Special Day: Day of Workplace
This case study is selected from among a set of 12 included in a 1995 study published by the International Petroleum Industry Environmental Conservation Association (IPIECA) and the United Nations Environment Programme (UNEP), titled The Oil Industry Experience - Technology Cooperation and Capacity Building - Contribution to Agenda 21. The case studies in this volume aimed to demonstrate, through actual experience, the contributions of the petroleum industry to economic development and environmental protection, and the industry’s efforts to enable dialogue and cooperation with stakeholders regarding Agenda 21 objectives.
The Kutubu Petroleum Development Project in Papua New Guinea was the first successful attempt to produce commercial oil in this country. The project was led by Chevron in cooperation with other companies from the oil industry, as well as the Government of Papua New Guinea, the local landowners and communities, and environmental organizations such as the World Wildlife Federation. The Project started in 1990 and, by 1992, it not only turned the country into an oil-exporting nation but also maintained its environmental protection and community welfare objectives. The former involved numerous management and monitoring projects related to safety, oil-spill contingencies, protection of water quality and environmentally sound management of waste. The community welfare objectives included various programmes and efforts focusing on local training, education, health, and local business development.
Papua New Guinea covers a land area of 463,000 sq. kilometers has a population of approximately 4 million. The annual per capita income is K1,325 (Local currency Kina is equivalent of US$ 0.75). The main exports include oil, gold, copper, timber and tree crops.
The country lies south of the equator, just north of Australia and occupies the eastern half of the island of New Guinea and about 600 lesser islands large and small. The landscape is steeply mountainous fringed with coral reefs, beaches and mangrove swamps. Tropical rainforest covers a great part of the land surface of the country and little of the land is genuinely suited to commercial agriculture.
Volcanic and geo-thermal activity has given rise to the rich mineral deposits that make the country a popular target for exploration. Chevron, along with its joint venture participants, discovered oil in this rugged land. In addition to the oil industry, Papua New Guinea also has world class gold and copper minds including the Pogera gold mine and the OK Tedi copper mine. Mining exploration started in the 1930s in the coastal areas of Papua New Guinea and continues today with the Lihir gold mine soon to be commissioned in 1997.
While petroleum exploration has been carried out in Papua New Guinea since the early part of the century, commercial quantities of oil was found only in the recent years. Chevron participated in cost sharing arrangements on several wells and came to the forefront of exploration and development through the acquisition of Gulf Corporation, who owned the Petroleum Prospecting Leases at that time. Chevron and others continued to explore as the Kutubu Project took shape and, on 27 June 1992, oil production began and this launched Papua New Guinea as an oil export nation.
Kutubu Joint Venture Project Description
The Kutubu Project is located in the Southern Highlands, a sparsely populated area, with no roads or commercial airfields. Local landowners are subsistence farmers and hunters. Project construction began in late 1990. The cost of Kutubu was approximately US$ 1 billion dollars and exploratory wells another US$ 350 million. The project involves the production and export of approximately 106,000 barrels per day.
Project facilities involve a series of production wells which feed produced fluids to a Central Production Facility (CPF). The CPF separates gas and water from oil, stabilize the crude in reboiler columns and pumps the product into an export pipeline. Storage for 600,000 bbl of oil is also provided. Gas was initially flared until the completion of the compression facilities. Produced water of 6,000 barrels per day and gas volumes of up to 160 mmcf per day is returned to the reservoir sand.
The crude oil is exported to a platform located in the Gulf of Papua where it is loaded onto awaiting tankers for sale and export to various countries. The average tanker carries 600,000 barrels of oil and the crude is exported to markets in Southeast Asia and the Pacific Rim including Singapore, China, Thailand, Australia and occasionally the United States.
Project support facilities include: (a) A 1,500 barrel per day refinery designed to produce diesel and jet fuels; (b) Living quarters; (c) Maintenance shops; (d) Warehouse; and (e) an airstrip capable of handling Hercules aircraft. Infield roads were built to link the production wells within the infrastructure. The Kutubu Oil Field occupies approximately 650 hectares, 25 producing wells, 6 gas injection wells; 2 water injection wells; Mini-Refinery (Diesel & Jet Fuels); Central Production Facility (CPF); Agogo Production facility (APF); Warehouse, Vehicle Maintenance Shop, Machine Shop, Electronic Shop; Export Pipeline (265 km - 165 miles); KOPI Shorebase; Export Marine Terminal.
