Consequences of Silence: The Need to Manage Expectations around Liberia’s Oil Potential

Since the news that Liberia has potential for oil, there has been euphoria amongst Liberians, at home and abroad. Additionally, the arrival of major oil companies and subsequent bidding on offshore blocks, have added to such euphoric feelings (and rightfully so). I observed both anxiety and jubilation at the prospects of Liberia being an oil producing country during my trip to Liberia last year, as well as through the many discussions I’ve had with Liberians abroad, many of whom are planning to return home in anticipation of an oil boom. With euphoria sometimes comes misconceptions and unrealistic expectations, both of which need to be managed properly to prevent future negative outcomes.

For the record, I do not have tremendous hands-on experience in oil exploration; the bulk of my 10 years experience in the oil industry has been around safety, health, and environmental compliance, with a couple of years in downstream retail management. My practical knowledge of oil exploration and production is limited to the one year spent working upstream in the oilfield (in an exploration and production unit of my company).  However, my knowledge of the theory and concepts of the process span several years. But given what could happen if the prospect of Liberia’s oil output is not commensurate with expectations at home (and abroad), I think it is incumbent upon me (and those with similar experience) to caution against unrealistic expectations and to challenge the Liberian government and its relevant agencies to take a proactive stance in educating the public, managing their expectations and reining in runaway euphoria.

The Issues

Firstly, the prospect of oil in Liberia, as suggested by preliminary exploration data, does not necessarily mean Liberia will be a major hub for oil production. It is possible to explore an oil block, find oil in several wells, and still shut-in those wells (shut down future extraction) because the reserves in the block(s) are not of commercial quantities or because there is no oil, among other reasons.

In Nevada, for example, it took nearly half a century and 85 dry holes before the state’s complicated geology yielded a producing oil well, according to the Nevada Bureau of Mines and Geology. Furthermore, data from a source for oil prices (oilprice.net) state that twelve companies spent nearly $2 billion drilling for oil in the Beaufort Sea, North of Alaska in 1983, only to come up with dry holes. Dry holes refer to unsuccessful exploration that yields no commercially producible quantities (Schlumberger). Most recently, Globe Exploration LP, an exploration company, reported that their high potential oil well, Ofek 1 well, where drilling began in October 2011, was a dry hole. The Ofek 1 well had an estimated 30 million barrels of oil (per exploration data) with a 30% geologic probability of success according to Globes, an Israeli news entity. The company’s stock fell 27.4% after the dismal news. While this may not be the case in Liberia, it shows that exploration data alone is not the mark of success in the oil industry.

Secondly (and hopefully), if oil is found in commercial quantities, it may take many years before such reserves are produced and brought to market. The planning, infrastructure, and logistics needed to produce oil would require many years after data collection, depending on the unique conditions of the specific geology being explored, local and global political/economic conditions, the company’s strategic objectives and financial capabilities, among others. The details of such inner workings are beyond the scope of this paper but suffice it to say that things are much more complex than what most care to consider.

Thirdly, the structure and competence to oversee an oil industry in Liberia from a regulatory perspective is still in need of development. Even when commercially viable oil reserves are discovered, it would be prudent to ensure a robust and properly trained regulatory agency (in the form of the Environmental Protection Agency of Liberia-EPA) before full blown production begins. Despite expressing many disagreements with governing trends in Liberia, I have interacted with the EPA during the last five years through workshops focusing on environmental impact assessment and safety in the oil industry. These interactions with the EPA have informed me that we have a capable and motivated staff at the EPA, most well trained in other areas of environmental oversight, but they do not have the training and resources to regulate the oil industry. Granted some oil companies do have strong safety and environmental track record, it would be reckless to allow the potential production of oil without the needed regulatory oversight (including properly trained regulators) to guide and hold accountable all stakeholders. Without adequate regulation, critical issues around emergency management, environmental and process safety management systems would be left to individual companies. And that is not a viable option. Operational failures in these management systems can lead to serious health, safety and environmental catastrophes. But with the right investment in the EPA and its staff, which would take some time, the agency could be brought up to speed and these negative impacts could be mitigated and/or avoided. Such investment in the EPA needs to parallel progress in exploration.

The Misconceptions

The following are some of the misconceptions I’ve encountered around the anxiety and jubilation of Liberians since the news of oil exploration in Liberia:

Oil will bring more jobs: Theoretically, this is true; however, the jobs that offshore productions bring require specialized skills that Liberians may not have at the moment. So it is safe to say that the bulk of well paid jobs and contracts could go to expatriate, at least in the short term. How the average Liberian, many of whom are not educated (according to our official illiteracy rate), could benefit from offshore oil jobs is something to ponder. Furthermore, the potential impact on jobs would depend on whether production operations include onshore facilities (storage, transport, processing etc). If it is more economically beneficial for companies to use barges to store and transport oil offshore to the global market without onshore operations, then the potential “job expectation” could be impacted as well. In other words, the average Liberian may never see the product, let alone work with it.

