Richard Howe interview: We work hard on staff development and nationalization

Richard Howe

Under Managing Director Richard Howe, NCOC has become one of the most effective and transparent oil and gas companies in Kazakhstan. Thanks to Richard Howe for the interview in which he spoke about the goals of the company and the achievements gained during his tenure.

What is the current situation with COVID-19 on the company’s project? What measures are being taken at the moment in order to preserve the lives and health of workers, and at the same time continue the production processes of the project?

When I think about last year, I’m really proud of the way that NCOC endured COVID-19 and cared for our people.  Our team performed extraordinarily.  The leadership team activated a “crisis management team” in February 2020 and we took some bold actions, early, that substantially blunted the impact of COVID-19 when it came to Kazakhstan.  Over the last year, we were able to effectively control the spread in our operational sites, with no severe health outcomes and avoided large-scale demobilizations.  We had no major safety incidents, no interruptions to production, no layoffs and no labor unrest. 

In fact, our 2020 delivery set all-time records across several performance indicators.  All of this success was enabled by superb partnership with the PSA, Ministries of Energy and Health, the Akimats of Atyrau and Mangistau, and the NCSPSA Shareholders.  So we are really thankful to them.  Regarding what’s happening today, at the moment we have at least three layers of virus testing in place for all frontline staff, including our contractors, plus a quarantine period before going to the front line.  That means every person is tested at home before they come to Atyrau, then before going to the onshore or offshore processing facilities, and again at the end of their rotation before going home.  And on top of that, we do spot testing for suspected cases where our staff might have questionable symptoms.  There are many other mitigations we have in place – too many to mention here – but when all the elements work together, the strategy has been ridiculously successful.

Please tell us about the status, plans and timing of the full-scale development of Kashagan. What opportunities are there for local companies in this regard?

The full-scale development story at Kashagan is really beginning to accelerate.  It’s a story that has taken a long time to get support, and we are still not completely there yet, but today we are closer than ever.  For example just last year NCOC Shareholders approved “final investment decision” for three major projects: an offshore compressor expansion, a new water processing plant onshore, and a commercial deal for gas processing. 

All of these projects will be executed over 2021-2022 and will lead to an increase in ecologically responsible production volumes of about 40-50 kbo/d.  In addition, as of early March, NCOC has submitted our “Field Development Plan” to the Ministry of Energy which demonstrates growth potential within Kashagan field over the next one hundred and thirty years.  Negotiations regarding Phase 2 of Kashagan are ongoing.  The first two parts of the Phase 2 work (“2A” and “2B”) will add about 250kbo/d to our production before the end of this decade, and hopefully much sooner if we can find acceleration options that are economically attractive.  Kashagan is definitely going to be a bright spot of investment for many future decades if we can get the right economic conditions in place.  This development, plus our commitment to creating in-country value and local content, means lots of great opportunities in the future for Kazakhs and local companies.

Please tell us what kind of support is being provided to the local community in this regard?

Today, and for many years, we are spending an average of $50mln/year in “social investment projects” and an average of $550mln/year on locally manufactured products and services.  The level of NCSPSA investment in community projects will increase substantially, proportional to the capital investment of new development projects. 

Notably during the 2020 pandemic (and continuing into this year as well) NCOC has supported our communities via construction of three hospitals, the purchase of enormous amounts of medical equipment and services, and donation of 1200 hundred fully operational computers and educational materials to support virtual schooling.  In all, over the last 20 years, we have contributed more than $800mln in SIP and sponsorships alone.  And of course beyond all this we pay taxes and part of the oil production directly to the Republic of Kazakhstan. 

What is the role and obligations of the company in the process of organizing the International Center for the Development of Oil and Gas Engineering? What are the expected results of this work?

NCOC, as a major operator along with TCO and KPO, signed an Agreement on Intent last year to set up an “International Centre for the Development of Oil & Gas Machinery Building.”  The main principals for the center are to enhance competitiveness of Kazakhstan manufacturing companies, to develop new local goods manufacturing capabilities up to international standards, and to study the possibility to align technical standards and specifications across industry.  

The founders of this Centre (including NCOC) will make an annual financial contribution to fund operations, provide expertise, and assign staff experts to help.  Eventually our goal is to increase opportunities for the manufacture of goods for the oil and gas industry within the Republic of Kazakhstan, some of which are currently being imported from abroad.

Please share about the company’s achievements to develop local content under your management.

This is a pretty good story and one that we are proud of.  Last year, NCOC achieved its highest percentage Local Content in the past sixteen years.  55% of all of the goods, works, and services purchased by NCOC came from Kazakhstan.  This is more than half a billion USD and it is far beyond our contractual obligations.  We will continue to work to increase local content even further. 