Chevron Niugini operates the Kutubu Project and holds a 19.4% interest. The Papua New Guinea Government holds a 22.5% interest (Petroleum Resources Kutubu). Other joint venture participants are Ampolex Limited, BHP Petroleum, British Petroleum, Japan PNG Petroleum, Merlin Petroleum and Oil Search Limited.
Satisfying Chevron's environmental policies while meeting a host country's environmental regulations, which do not always contain specific standards and limits, was a challenge. The Kutubu Project represented a rare opportunity to fashion and implement environmental programs for a major development project in a country without a detailed regulatory model for such programs. The Kutubu Project team often found itself struggling with questions of what would a prudent and responsible operator do, rather than with the more familiar question of what the regulations require.
From the time of the project’s early feasibility studies, it was recognized that the concerns of a number of groups would have to be addressed in developing the project's environmental protection programs. These groups included: the national and provincial governments, local landowners, financial institutions and various outside interest groups. One of the first order of business for Chevron Niugini was to develop an Environmental Plan.
The Environmental Plan (EP)
Chevron presented an Environmental Plan Inception Report (EPIR) to the government before construction began. This report outlined Chevron's intention of submitting a voluntary EP. The EPIR presented an overview of the project, what Chevron believed to be the significant environmental and socio-economic issues and the plans for a field study program to further define and investigate those issues.
The submission of the EPIR also initiated a formal consultative process with the national and provincial governments. Periodic meetings were scheduled during the course of the EP development including public meetings in the relevant provincial capitals as well as in local villages within the project area. A major emphasis of these meetings was to encourage participation by the provincial governments and local village representatives.
The key elements of the Environmental Plan were:
The Environmental Plan identified the following main objectives:
Environmental Management and Monitoring Program
This program was developed and provided government agencies with detailed measures that would be taken to minimize and control environmental impacts from the project. It addressed the standards for fuel handling, waste management, and land clearing, among other things, that construction and operations would need to comply with. To monitor possible impacts, a detailed program for surface water sampling, socio-economic impact surveys, and field archaeological studies was described. In addition, the following more specialized management programs were outlined:
Waste Management Plan - identifies the various solid waste streams generated at each work site and spell out proper methods for handling and disposal.
The Rehabilitation and Monitoring Plan - assesses the options for rehabilitation and vegetation of areas disturbed during construction and identifies monitoring locations for measuring regrowth rates. After monitoring growth rates, the plan which was chosen was natural re-vegetation. Natural growth in and around the project area flourishes in a short period of time which allows nature to take its own course.
The Oil Spill Contingency plan - provides a comprehensive response plan for spill control and cleanup. It identifies the command structure, notification procedures, clean up techniques and both local and world-wide response resources.
The Hazardous Substances Control Plan - lists the potentially hazardous materials being used in the project construction; provides Material Safety Data Sheets on each; and, specifies proper handling and clean up techniques.
In addition to these other relevant environment management activities included:
Pipeline Integrity Monitoring Program (PIMP)
This document provides detailed information regarding the pipeline surveillance, inspection and routine maintenance program. The scope of PIMP addresses the following subjects:
Monitoring and Control System (MACS) - outlines the design features of the MACS, the types of data (flow, pressure, temperature, valve, status, etc) which can be monitored and the automatic control features and alarms programmed into the system.
Onshore pipeline corrosion control - outlines the design and monitoring of the cathodic protection stations along the onshore pipeline, plans for corrosion monitoring using corrosometer probes, sample analysis and ultrasonic testing and potential corrosion control options.
Marine pipeline corrosion control - outlines the design and monitoring of the cathodic protection system on the marine pipeline and plans for corrosion monitoring.
Onshore pipeline inspection and surveillance - describes plans for routine aerial and ground inspections of the onshore pipeline and occasional internal inspections.
Marine pipeline inspection and surveillance - describes plans for routine aerial and underwater inspections of the marine pipeline and occasional internal inspections.
Records and reporting - describes the records kept to document the pipeline's conditions.
A new partnership evolved in June 1994 to run an Integrated Conservation and Development Project in Papua New Guinea. The partnership includes World Wildlife Fund-US, Chevron-US, Chevron Niugini in Papua New Guinea and national, provincial and local governments. Activities of the partnership are managed by WWF in close co-operation with local landowners and communities, with the financial and logistical support from Chevron Niugini which includes more than US$2 million grant and more than USD1 million in-kind support.
The partnership project aims to help the local people living in the catchment of the Kikori river system to establish a model for ecologically sustainable development which protects the outstanding biological diversity of the region and promotes sustainable resource use. Activities include ecologically-sustainable forestry, nature-based tourism, butterfly and insect farming, improved subsistence agriculture and establishment of protected areas. The initial phase of the project covers a three year period. It is anticipated that after six years the project will be operated by local people.
