda be kidding me!

There is a press release on the website of Irish independent Tullow Oil which needs to be given wider attention (emphasis mine):

Tullow Oil plc announces today that its subsidiaries operating in Uganda have received a ruling from the Tax Appeals Tribunal (TAT) in Uganda relating to Capital Gains Tax (CGT).

Tullow can confirm that the TAT has ruled against Tullow on the key issue of the express tax exemption contained in the Production Sharing Agreement for Exploration Area 2 (EA2 PSA).

A specific CGT exemption was included in the EA2 PSA. Tullow is extremely disappointed that the TAT ruled that the then Minister of Energy did not have the legal authority to grant such an exemption.

I have seen this sort of thing before.  Years ago, when involved in some work on some God-forsaken site somewhere, I was talking with some poor soul who was contracted by a Korean company who hadn’t been paying their invoices.  Eventually, after months of trying to get the Koreans to pay up, he was told that the person who signed the timesheets (on which payment was based) was not authorised to do so.  And no, nobody else could sign them, and he wouldn’t be getting paid.  This sort of behaviour is not uncommon from Korean contractors (who consider their project a success if they force a subcontractor or supplier into bankruptcy) but I confess I’ve not seen this particular excuse from a national government before.

The application of retroactive taxes, forced amendments to contracts, and appropriation of oil company assets has been a constant feature of the global oil industry ever since its inception, as anyone who has waded through Daniel Yergin’s The Prize will know.  But this is still a brazen move on the part of Uganda, and oil companies need to be very wary about dealing with such a regime in future.

It is funny that the Ugandans cite the former minister as exceeding his authority in their ruling, because this is what I wrote in May regarding the murky gas supply deal between Russia and China:

When Putin finally goes … what’s the betting that a future government will decide that Putin et al. agreed to terms which are clearly not in the long term interests of Russia (along with the announcement that he wasn’t actually authorised to make them, hence the contracts are illegitimate)?

The lesson here is that oil companies should ensure they are operating within the laws on the statute books and not rely on the terms of a contract to give them special treatment.

ExxonMobil had the sense to do just this in Russia in the early ’00s.  In his book Private Empire: ExxonMobil and American Power, Steve Coll recounts the circumstances surrounding the establishment of the Sakhalin-1 consortium with Rosneft:

Delays, arguments, and disputes over environmental issues, pipeline routes, and other subjects stalked Sakhalin-1 from its inception.

Under pressure, [ExxonMobil CEO Rex] Tillerson applied the Exxon formula: no surrender.  “We jacked this all the way to the top,” recalled one of his colleagues.  “We brought the issue up with the president [Putin] and we said, ‘Look, we have got the contract signed, we are doing everything we are supposed to do – here are the rules.  And these guys don’t want to follow the rules.  What are you going to do about it?'”

Putin offered to write out an executive order saying that Sakhalin-1 could proceed, but Tillerson refused.  Putin did not have enough legal authority to satisfy ExxonMobil; Tillerson said he did not want to operate by decree, but by durable laws.  Tillerson wanted to have “all the t’s crossed and the i’s dotted exactly according to Russian law and regulation, and if we couldn’t get it done, then we were not going to do it,” the former executive remembered.  Ultimately, after Putin “blew his stack” at ExxonMobil’s affront, the Russian president agreed.

This is clearly the more sensible approach, although I doubt forcing a change in the law to benefit a foreign oil company would be possible in Russia now, or anywhere else.  But the long-term interests of oil companies are probably better served by their insisting governments put in place attractive conditions to invest overall, rather than trying to obtain special favours on each project.

Not that complying with the law is necessarily a guarantee of being left to your own devices of course, as the Gazprom appropriation of the Sakhalin-2 consortium showed, not to mention BP’s travails in the country.  That two figures recently shoved in front of cameras cosying up to the Russian leadership and downplaying concerns are none other than Rex Tillerson and BP’s Bob Dudley suggests that, not for the first time, hope has triumphed over experience.  They might want to reflect on the words of Aidan Heavey, CEO of Tullow Oil, in response to the Ugandan ruling:

Tullow is very concerned by this ruling which ignores a contractual term signed by a Government Minister in Uganda. Tullow is Uganda’s largest foreign investor and a major taxpayer. Over the last 10 years, Tullow has spent $2.8 billion in Uganda and discovered 1.7 billion barrels of oil. This money was spent by Tullow on the understanding that our contracts with the Government, which contained important incentives to invest that were vital at a time when no oil had been discovered in Uganda, would be honoured.