Why?  Because it’s a classic “win win.”  It’s expensive to bring in foreign goods and services.  So, while we are developing Kashagan, we also have an opportunity to also develop capabilities within the Kazakhstan labor market and manufacturing sector.  If these capabilities improve to the point that they meet NCOC specifications, then we can (and should!) shift more procurement to those Kazakh providers.  In this way, our Local Content strategy strengthens the economy of Kazakhstan and strengthens NCOC economic competitiveness at the same time.

How is the digitalization of the company’s internal processes progressing, especially in connection with the current situation of the pandemic?

The NCOC “2030 Digital Vision” is about deploying proven digital solutions and technologies (not creating new ones), with digital capabilities to support NCOC to maximize the value of every barrel and become a leader in safe, reliable and cost competitive operations.  Digital technologies will support NCOC in achieving its goals through three strategic themes:

Health, Safety, Security & Environment: reduce higher risk human activity and risks to the environment through automation and digital tools

Operational Excellence: realize the full potential of asset performance through automation and better decision-making by harnessing NCOC data more efficiently

Integrated Supply Chain: transparent end-to-end optimized processes with routine tasks automated and supported by a competitive local supply chain

What are the results of the development of the competencies of local specialists, both NCOC and decent companies? What work is planned in this direction?

We work hard on staff development and nationalization, and the results of that effort are clear.  NCOC contractual and legal requirements for nationalization are 70% in senior leader categories and 90% for all other jobs.  In reality, today we are at 85% and 96% respectively.  How are we doing it? 

1. People Priority One – Actively Manage Performance of all staff.  NCOC has built a “Performance Management Framework” that gives simple, clear expectations for every member of our team, linked to the overall Company Objectives, and the Individual’s Development Plans that capture any competency gaps identified from their formal assessment.  

2. People Priority Two – Build Capability. To support career pathways and continue to build capability, an NCOC “Competency Assurance Framework” was implemented to standardize how NCOC defines competence requirements for all jobs and we assess our people against those requirements. 

3. People Priority Three – Develop Future captains. Competencies are linked to the business through the succession process, where the performance and competency assessments enables line managers to identify likely successors for all the key positions within NCOC, shaping our planning for Kazakh successions including positions occupied by our Expatriates. 

What projects does NCOC plan to implement by 2025?

As I mentioned before, we have three big projects that were sanctioned last year.  Those will be finished by the end of 2022.  In addition, we have a major turnaround scheduled in the second quarter of 2022 that includes more than 2500 individual maintenance, inspection, and small project activities.  I expect that we will see more than 6000 people working inside our facilities during that time. 

Of course there is also the dilemma of the falling sea level in the northeast part of the Caspian.  This is a major problem for us because it means that occasionally our marine vessels cannot access the offshore islands.  As Caspian levels drop, marine logistics disruptions are happening more and more often.  Our vessels carry people, food, machinery parts, waste materials, project supplies, etc.  And if we can’t move those things, then we can’t operate.  So it’s a fundamental threat to production and to cost.  If we can’t solve this, then we shut down production.  It’s pretty simple.  Also, if the cost to manage this threat is too high, we will see the same consequence. 

If that happens, all our wonderful plans for Kashagan development, community support, local content, employment, etc. will disappear.  Therefore our solution must be both technical and economic.  The good news is that NCOC has designed a near-term solution which involves dredging some relatively shallow shipping lanes between our onshore supply base and the offshore islands.  This dredging project will start in Spring 2021 and continue for a couple of years beyond that.  This isn’t a “forever” solution, but it will allow NCOC to continue producing oil and building projects for the next few years while we design a longer-term answer to this Caspian problem.

In your opinion, what NCOC could plan to achieve in next 2 years?

The first thing we need to achieve in the next two years is to preserve the current world-class level of performance in safety and production stability.  With regard to protecting our workers’ safety, and avoiding hydrocarbon leaks and emissions, today we are ranked among the very best assets in the world.  This is something precious and it should be defended with vigilance because nothing is more important than caring for our people.  Similarly, our production reliability is in the top ~10% of all similar assets globally.  Today’s story of excellence in safety and production is a substantial improvement from the negative stories in our past. 

We need to hang onto that.  In terms of further achievements, it’s about two things: cost and development.  In the next two years, we need to get our operating cost per barrel down and we need to commit to real development plans.  Regarding operating cost – NCOC has made substantial improvements in recent years but we are still pretty expensive.  Part of this cost is justifiable: we work in an offshore arctic environment, with falling sea level, and we have complex onshore assets as well.  The reservoir is technically challenging. 

Local competitive markets are still evolving.  We have only been onstream since 2016.  That list goes on…and it’s legitimate.  But we can’t use that list as an excuse.  NCOC has good opportunities (and obligations) to reduce cost with more competitive tendering, eliminating bureaucracies, getting smarter about scope decisions, improving leadership competencies, and spending more time on post-award contract management.  Overall, the tendering process is unnecessarily difficult and that needs to be improved for higher speed and lower cost. 