For Liberians to be able to benefit from the oil industry, the government needs to match the progress in exploration with training and development for Liberians. Firstly, we must identify those well paid areas of expertise potentially needed by oil companies should there be commercial quantities of oil. Historically, those areas include earth science (geology, physics etc), Engineering (petroleum, chemical, mechanical), safety, and environmental science. Secondly, the government must begin the dialogue with oil companies around what those companies’ business plans entail vis a vis the prospect of onshore operations.  This will help prepare entrepreneurs to develop the skill sets needed to provide support and ancillary services (construction, real estate, consulting, technical services etc) to oil companies. Information gathered from these two data points will help the government position Liberians and Liberian businesses for success should Liberia become an oil producing country. Failure to take these proactive steps would see most of the well paid jobs and contracts going to expatriates, while Liberians, untrained and unprepared, remain limited to menial jobs (and low wages) that keep them at or below poverty levels. Similar trends have been observed in Liberia’s past around mining, logging and other industries. Private companies have historically been blamed for not hiring Liberians in high level positions; but as a nation, we have not shared our portion of the blame for being unprepared, untrained and reactive (rather than proactive).

Liberia will have oil refineries: Investment in oil refineries require huge capital. What we have defined as an oil refinery in Liberia (LPRC) is nothing more than a storage facility. Private firms will not invest in crude oil refineries only because they have found oil. There are many variables which need to be considered before such a decision is made, including cost and potential long term yield of the refinery. Can the potential reserve in Liberia justify a refinery? What about regional or global demand?  Is it strategically beneficial for these private firms to establish a refinery? If the responses to these questions are not favorable to a company’s financial interest, it is highly improbable they will invest in a refinery. Ultimately, the decision to build a refinery rests with companies and investors seeing an opportunity to get a decent return on their investment.

Price of gas will be low in Liberia: The price of gas is too much of a global issue to be affected by local production of oil.  Even with the tremendous levels of production in the United States and Nigeria, price of gasoline is still an issue. To have lower than expected gas price in Liberia, the government would have to provide subsidies, as is done in a place like Venezuela, which has the cheapest gas prices in the world. But that comes at a huge cost; State oil company Petróleos de Venezuela spends about $11 billion a year for underwriting and subsidizing fuel. I would think such subsidies could be used for other purposes in Liberia were we to find oil. But that is a fiscal policy discussion outside the scope of this paper.

Oil companies will develop Liberia: It is not the role of a private company to develop a country. Nowhere in the world do we see private companies taking on the role of the government. Private companies have socially responsible practices, as part of their cultures, to help the communities in which they operate; however, expecting a private company, whose primary goal is equity for shareholders, to develop a nation is wishful thinking, at best. I have not seen private companies build roads, hospitals, and other infrastructure in America, Europe or elsewhere without the ownership of the people and the government. Private companies only work alongside governments and communities to help promote the wheel of progress. Ultimately, it is the people and government’s responsibility to develop a nation. Private companies pay taxes and other fees to the government; how those fees are used is something that is outside their sphere of influence.

Oil will make things better for all Liberians: While I wish this were true, I know it is impractical and untrue. Oil has been produced in Nigeria, Venezuela and many other countries for years but those countries still struggle with poverty and difficult living conditions for some, if not most, of their citizens. For things to get better for Liberians, it will take more than just oil production, more than having abundance of natural resources. Instead, it will take human resources, working efficiently and effectively, and a public sector free of systematic corruption, to create an environment where each Liberian can have an opportunity to succeed, using his/her strengths, knowledge, creativity, and entrepreneurial skills. Oil is just another resource; Liberia has gone through rubber, diamond, gold, timber, iron ore and a host of other natural resources, without development or marked improvement in the living conditions of the citizenry. As far as revenue generation potential from natural resources, oil could seemingly be Liberia’s final frontier. If our behaviors remain the same, it is not likely oil will make a difference.

The Consequences:

There are many negative consequences when unrealistic expectations are not realized. On the national level, this could lead to chaos, violence, and destruction of lives and property. One only needs to consider what has occurred in Nigeria’s Delta region to get a sense of what happens when high expectations are not actualized. The Delta region has been characterized by insurgency, loss of lives, kidnappings, pillaging, and destruction of property (private and public). One of the fundamental root causes of most civil disturbances is dissatisfaction (real or perceived) over resource allocation or distribution. We have an unprecedented number of “youths” in Liberia today who are not in school, jobless, and concentrated in one geographical area – Monrovia and its environs. These “youths” are not necessarily people in their teens and twenties; rather, they include adults thirty and beyond whose developments have been stymied in the “youth” mentality by decades of war and civil unrests. Failure to manage their expectations could have devastating negative consequences for Liberia.

Opportunities:

The handlers of Liberia’s oil potential should embark upon a campaign to educate Liberians and put into context the impact the discovery and subsequent production of oil may have on the country. How will oil impact the people, infrastructural development, jobs, the youths, etc? Because of high illiteracy rate in Liberia, the task of providing proper education around the oil industry will be a challenge; however, starting early when the oil is not yet extracted will increase the chances of success. Silence should not be an option; it only breeds mistrust and rumors. We must be proactive, transparent, and resourceful in preventing the possible negative consequences that come with lack of knowledge. That process should begin with the unveiling of easy-to- understand and consistent information from the government, which would put into proper perspective, the impact a potential oil discovery would have on the economic life of the people of Liberia.

In conclusion, the prospect of oil in Liberia is one that should bring joy to every Liberian; however, we must add knowledge to our zeal in order to yield the most benefit. With knowledge comes preparation, and with preparation comes readiness to act when the opportunity arises. It is such knowledge, preparation and readiness that have been the hallmark of success for Liberians, and all immigrants in general, who compete for jobs in foreign countries.  Without having personal and family connections, they overcome the odds to become middle class income earners. It is my hope that Liberians at home are given the opportunity to benefit from such readiness.

Philip B. Suah, Jr.

Philip can be reached at pbsuah@gmail.com

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