One of WWF’s projects was to conduct surveys of aquatic Heteroptera (true aquatic bugs) and selected other aquatic insect groups occurring in the Kikori River Basin. These surveys were part of a larger Field Survey of Biodiversity (FSB) covering the lower half of the Kikori watershed, and were intended to provide baseline information on the flora and fauna of the region. Prior to these surveys, little was known regarding the aquatic insects of the Kikori River and its tributaries. The remote nature of the basin and its extensive exposures of rugged karst terrain effectively discouraged collectors from visiting the area.
Chevron Niugini with its infrastructure, enabled access to aquatic habitats in isolated mountain areas beyond the reach of navigable rivers. The results of this survey indicates that the aquatic ecosystems of the lower Kikori basin are currently in excellent condition; and support a rich native aquatic insect biota, including many species not presently known elsewhere in Papua New Guinea. The development of the petroleum field and associated infrastructure by Chevron Niugini has had a negligible impact on surface water on the lower basin and indications are that it has been conducted in an environmentally sound manner.
Another WWF project was an avifauna survey which concentrated on primary forest habitats ranging from near sea level in the Kopi-Kikori and Veiru areas at elevations above 2400 meters around Mt. Bosavi. The results of the survey showed that the Kikori watershed holds a diverse avifauna including a number of rare or threatened species. The oil project activities appear to be having little direct effect on bird population although comprehensive field inventories continue to be required to monitor possible changes in status.
Protecting People and the Environment Policy
The Chevron Niugini philosophy centres around the following priorities:
To help Chevron along the way and keep focused on our priorities, a policy was formulated by the Corporation entitled, Protecting People and the Environment. This policy has been endorsed by the top management of Chevron and has been voted on and approved by Chevron’s stockholders. When this policy was first introduced the general feeling was that it would cost a great deal of money to implement additional measures to protect people and enhance the environment for the present and the future. It did not take long for management and the stockholders to realize that by taking these additional measures to ensure that policies and procedures are in place and followed; to protect the safety of employees, contractors and the public and prevent harm to the environment, would in the long run, save money and earn the shareholders a greater return.
Benefits from the Project in the workplace
To date the Kutubu Project has earned in excess of US$600 million in revenues and benefits to the State through petroleum income tax, royalties, other taxes and duties and infrastructure projects. Kutubu is a major milestone in the development of Papua New Guineas as it provided an important export opportunity for the country and created job opportunities for nationals, boosting local businesses and providing training and skills-transfer schemes.
Chevron Niugini directly employs over 600 employees, 70% of whom are men and women of Papua New Guinea. The hiring philosophy gives priority to hiring from among the local landowners and their families. If a job can not be filled from the local landowners, a wider search is made to fill the vacancy from the surrounding community and if then, the job still can not be placed, recruitment is opened up to the rest of the country. Chevron Niugini has an aggressive localization program whereby in the next ten years it is expected that 90% of all the jobs will be filled by national employees. Expatriate employees are required to transfer their skills and knowledge to the local employees as a part of their key job responsibilities and this is not only the right thing to do but makes good business sense. At present, Chevron Niugini has in place nationals in the following positions: Deputy Managing Director, petroleum engineers, construction engineers, facility engineers, assistant drillers, communications technicians, vehicle mechanics, turbine mechanics, machinist, environment and safety technicians, security supervisor, accountants, contract specialists, refinery operators and plant operators.
Sustained Business Development - Landowner Companies
Iagifu Oil and Gas Company (IOG) - The largest landowner company is IOG which represents the Fasu-speaking people, the main ethnic group of the project area. IOG has developed its contracting capabilities through its experiences during the construction phase of the project. IOG experiences continued during the early phases of operations to a point where it has built a reputation as a contractor of choice. It is now applying this expertise to contractors and projects outside the oilfield area to develop long-term business interests that are not dependent on the ongoing presence of the Kutubu Petroleum Project.
IOG has also established a long term project for the cultivation of orchids. Light sweet crude will not be the only export out of the Kutubu area because a farm of local orchids is blossoming at Kutubu and the flowers may soon be heading for international markets. PNG orchids are known world-wide for their beauty and diversity. New techniques to propagate hybrid varieties promise to generate blossoms of greater size, color and complexity, available to market all year round. About 10,000 hybrid plants have been placed on benches in the farm and the total number of plants for cut-flower production is targeted to reach 60,000 during the first 12 months. Papua New Guinea’s sub-alpine tropical rainforest knows no winter season. So while cut-flower farms in Europe and Asia await their next round of orchid blossoms, the Kutubu local people may be meeting the demands of markets world-wide, because they can produce flowers throughout the year.