My advice would be to trust these fuckers less in the first place.

Putting the Low in Local

I once heard a story that the people running a Nigerian refinery were so useless that they were unable to produce petrochemical products and so switched to making oil drums instead.  And this story turned out to be true.

The people in charge of Angola LNG seem to have found themselves in a similar situation, only on a far grander scale:

The Angola LNG consortium is looking to charter out its entire fleet of liquefied natural gas carriers after a recent pipeline rupture forced the new plant offline, according to a report.

One of seven vessels has already found a short-term charter, according to Reuters, which said the consortium has approached shipbrokers about the whole fleet.

It’s hard to describe how fucked up this is.  A consortium run by Chevron, who normally have a reasonably track record of project delivery, is reduced to renting out ships which it had hoped would be ferrying about LNG cargoes from one of its plants.  Presumably the company vehicle fleet is being used for taxi runs and pizza deliveries in Luanda.

The problems with the facility – engineered and constructed by the usually reliable Bechtel – are of epic proportions:

Angola’s $10 billion liquefied natural gas plant is expected to be offline for a “number of months” as repairs continue following a pipeline rupture on 10 April.

The Angola LNG consortium said it could not provide a firm restart date for the 5.2 million tonne-per-annum facility in Soyo, but Upstream understands it could be up to a year.

“A pipe connection at the plant failed, resulting in a hydrocarbon vapour release into the atmosphere,” a spokesman said in a statement.

“Further investigation continues but initial findings suggest that a number of actions will now be required.”

Yeah?  What sort of actions?

Sources with knowledge of the situation told Upstream that the plant could take up to a year to get online again, and nearly a third of the facility may need rebuilding work due to poor materials and design issues.

Jesus fuckitty-fuck!  A third of the plant needs to be rebuilt?  Glad it’s nothing serious!

People – me included – might wonder what the hell has gone wrong here.  How has Chevron and Bechtel combined to produce a fuckup of such magnitude?  And viewed in parallel with the equally fucked up Kashagan project, there are plenty of questions but not much by way of answers.  The oil companies are mumbling vague statements about “challenges” and “technical issues”, and the industry insiders are still trying to ascertain quite how bad the situation is.  I don’t think anybody has the resources, let alone will, to try to determine how things could have gotten this bad.

There are several reason why projects can go so badly wrong, mostly involving piss-poor management at one or several stages of the project leading to poor technical decisions and the unsatisfactory performance of contractors, either one of which will leave a project miles from completion with the budget blown.  Now I don’t know what has caused the problems at Angola LNG, but regardless of the exact cause there is an elephant in the oil industry living room which management dare not mention: local content.

“Local content” is the industry term for the legislation in force in many developing countries which requires an operator to hire locals in its workforce and utilise local services such as engineering and construction contractors, and local suppliers.  Most of the time quotas are imposed, and those quotas have gradually been increasing.  Brought in to ensure that local people and companies take part in the activities of an oil company thus transferring knowledge and creating markets, employment, and other benefits, the theory behind the laws is sound enough.  Even this skeptic would think something is amiss if a major project was executed in the developing world using imported labour and materials and no benefits were transferred to a local population who are in desperate need of an economic boost.  Such a situation would understandably cause resentment among the locals, some of whom would be tempted to turn to violence.  Resentment from the locals at their perceived disadvantages vis-à-vis foreign workers was the root cause of the clashes between native Kazakhs and Turkish workers in Tenghiz in 2006.

