This refers to the back-to-back reports titled ‘The Destruction of Pakistan Petroleum Limited-I’ and ‘The Destruction of Pakistan Petroleum Limited-II’ written by Hassan Naqvi that were published on ‘Surkhiyan’, on June 23 and 24, 2019, respectively.
Before presenting a point-by-point response to the false claims (According to PPL) made in the reports, it should be made clear that both are clearly engineered with an aim to glorify the 2015-2018 tenure of Former Managing Director Syed Wamiq Bokhari (SWB). Therefore, the reports do not seem to be the work of the person whose byline these articles carry, according to PPL.
Moreover, the content comprising the reports has only rhetoric with zero information or news value.
Finally, the following response uncovers only some of key mistruths in the reports to indicate that how false claims have been presented as fact in these reports.
The reports start with the misleading claim that the MD’s recruitment in 2014 was transparent. Let us look at the series of events at the time to reveal the fact. SWB’s name was neither onthe long listof 9 candidates nor of the short list of 6 candidates as finalized by headhunting company Grant Thornton on January 19, 2015, just four days before the interviews were to start on January 23, 2015. Rather, it was in the evening of January 21, 2015 that his name was inserted among the list of candidates to be interviewed, due to high-level political intervention that also gave him a clear edge over others.
Moving on, the reportspraise the changes made during the former MD’s tenure of 2015-2018 to highlight that his actions provided a momentum to an organization that had become complacent. Then MD did introduce several changes but almost all of them were focused on strengthening his position without any consideration for the company’s long-term profitability or employee morale and well-being. During the three-year duration of his initial contractual tenure, which was extended for another six months following his formal farewell hosted by the company, he also sought quick fixes to gain maximum advantage.
The impression conveyed in the reports is that the former MD revived the company to focus on the E&P business. However, the on-ground facts present a different story for a company that continued to have a glorified legacy of a century before the former MD was inducted in 2015. To this end, it is important to note that the company was already striving hard to expand its core business long before the era of the former MD began in 2015.
Let’s begin with highlighting the facts about the core business operation of the company prior to 2015. The continuous increase in the company’s exploration portfolio is a case in point. In December 2007, PPL had 8 company-operated and 12 partner-operated blocks, which increased to 27 company-operated and 18 partner-operated blocks, including the acquisition of 24 operated blocks following the 2009 and 2013 bid rounds. Currently, PPL has 28 operated and 18 partner-operated blocks, including two recently granted company-operated blocks won in the bidding round in November 2018. In addition, one operated block as well as farm-ins in two partner-operated blocks are also in the process to be granted. Overall, it is important to note that post-2013 bid round until November 2018, which includes three consecutive years from 2015 to 2018 of former MD’s tenure, only one operated and four partner-operated blocks were added to PPL’s exploration portfolio. During the November 2018 bid round, PPL managed to bag 3 additional blocks, two of which are already granted.
The reports claim that the former MD’s tenure saw the drilling of 70 wells at an average of 23 wells per year. Here it is pertinent to mention that as per standard industry practice, it takes about 3 to 5 years to mature drilling prospects after acquisition of an exploration block. For blocks acquired by PPL during the 2009 and 2013 bidding rounds, drilling began in 2012-13. And the company had already drilled 20 exploratory wells, leading to 11 discoveries, two years prior to joining of the former MD in 2015. An additional 22 exploratory wells were drilled in the first two years of the then MD’s tenure (2015-2018) due to ongoing seismic efforts that began much earlier. The paced-up drilling during 2015-2018 largely focused on increased development drilling in depleting fields to enhance production in the short term, primarily to fulfil the Key Performance Objectives given to the former MD which were linked to his annual remuneration. For now, as it goes for short-term gains, production from a number of these fields and these development wells is already on the decline.
Focusing on the discoveries, starting in 2013 to date, 23 discoveries were recorded in blocks won during the 2009 and 2013 bidding rounds as well as those added as partner-operated joint ventures. Of these, 11 discoveries were made before March 2015 when the former MD joined the company, whereas 6 were made after June 2018 when he left. This means 17 out of 23 discoveries were made excluding the duration between March-2015 and June-2018. All these discoveries were a result of the extensive exploration efforts started back in 2008-2009, the credit for which was falsely attributed to the former MD’s era.
The claim that costswas reduced in former MD’s term compared to previous yearsis also a pack of lies. As evident from the six years’ summary section of Annual Report 2018, the overall cost trend increased significantly during 2015-18compared to previous years. The average pre-tax margins for the first 3-year period versus the last 3declined from 58% to 41% while the 3-year average Return on Equity ratios during the same 6-year period increasedfrom 26% to 15%.Likewise, on a five-year rolling basis, the company’s field and developmentexpenditure for the first 3 yearsas compared to the last 3 jumped from USD 5.7/BOE to USD 9.9/BOE. In the same way, Opex / BOE sawan increaseof 6 percent during the last 3 year as compared to the first 3 yearsof the 6-year duration.