If we aren’t successful at that, we will destroy value and Shareholders will slow down (or stop) developments that simply aren’t economic.  Regarding development commitments: this was mentioned earlier but I think in the next two years, if the cost reset is handled successfully, we should be able to make some firm statements about development of Phase 2, pending agreement with the Republic of Kazakhstan and our Shareholders.

Can you share about your experience about managing one of the biggest offshore projects? What challenges you faced?

Professionally I have managed offshore businesses before, having supported assets in the Gulf of Mexico (US), Malaysia, Nigeria, and Brazil deep water throughout my career.  I’ve also had lots of exposure to the UK and Norwegian assets in the North Sea.  But working offshore in Kashagan is fundamentally different.  Here we have extreme heat, extreme cold, thick ice, a very delicate ecological system, and shallow water levels (getting shallower every year). 

In many ways, it is easier to operate in 3000 meters of water than in 3 meters of water.  The coronavirus has added a further layer of complexity to our operations.  Also we have some unfortunate events in our past that create sensitivities with communities and government.  People have long memories, and we usually remember the bad things longer than we remember the good.  It’s not fair, but it’s a fact.  So NCOC has a tremendous obligation to perform with excellence offshore in all regards, and our margin for error is small.  I’m proud to say that our teams have honored these responsibilities and attacked the challenge with a spirit of ambition, unity and innovation.

Under your management NCOC became very open and transparent to local businesses and community, do you think that NCOC will be committed to follow this policy?

Actually yes.  I think that openness and transparency was easier after Kashagan came onstream and stabilized production.  It’s easy to understand taking a more cautious external approach when we were dealing with our own internal problems.  But today we understand that NCOC needs great connections with our communities, contractors, government agencies, NGOs, shareholders, other operators, etc. in order to be successful.  So we have been taking that approach and I expect it to continue. 

In fact, under Olivier’s leadership which starts this Summer, I think openness will improve even further: he has deep global experience, including in Russia and Kazakhstan, has an excellent network, and personally I can say that he has strong values and a high degree of integrity.  You can look for the doors of NCOC to stay open.

Can you tell more about your new role? What are you planning to deal with?

After leaving NCOC, I will go back to my parent company Shell.  The new role is called Senior Vice President within Shell’s global Upstream business and it’s based in Houston, Texas, USA.  My responsibilities will include leading the competitive transformation called “Reshape” inside Shell.  The key areas of focus will be embedding the recent organizational changes in Upstream, improving performance in the asset portfolio, driving operating cost reductions, and helping to frame our development choices in the context of “energy transition” to Shell’s net zero carbon footprint commitment.  It will be a challenging corporate role and quite different from the day-to-day responsibilities of NCOC.  I’m looking forward to the challenge and opportunity to learn.

What is your impression of working in country like Kazakhstan?

The simple answer is that I hate to leave.  Four years ago, in the summer of 2017, I didn’t know what to expect from Kazakhstan.  I had never visited before.  I read lots of books about the country before arriving but still didn’t really know the realities of living and working here.  My parting impression of Kazakhstan is that the country is so full of potential.  It’s ripe with opportunity.  Kazakh people in NCOC are amazing: warm, smart, and motivated.  More broadly, Kazakhstan has national independence, strategic geopolitical positioning, and abundant natural resources.  It has a deep culture, genuine spirit of hospitality, and a strong base of entrepreneurship.  Of course nothing is perfect and Kazakhstan also has some challenges.  But my overall impression of Kazakhstan is quite positive.  The country is at a watershed moment, with positive inertia, and it has the chance to become a much stronger player in the region and in the world.  And so I look forward to come back in the future – both as a business leader and a tourist!

What would you like to wish or advise to the industry?

My only advice would be “Non desistas, non exieris” or “Never give up, never surrender.”  More and more it seems like the oil industry is not very popular in the media.  But Oil Professionals like you play a crucial role in modern society.  If hydrocarbons disappeared tomorrow, quality of life would look very different – and not in a good way.  Ordinary people would suffer.  Think about the consequences on health care, personal mobility, food production, home heating and lighting, textiles, and electronics.  It would be catastrophic. 

There are thousands of modern supply chains that depend on hydrocarbons to survive.  The global economy is an engine, and today our engine cannot run without oil.  So to those in the industry I would say: remember that you play a key role in keeping the world’s lights on.  Be proud of that.  Don’t run away from it.  Yes – we have a solemn responsibility to always improve our safety and environmental performance, including transitioning away from oil & gas combustion-based systems.  The health of our planet depends on that transition. 

We must take that seriously.  But those technology substitutions will take time, and meanwhile oil professionals will help to keep society running as the transition happens over the next few decades.  You sit at the intersection between future ambitions and current realities.  So be proud of what you do and confident in the way we support society, and never give up!