The problem is, as with so many well-intentioned initiatives in the developing world, in many cases the system has become utterly distorted and actually does the opposite of what it is supposed do, i.e. it prevents a country or region developing as much as it should.  The reasons for this are simple: most countries with local content legislation are backward, underdeveloped, and poor.  To varying degrees depending on the country, this state of affairs is brought about by corruption, greed, nepotism, and a culture of callous neglect by the ruling elites.  Quite unsurprisingly, these ruling elites apply the same characteristics to the local content legislation with the following results:

  1. Favourable positions in oil companies are awarded to those who are politically connected, who in turn employ members of their family and friends.
  2. The politically connected, often those who oversee the implementation of the local content legislation, form or obtain interests in businesses which are then put on a shortlist of approved local suppliers.  Locals within oil companies do the same thing, and award themselves contracts.
  3. Local workers or companies without connections in the company often find themselves frozen out, regardless of ability or competence.
  4. Many local employees who know that prevailing legislation requires their continued employment take full advantage to do absolutely fuck all.
  5. Many local suppliers who know that prevailing legislation guarantees contracts for goods and services have no incentive other than to deliver absolute shit, hopelessly late, and ludicrously overpriced.
  6. In order to maintain a percentage quota of locals, oil company departments are overstaffed with 20 locals doing what 3 could do quite adequately.

The knock-on effects of this situation are many, almost all of them negative, and I shall not go into each of them now.  But I will say two things.

Firstly, local content legislation usually results in direct and indirect cash transfers running into the millions of dollars from oil companies to the host country’s ruling elite, who are usually already fabulously wealthy.  I mention this simply because it is absolutely scandalous, and I will likely return to this subject in future.

Secondly, the oil companies are often forced (to a point) to accept designs, constructions, materials, and equipment from local contractors and suppliers which are inadequate, non-compliant with technical standards, and dangerously unsafe.  For this, they are charged two, three, sometimes four times what they could get it done properly for in Houston or Aberdeen.  If the oil company protests, the governmental authorities in charge of implementing local content legislation will simply tell them that it is their responsibility to “assist” the local contractors in bringing their work up to standard.  Given any corrective works are also subject to local content legislation – meaning they would likely have to use the same company that fucked the job up in the first place – the oil companies, with one eye on the projects schedule or production profile, just press on regardless with whatever has been delivered.

Yes, this happens: major western oil companies knowingly install defective equipment into defective, unsafe designs in the developing world because they are practically forced to by local content legislation.  Even more often, to the point it is routine, they do so unknowingly.  In the past decade or so, local content requirements have been ratcheted up relentlessly at the same time the developments have become more and more technically challenging.  This is only an opinion, and it is backed by no evidence whatsoever, but I have an inkling what we might be seeing here on Angola LNG and Kashagan is the predictable result of local content policies: poorly engineered and constructed facilities which reveal themselves to be dangerously unsafe when started up.

If I’m right, the oil companies have a major problem here.  Eager not to upset host governments, and desperate to gain access to their coveted reserves, oil companies have accepted increasingly unrealistic local content requirements while expressing confidence in their ability to manage them which is demonstrably misplaced.

I write this post mainly as an introduction to the issue of local content, which will likely feature in future posts.

Ivan’s Ambitions

Earlier this week the main story in the news was that of a $400bn gas supply deal made between Russia and China.  Most of the media was seemingly awestruck by the magnitude and the much-vaunted (by those making it) significance of the deal, and social media went wild with Russians congratulating each other and making derogatory remarks against the US and Europe.

The western media are not the best at intepretting what goes on in Russia to put it mildly, and Russians – or at least, a significant majority of them – unwilling or unable to question anything which might shake their belief that Russia’s return to greatness is just around the corner.

Regarding the actual deal, the fact that it is being simultaneously trumpted as excellent for both parties yet details kept secret speaks volumes.  Anyone who believes that Putin, under considerable pressure following his escapades in Ukraine and the resulting sanctions, and looking for all the world like returning from China empty handed, was able to extract a favourable deal in the early hours of the morning from the Chinese of all people is either stupid or quite deliberately deluding themselves.  A blogger calling himself Streetwise Professor has written a good post detailing why the headline announcement should be taken with a pinch of salt, particularly with regards to the paucity of details as to how the price will be indexed, and a comment thereunder sums up nicely what I suspect has happened:

If you want to understand the gas deal, look at the Chinese-Venezuelan energy vassal model. The Venezuelan oil deal was also political rather than commercial, Chinese up front ¨loans¨for infrastructure turned out to be tied to Venezuela single sourcing work and supplies from Chinese contractors, a large part of the ¨payment¨ is actually made up of Chinese barter goods and services at inflated prices, giving China a effective backdoor discount on the headline price. But it was worth it to Chavez so that he could still claim he was freeing Venezuela from the depredations of the ¨evil empire¨. It is no coincidence that on the deal day Russia announced a series of ¨unrelated¨ lucrative no-bid infrastructure contracts in Russia to the Chinese rather than to the usual local suspects. Look to see how much of China`s now redundant construction sector ends up pouring cement and laying pipelines in Siberia rather than building ghost cities back home to understand the actual ¨price¨.

For all we know, the deal might allow for the first cubic metre of gas to be sold at the European rate and the rest thereafter sold at 5 cents.  In other words, we are completely reliant on the few individuals involved in the deal to be telling the truth that this deal is good for Russia, and they haven’t simply decided to accept unfavourable terms out of desperation to be able to return to Moscow in triumph.  It doesn’t astonish me the degree to which educated Russians accept all of this at face value because we have seen this before, but it does make me wonder if they will react with the same childish display of hurt, betrayal, and injustice that we’ve seen on previous occasions when the Russian public finally realise their leaders have been fucking them over for years.

The irony is that much of Putin’s resource nationalism was driven by the feeling that the Yeltsin government did murky deals with western oil companies from a position of weakness, and in hindsight Russia was being exploited.  When Putin finally goes – either through natural causes, after a peaceful transition, or suddenly one night during scenes of chaos and confusion which is the normal method by which leaders exit in Russia – what’s the betting that a future government will decide that Putin et al. agreed to terms which are clearly not in the long term interests of Russia (along with the announcement that he wasn’t actually authorised to make them, hence the contracts are illegitimate)?   This wouldn’t be the first time a former Russian president is castigated as bordering on traitorous and the incumbent government decides they want to engage in a spot of a historical (and contractual) revisionism.  What would be very interesting is, if and when this time comes, whether the relative positions of Russia and China in the global power games will allow them to do much about it.  There is a big difference between bullying a western private oil company and a Chinese state company.

But what’s equally interesting for me is the degree to which Russians have accepted that their place in the world, and their future, is that of energy supplier to a neighbour which is advancing and industrialising at an astonishing pace.  It is looking as though China will outstrip Russia in the technological and commercial stakes before too long (if it hasn’t already), and Russia seems content to supply them with the energy to do it.  Now there is nothing wrong with Russia supplying energy to China per se, but of all the problems Russia has – and it has many – a lack of hydrocarbon revenue passing through its state-owned companies is not one of them.  On the contrary, Russia’s enormous oil and gas revenues have held back other sectors from development, and a supply deal of this magnitude will further consolidate the economy around oil and gas at a time when they should be moving in the opposite direction and diversifying the economy.  As with most net exporters of oil and gas, the money has allowed the Russian government to defer the reform of critical institutions (such as the court system) and the economy.

Don’t believe me?  Can you name a single consumer product of Russian origin which is desired and exported worldwide?  Other than perhaps the odd piece of computer software and Russki Standardt vodka, I can’t think of anything that is not a work of art or literature dating from Tsarist times.  For a country which contains so much technological expertise as Russia (really, the engineers, scientists, and mathematicians are superb) it is damning that their chief exports are raw materials and bags of dodgy cash.  The Russian government obviously realises this as every few years we hear about some new technology park or development initiative which they promise will be exempt from the normal bureaucratic bullshit and corruption which kills most Russian business ventures at birth, but ultimately go nowhere.  The reason for this is simple: the bureaucracy and corruption in Russia is as much a feature of the country as the snow and the vast distances, and cannot be eliminated on the whim of a politician – even supposing he is sincere.

Nevertheless, Putin isn’t giving up:

Russian President Vladimir Putin is to create a fund to invest in local production as he seeks to reduce his country’s reliance on Western imports.