Apart from increased development drilling expenditure, including 35 development wells at a cost of USD 250 million, for short-term gains, one of the other reasons for this cost enhancement was the former MD’s recruitment policy. The recruitment policy during 2015-2018 aimed at hiring senior-level staff against lower job grade vacancies based on headcount rather than approved establishment strength by job grade, adding a burden of Rs 1 billion to the company’s payroll. These recruitments paved the way for bringing together a group of loyalists to support the former MD. Interestingly, except for a few among those hired by the former MD, rest are still part of the company so there is no respite on the account of so called ‘destruction at PPL’
With reference to the allegations made in the article regarding the overpayment by PPL in acquiring MND assets, it needs be highlighted that undue hype was created around this acquisition due to a crafty investigation process without taking facts into account. PPL’s valuation of MND was carried out after thorough due diligence back in 2012 by a consortium of reputed consultants and financial advisors, following best international practices.
During the former MD’s tenure in 2016, another consultant, RPS Energy, was hired by PPL’s board on the strong recommendation of former chairman of board audit committee (BAC) Nadeem Mumtaz Qureshi and tasked with retrospective revaluation of MND assets to serve the former MD’s agenda to malign both former and current staff. This process was spearheaded by the former MD with complete support from the then chairman BAC. Sound observations of PPL’s technical team on RPS’ draft report were dismissed on the former MD’s instructions, resulting in the issuance of a final technical audit report with obvious factual errors.
As for referring the MND case to NAB without following the recommendation of the draft forensic investigation report which clearly suggested not taking any action based on the incomplete forensic audit which failed to detect any trace of corruption, with a verdict stated in their April 10, 2017 report that “no evidence of fraud and corruption could be found”. However, the statement was swiftly deleted from the final report submitted on April 25, 2017 on former BAC chairman’s instruction.
Now to the decision of the current management and board on cancelling the GPF-III contract. Until the actual loss to PPL is calculated due to malperformance and delays by the contractor, let us take an account of what actually happened during the last 37 months since the project kicked off. The contract for GPF-III was awarded to the lowest bidder, SPEC, in April 2016 for installing the processing plant in 18 months by relaxing the technical qualification criteria at much reduced cost, for which too much hype was created during the former MD’s tenure. It is interesting to note that those staff who, based on their technical insight, did not confirm to the terms on which the contract was awarded were sidelined.
The way it turns out is that SPEC failed to achieve not even half the target after some 37 months since the award of the contract that forced the board to terminate the agreement following rigorous deliberations. As such, SPEC has a reputation in the oil and gas industry for causing issues eventually faced by PPL in terms of a series of litigations in Pakistan and abroad that also had an impact on the country’s image. Though the contract was awarded at a lower price but the change order claims stand at USD 70 million with less than half of the project completion in a delay of nearly two years.
Though the loss of valuable time and cost on the GPF-III project is painful, however, the current management and board deserve appreciation for their efforts for encashment of SPEC’s bank guarantee as compensation for the loss due to its poor performance and unnecessary delay. It is also pertinent to note that until June 2018 when the former MD was part of PPL, the board was purposefully kept in dark on the progress of GPF-III in order to avoid any resistance and its subsequent impact on his performance which was connected to his remuneration.
Finally, it was no way possible that the PPL board since the start of the former MD’s tenure in March 2015 was not aware of or unconcerned about the state of affairs at one of the largest oil and gas companies in the country. Therefore, a sitting director with extensive experience on PPL board was given the temporary responsibility as MD to have an insight into the functioning of the management.
As for the other directors on PPL board for whom much has been discussed in these articles, it may be noted that they play their part as the representatives of the majority shareholder. Also, it is not possible for a director to take up the role as both chairman and MD, since roles for each director are defined and recorded in the meeting minutes.
Lastly, it would only be correct to mention that PPL has a glorious legacy of over a century for running its business on good governance principles and sound, cutting edge efforts which will continue to thrive in the future. The three-year period between 2015-2018 that has been overly glorified with excessive falsified outreach, especially in the social media, will not affect the company’s well-established reputation.
Disclaimer: This is PPL’s response to Surkhiyan’s investigative pieces regarding the destruction of PPL. We believe in the freedom of expression and present both sides of the story. But Surkhiyan stand by our stories published earlier on the website.