Foe Digaso Oil Company (FDOC) - This is a local company representing the Upper Foe people surrounding Lake Kutubu. Chevron Business Development have assisted with the establishment of a saw milling operation business along the Kutubu Access Road near Inu village. The business was originally established to cut and process timber felled as a result of the construction of the Kutubu Access Road. Business Development Officers are now assisting FDOC to develop longer term plans for their project with detailed environmental plans and forest management plans to ensure the project adheres to international standards of sustainable production. FDOC is also in the process of redeveloping the Kutubu Lodge on the shores of Lake Kutubu. Local interest recently has once again turned towards the long term and efforts have commenced to redevelop the lodge into a first class eco-tourism venture. Chevron has assisted by engaging an architect who is renowned throughout PNG for applying local building techniques, materials and designs in a manner which seeks to combine the best of traditional and modern methods.
Niugini Oil Company - Refined petroleum products made from PNG oil have gone on commercial sale for the first time in the country. Highland households are now cooking meals and lighting their homes with kerosene produced at the Kutubu Refinery. The Kutubu Project’s refinery has until now only supplied diesel and aviation fuel for use by its own vehicles and aircraft. The agreement with Niugini Oil Company now makes refined Kutubu product available for the first time to customers in three highlands provinces. The major advantages to people within reach of the new marketing area are quality and regular delivery.
Wasi Falls Lodge - This is a small eco-tourism lodge on the banks of the Mubi River near Beaver Falls. It was established in 1994 by Tiati Eboda Pty Ltd, the local company set up for the Lower Foe people by Chevron Business Development officers at the commencement of the project, and was built out of local materials using local labor. Chevron Business Development is working closely with WWF to assist the Lodge in preparing business plans, recruit management, develop promotional materials and effect capital improvements to the facilities.
Social & Economic Factors
Meeting the local people's expectations became a significant factor in the success of the project. Until the development of the Kutubu project, the characteristic features of the people in the project area reflected their isolation and lack of development. As previously mentioned the Kutubu people typically had (a) a low level of nutrition associated with a sago staple diet; (b) very poor levels of health and overall fitness; (c) few government services; (d) little prospect of employment or hopes of improving the standard of living.
The expectation of the local people regarding the benefits the project that they may derive from the project are high and often unrealistic. They perceive the project as their best opportunity to improve their way of life and expect Chevron to provide goods and services they have previously been unable to obtain.
Chevron Niugini's basic philosophy is that we do not want to have a negative impact on the culture of the people in the project area. We recognize that there will be some impact and ensure through our own behavior and management of the project that this is minimized. We want to enhance the life style of the people, without changing the culture, through reducing the infant mortality rate and improving the people's diet from sago, by creating awareness of healthy alternatives. We support this through our community health program and agricultural extension programs for food and cash crops. In addition, we encourage and provide support to government agencies by way of tax credit programmes for the establishment of social infrastructure such as roads, schools and medical aid posts. Ideally, we see benefits flowing back to the people through education in trade skills, oilfield work and sustained business development through offering commercial contracts to landowner companies such as Iagifu Oil and Gas Company and Kikori Oil Company. Our goal is not only to leave an on-going legacy for the people which will enhance the quality of life for the Kutubu people but to also demonstrate that our model is the benchmark for future resource development projects that may eventuate in other parts of the country.
Chevron Niugini has accomplished its objectives. Today the infant mortality rate is less than 10%. The number of disease related deaths prevalent in the Kutubu Project area has decreased by 50% since the first year of production (1992). This is partly due to the 13 medical aid posts and three medical clinics that have been established. The local diet has become more nutritious with the improved gardening methods that are being taught by our Community Affairs Agriculture Group. Education opportunities have been enhanced with the twelve schools that have been established. Finally, Chevron Niugini committed the necessary funds and staffing in its Training Department to offer quality education in operations training and soft skills.
Training & Education
Chevron Nuigini is committed to providing continuing education and training opportunities to Kutubu Project area people and sponsorships are offered to qualified individuals from the project area in the Gulf and Southern Highlands who wish to pursue studies at recognized educational and training institutions within Papua New Guinea. Such institutions are: universities, community schools, vocational training centres, college of distance education, pre-employment technical training and technical / business / teaching colleges.
The college of distance education (CODE) offers subjects from grade 7 through 10. All Gulf and Southern Highlands landowners within the project area wishing to upgrade existing education levels can apply to do so through Chevron’s Training Centre, which is a registered study centre with the college of distance education in the capital of PNG (Port Moresby).