Mr Putin said in a speech that Russia would cut its dependence on energy exports and pledged to boost major domestic banks and industries.

So Russia is going to cut its dependence on energy exports by signing a massive, 30-year deal to supply gas to China, and invest the money in “local production”.  Right, and how is that going to work exactly?  Of course, the money – even if we believe the headline rates – will be filtered through the hugely inefficient state-run Gazprom, before being diligently managed and distributed by an organisation headed by one of Putin’s cronies who of course will resist the temptation to spend it propping up his mates’ failing, decrepit factories producing stuff nobody wants.  Uh-huh.

Analysts said he was trying to persuade the international community that Russia’s economy could survive alone.

Didn’t the Soviet Union try that for 70 years?  How did that work out, again?

Russia imports a lot of technology, especially in oil and gas exploration, and relies on access to finance in the West.

There’s a reason for this.  Despite Russia possessing easily enough brainpower to become a technological powerhouse, the dearth of basic management skills (to the extent few captains of Russian industry respect a contract if a clause is proving inconvenient) coupled with stifling bureaucracy and corruption ensures Russian businesses – with the exception of the mobile phone companies and one or two rare exceptions – remain laughably inept, providing goods and services which Russians avoid at all costs and bitch mightily about when they can’t.

Even Gazprom, which promotes itself via sponsorship of the UEFA Champions League as Europe’s leading energy provider, operates Soviet-era gas fields using ancient technology and crumbling infrastructure.  Its flagship facility, the Sakhalin 2 LNG plant, they appropriated immediately after it was completed by Royal Dutch/Shell.  Their most impressive recent projects involve the laying of pipleines: which is fine in itself, but surely the national champion of Russia – the country that gave us Mendeleev, Sputnik, and the Mig-29 – should be doing something a bit more advanced than laying pipelines and pumping gas?

And this is what is most strange about prevailing Russian opinion.  Whilst China is developing (or at least copying) modern, industrial techniques and impressing the world with the speed at which it is grasping concepts and methods previously found only in the west, Russia sees its future as a regional gas station.  I can understand African and Asian countries trumpeting energy supply deals as such agreements often represent genuine industrial advancement compared to, say, 30 years ago.  But how does this deal between Russian and China represent an advancement for Russia, other than as a potential source of yet more revenues which will be largely squandered with what remains ensuring other areas of the economy remain undeveloped?  Russia has been supplying enormous quantities of gas to Europe for 50 years; now, after decades of trying to do what American executives achieve in a normal working day, they’ve managed to agree a price to do the same for the Chinese and we are expected to quake in our boots at the rise of Russia?  Seriously?  And if you speak to Russians about why they are so confident that they will be taken seriously as nation, the first thing they mention is this gas supply and sometimes they even mention their lumber industry. I don’t think I’ve heard anyone talk about the importance of forestry in an economy since high school geography.

Many people in Europe and American have spent the past two months issuing dark warnings about Russia’s ambitions.  I’m of the opinion the real concern is that they seemingly have none at all.

Cash-All-Gone

There appears to be no date in sight for a restart of the giant Kashagan project offshore Kazakhtsan, which started up in September last year following 12 years of engineering and construction only to be shut down almost immediately, then restarted and then again shut down a few days later and left that way until now.  The most optimistic are hoping that it starts up sometime this year.

The Kashagan project is extremely complicated and technically challenging, not least because the field is extremely sour, i.e. has a high concentration of H2S, which they are reinjecting at considerable pressure.  The news reports have stated that the shutdowns were caused by leaking pipes, and the rumours say that H2S was detected over a kilometre from the main export pipeline.  Further rumours say that the material selection is completely wrong and much of the mechanical equipment has not been rated for sour service.  Even if the rumours aren’t true, this is a fuckup of epic proportions.  Not that anyone should be surprised.

Several years ago I made a trip to Atyrau for some work on the fringes of the Kashagan project, and I got talking to a manager working on the project.  This was back in the days when Agip KCO, a subsidiary of the Italian oil company Eni, was managing the engineering and construction as operator of the project.  In 2009 the Kazakh government, unimpressed with the progress to date and concerned about the colossal overspend, reorganised the whole consortium and stripped Eni of the operatorship by forming an operating company, North Caspian Operating Company (NCOC) made up of the consortium members (including a 17% stake held by a government-owned company).  Nobody is sure why the Kazakhs originally awarded the operatorship of Kashagan to Eni/Agip in 2001 when there were larger and more experienced oil majors in the consortium, but the rumour is that none of the majors wanted to see a rival operate it, and so it fell to Agip KCO.  This decision proved to be costly, and the Kazakhs and the consortium members – those who are still in, several wisely sold out – are still paying for it.

The guy I spoke to in Atyrau back then told me the contracting arrangement in place on Kashagan was “like a plate of Italian spaghetti” – you had no idea where one contract started, the other finished, and who was reporting to whom.  When I dug around I found his description was apt.  Saipem – which is a subsidiary of Eni – was awarded an enormous chunk of pipeline work in 2004 worth $520m, then another contract for $286m in 2005, and then another worth $1bn in 2009 just before its parent company was relieved of operatorship.  Meanwhile, Saipem was busy subcontracting work to another Italian company called Snamprogetti, which it also happened to own.  Then there was another company in the mix called Bateman Kazakhstan Oil & Gas Company, headquartered in the Netherlands, about whom nobody knew anything.  They appeared to have come from nowhere and disappeared just as quickly, leaving almost no trace on the internet such that a Google search only yields brief mentions on LinkedIn profiles and subcontractor client lists.  I heard said that Snamprogetti was subcontracting work to Bateman who were then subcontracting works to Saipem.  In this merry-go-round not much was getting done but plenty of money was being spent and/or creamed off.  Most estimates put the expenditure on Kashagan to date at $50bn, some put it as high as $116bn.

Alongside the Italians were the Kazakhs, whose laws, local content requirements, and visa restrictions probably did as much to inflate the costs as anything.  It doesn’t take much imagination to come up with a scenario whereby certain Italians and Kazakhs found themselves able to “help one another” on Kashagan.  Eventually when the cost overruns and delays became too much for the Kazakh government in Astana, they reorganised the consortium in a manner which gave the majors greater participation in the execution of the works.  At least one of them saw this as a golden opportunity to give hundreds of largely useless staff employees who had recently demobbed from a large project their next assignment occupying desks on hefty salaries. Cash-Again some of them called it, and one particular individual, whose previous assignment had seen him preside over no less than 10 fatalities, was put into a senior HSE position.

I don’t think there is any party that has covered itself in glory on the Kashagan project, and that it has wound up as a giant clusterfuck should come as a surprise to nobody.

I said scaffold, not gallows.

I have a buddy – let’s call him Alf – who used to run a scaffolding company in a somewhat backward country which, like so many of them, had stumbled across a whole load of oil and gas and had little to no idea how to get it out of the ground safely.  As such, a large western oil company had been invited in and subsequently built and operated a plant in the middle of nowhere (and they’re still there).  Alf did pretty well for himself providing scaffolding services to the oil company in another part of the country, and for this reason he received a call from one of the senior managers of this remote plant.

They had just suffered a fatality, which occurred as follows.  A crew working for the maintenance contractor, a local company, had constructed a mobile scaffolding tower some 100ft high and attempted to move it with somebody on the top.  The thing collapsed, killing the guy who was still on it.  Alf told me that mobile scaffolding towers are only supposed to be used for light works (changing a lightbulb, for example), to a maximum height of 15ft or so, and never moved with somebody on it.  The root cause of this fatality was therefore a basic lack of scaffolding knowledge on the part of the people the oil company had employed to carry out their scaffolding services.  Hence the phone call to Alf.

Following the normal introductions and a brief description of what had occurred, the conversation went as follows:

Alf: Okay, I can get one of my senior scaffolders over in the next couple of days, meet with your maintenance guys, get an idea of your scope of work, and come up with a proposal of how many men you’ll need and how much scaffolding gear.

Manager: Oh.  Well, we don’t actually need you for that.

Alf: No?  Then what do you need us for?