Chevron's Training Centre also provides matriculation studies for grades 11 and 12 and foundation year studies through the University of Papua New Guinea for Chevron Niugini Citizen employees wishing to upgrade or continue their education. The training centre also provides technical support in the areas of metal fabrication and welding for apprentices and tradesmen in the maintenance and production areas.
Some of our high potential National employees have attended training sessions and courses in the United States. We currently have one national employee under a sponsorship program enrolled in the University of Tulsa where he is studying for his master’s degree in Petroleum Engineering. Because Chevron Niugini initiated this sponsorship two other companies and the Government have followed a similar course and have sponsored national employees for higher education in the United States. Chevron Niugini has also sent five (5) citizen employees to the United States for extensive training in environment monitoring, industrial hygiene practices and safety procedures. We aim to continue sponsoring high potential citizen employees for higher education.
Furthermore, a recent arrangement between Chevron Niugini and Kikori High School, paves the way for students to gain work experience at the Kutubu project. Two grade ten students will be accommodated at the KOPI facility during two term holiday breaks to work in various sections of the oil project to gain an insight into the commercial world.
Listed below are several significant infrastructure projects that have been implemented:
Two of the more recent projects that have shown success are:
Environmental Safety Benefits
Chevron Niugini is proud of its environmental record to-date in one of the most significant environmentally sensitive areas of the globe, whereby and oilfield infrastructure had been established in the middle of a rainforest. Our success had been noted by many organizations in Papua New Guinea and outside the country. We have an excellent relationship with the Government Agencies such as the Department of Environment and Conservation and the Department of Mines and Petroleum, who regulate the way we conduct our business in Papua New Guinea. We do have frequent inspection of our facilities and to date have not been in breech of any violation. We constantly maintain communications with these agencies to keep them informed of our activities.
Our safety performance speaks for itself. Chevron Niugini can boast of having, if not the best, one of the best safety performance records within Chevron Corporation and in the industry. Chevron has operated over 820 days since first oil and have accumulated over 2.5 million hours without a lost workday accident or injury. In fact our contractors experienced a remarkable 0.5 lost workday frequency rate (200,000 hours) for 1995. Based on these accomplishments, Chevron Niugini has earned three Chairman’s Excellence in Safety Awards from Chevron Corporation. This is a very prestigious award and is only bestowed to those organizations which have met stringent eligibility requirements.
Lessons Learned and Conclusions
Initially, Chevron Niugini did not realize the importance that local people put on education and training. A training department was established, but was not appropriately staffed and funded. A better job could have been done in staffing and equipping the training to assist our employees in their job skills, responsibilities and continuing education. Realizing our short comings, Chevron Niugini embarked on a program of training and localization that we anticipated would be the model of the industry in just a few years.
During construction and for the initial production phase, the emphasis had been on completing the project on time, within budget and to train a national work force who have had mining experience but no exposure to the petroleum industry. The project is a technical success however, our learning experience continues as we strive to involve landowners whose notion of land ownership is at odds with the Constitution of the country. This has resulted in project disruption on several occasions. Chevron Niugini, together with other resource industry developers are working with government to recognize this by giving landowners a stake either through equity or production sharing rights, at no cost to the landowners. We believe that giving the landowners a greater sense of ownership and involving them in our Operating Committee Meetings with other Joint Venture Partners is a major milestone in the industry and can only enhance the development of the people and the country.
The need to build capacity for infrastructure development and on-going maintenance long after oil depletion is essential. Successive governments since independence have not been able to provide for various reasons, funding and training for public servants to maintain schools, hospitals and roads in remote regions such as the Kutubu Project area. The Government has relied on resource developers to accomplish this task. Our efforts continue in training public servants in supervisory and senior administrative skills and working with recognized NGOs to embed administrative and management capabilities in Kutubu and the pipeline impact areas. Also, the introduction of programmes to improve nutrition, sanitation, mother/child health, food and cash crops, water supply and education all have the purpose of building capacity and development for the landowners.
Finally, our policy of "Protecting People and the Environment" established by our parent corporation and endorsed by our stockholders for procedures relating to environment, safety and health, has been an integral part in the success of our project.
We believe that the continued success of our project hinges on being a true and effective partner with the Government, the people and the local communities through introducing new technologies and world class best practice in work processes and ethics. Our Community Affairs and Business Development Department is the largest in terms of headcount in our operations and reflects our genuine desire to achieve success for the project and the people of Papua New Guinea.
For further information contact
Mr. Isi Keli Taurika