Manager: Well…we cannot change the contractor…so instead, when they have to do a critical scaffolding job, we want one of your inspectors to come over and sign it off.

Alf: Huh?  So let’s get this straight.  You have hired an incompetent company to do your scaffolding work and they’ve killed somebody.  And rather than get rid of them – which you are either unwilling or unable to do – and bring in an outfit which knows what they’re doing, you want to carry on using this bunch of incompetents only get us to endorse what they’re doing?

Manager: Yes.

Alf: Fuck off.

Alf told me another story.

The same major oil company in the same country but on a different site had hired a local construction contractor – in some ways a direct competitor of Alf’s – to do a load of work.  But when they came to begin, they realised that their scaffolders didn’t know what they were doing.  In fact, they didn’t really have any scaffolders at all, just a bunch of folk trying to put various tubes and fittings together in a manner that would remain upright.  Alf subsequently got a phone call from a manager in the oil company which went as follows:

Manager: Hi, we’ve hired a construction company but they don’t have any scaffolders.

Alf: I’m listenin’.

Manager: Okay, so we were wondering if you offer scaffolding training courses and whether you would be able to train some of these guys?

Alf: Why the fuck would I train my competitors?

Alf told me another story.

The same major oil company in the same country but on yet another site had hired a construction contractor to carry out some work.  Alf had previously approached the company for the scaffolding element of the work, but had been told there was no requirement for his services because the construction contractor would take care of all that.  Only when the construction contractor brought all its scaffolding equipment onto the site, it was immediately condemned by one of the HSE reps who had noticed that what wasn’t bent was rusting, and none of it complied with the company standards.  A short while later, Alf got a phone call from a manager in the oil company that went as follows:

Manager: Hi, we have a construction contractor on site who is supposed to have proper scaffolding equipment but doesn’t.  What he’s brought is only suited to put around potholes to stop people falling in them, that sort of thing.

Alf: I’m listenin’.

Manager: So, we were wondering if you could rent some of your scaffolding material to them?

Alf: Well, we don’t really rent scaffolding.  We provide a scaffolding service, which includes the manpower.  We wouldn’t even cover our overhead costs in renting scaffolding, it’s only worth doing if we supply the scaffolders as well.

Manager: Sorry, we don’t need the men, just the scaffolding.  The company has the men already.

Alf: Hmmm. Now, I did tell you this would probably happen six months ago when I came to see you, didn’t I?  And you shoved me out of your office telling me that this bunch of clowns you’ve just hired would be taking care of everything.  Yes, that worked out well, didn’t it?  So, I can provide you with the full service or nothing at all, because I’m not in business to hire my equipment to competitors who haven’t bothered investing in their own.

Alf told me another story.

He was undergoing a site induction for a major oil company – not the same as the one in the previous stories – and was told that the use of homemade ladders on the construction site was strictly forbidden.  Alf leant back on his chair to look out of the window and get a better view of the homemade ladder which was running up a roof on a building fifty yards away.  Alf got the attention of the HSE rep giving the induction:

Alf: You mean homemade ladders like the one on the roof out there?  What’s that doing there, then?

HSE rep (clearly embarassed): Ah yeah…that’s pretty shit, isn’t it?  Thing is, that’s done by the local construction contractor and we don’t really have much control over them.

There are two things to note here:

1) Major oil companies routinely accept less safe, unsafe, and dangerously unsafe practices in order to comply with local content legislation.  Rarely, if ever, does a local company get ejected from a bidders list or chucked off a site for having a poor safety record.  Instead the oil company tries to patch up the competence gaps as best they can and hope nothing goes wrong, or they just ignore them – and hope nothing goes wrong.

2) Managers in major oil companies usually have no business or commercial sense, experience, or knowledge whatsoever.  There is no incentive whatsoever for a scaffolding company to sign off somebody else’s construction, train a competitor’s personnel, or rent out material to them, and the first one comes with an enormous liability risk which nobody in their right mind would entertain.  Yet in each of the first three cases, the oil company manager was genuinely annoyed that Alf wasn’t “willing to help”.  As if he’s the Red Cross.

More on both of these subjects later.