2011 ANNUAL REPORT
Su�aining the Momentum
w w w . o m a n l n g . c o m
Head Office:P.O. Box 560, Mina Al Fahal, P.C. 116, Sultanate of Oman.
Tel: (+968) 24609999, Fax: (+968) 24609900Qalhat Complex Office:
P.O. Box 888, Sur, P.C. 411, Sultanate of Oman.Tel: (+968) 25547777, Fax: (+968) 25547700
www.omanlng.com
A n n u a l R e p o r t 2 0 1 1
His Majesty Sultan Qaboos Bin Said
Annual Report 20115
Oman LNG in Brief 6
Our Vision, Mission, Core Values, Challenges & Critical Success Areas 7
Board of Directors 8
Chairman’s Report 10
Corporate Governance 12
General Manager & Chief Executive’s Summary 14
Management Team 15
HSSE Excellence 16
Commercial Activities 18
Operational Integrity 20
Staff Development 22
Cost Leadership 24
Brand and Reputation 26
The Shareholders:
Contents
Annual Report 20116
Oman Liquefied Natural Gas LLC (Oman LNG) is a limited liability incorporated joint venture company established by a Royal Decree in 1994 and operated under the laws of the Sultanate of Oman. The Company engages in the business of producing and selling Liquefied Natural Gas (LNG) and its by-product, Natural Gas Liquids (NGLs).
Oman LNG undertakes, directly or indirectly, project operations and related activities essential to liquefy, store, transport and market Oman’s natural gas and to deliver LNG to customers.
The Company operates 3 liquefaction trains - 2 owned by Oman LNG LLC and 1 by Qalhat LNG SAOC - at its site in Qalhat near Sur with a nameplate capacity of 10.4 million tonnes per annum (mtpa).
The Company’s activities contribute to the Government of Oman’s objective of diversifying the economy away from its current level of dependency on oil. Oman LNG’s Liquefaction Plant is located on the coast at Qalhat near Sur in the South Sharqiyah Governorate and its head office in Muscat.
Oman LNG in brief
Annual Report 20117
By 2014 to be:• The Preferred Partner of Customers & Communities
• To produce, market and deliver LNG safely, reliably and profitably,• To develop our business and employees to their full potential and• To be a trusted partner in the sustainable development of Oman and
its people.
The management and staff of Oman LNG are committed to addressing the key business challenges and risks of Oman LNG on a continuous basis and to having in place the strategies, plans, processes and competencies which will deliver our mission and achieve our vision. Our performance in 2011 shows the continuing robustness of our business proposition to our customers, shareholders, employees, suppliers and communities. Global markets were seriously impacted by the tragic earthquake and tsunami in Japan which led to overall economic decline in that country but to increased demand for LNG as its nuclear power generation was reduced to a fraction of installed capacity. Against this backdrop and continuing growth in emerging economies, energy prices strengthened compared to 2010. At home, 2011 brought three areas of significant challenge to the fore: gas supply, talent retention and meaningful employment opportunity creation. The strategies adopted in 2011 helped Oman LNG overcome these challenges, emerge stronger and more able to serve its customers, support its communities and add to shareholder value. For 2011 and the subsequent years, the management reconfirmed its commitment in 3 critical areas that remain vital for future success.
• Managing our business Safely, Reliably and Efficiently• Growing our People and our Business• Engaging Effectively with and Creating Value for all our Stakeholders
Since our first cargo in 2000, the Company has delivered 12 years of ever improving returns on investment, uninterrupted supply of LNG and NGL to our customers, growth in the professionalism, experience and recognition of our staff, mutually beneficial contracts with our suppliers and a unique partnership with the government and people of Oman in support of sustainable economic self-sufficiency and diversification. And we have enhanced the reputation and credibility of the Company as a truly preferred partner of all our stakeholders by doing so.
We continue to build on what we have achieved, to explore new avenues of opportunities in preparation for future business growth when the external environment allows. The improvements that the management and staff are committed to achieve are captured as specific, measurable, assignable, realistic and time-framed key performance indicators (KPIs). Our performance in 2011 against these KPIs is presented in this report.
Individual BehaviourIntegrity• Living the OLNG values • Doing what is right even if:
- No one is watching- You know you could get away with something
Professionalism• Producing quality work at all times• Efficiency and effectiveness in carrying out assigned roles
and responsibilitiesAccountability• Delivering on promise based on agreed targets• Demonstrating ownership of mandated assignmentsOrganisational BehaviourTeam Work• Collaborating with others to deliver on organisational objectives• Value differences and leverage on diversity of the teamCare & Respect• Listening to concerns of stakeholders• Respecting diversity• Considering stakeholders’ needsEmpowerment• Having confidence and trust in delegated responsibilities to staff to
execute tasks competently• Coaching and mentoring to continuously develop staffBusiness BehaviourTransparency & Fairness• Engage staff/stakeholders in an open, transparent and timely manner• Provide equal opportunity to all staff without prejudice• Impartiality in staff reward and recognition • Build courage to give objective feedbackReputation/Loyalty• Compliance with the law and business principles in order to maintain
credibility with stakeholders and the license to operate• Uphold business interests at all times without breaching
organisational confidentiality
OurVision OurChallenges
OurCritical Success Areas
OurMission
OurCore Values
Tahir bin Salim Al AmryDirector General of
Treasury and Accounts,Ministry of Finance, Government of Oman
H.E. Dr. Abdulmalik bin Abdullah Al HinaiAdvisor to the Ministry of Finance,
Government of Oman,Deputy Chairman of the
Board of Directors of Oman LNG L.L.C.
H.E. Khalifa bin Mubarak Al HinaiTechnical Advisor to H.E. the Minister,
Ministry of Oil and Gas, Government of Oman
Annual Report 20118
Board of DirectorsH.E. Dr. Mohammed bin Hamad Al Rumhy
Minister of Oil & Gas,Government of Oman,
Chairman of the Board of Directors ofOman LNG L.L.C.
Bader bin Ali Al SaririDirector of Petroleum Concessions,
Ministry of Oil and Gas, Government of Oman
Saber bin Said Al HarbiDirector General of Economic Statistics,
Ministry of National Economy,Government of Oman
Saif bin Hamad Al SalmaniDirector General of
Planning & Projects Evaluation,Ministry of Oil and Gas,
Government of Oman
Annual Report 20119
John BlascosShell Country Chairman and
General Manager,Shell Development Oman LLC
Jonathan OsborneVice President Finance
Middle East and North Africa,Shell Upstream International
Xavier PreelVice President
General Affairs Middle EastExploration and Production,
TOTAL
Dr. Antonio Jose Da Costa SilvaChairman of the
Management Commission, Partex Oil & Gas
Olawale AnimashaunOman LNG’s General Counsel
and Company Secretary
Ryuichi MinodaGeneral Manager, Oman Project Unit,
Natural Gas Business Division B,Energy Business, Mitsubishi
Toru UkishimaDeputy General Manager,LNG Project Division I,Energy Business Unit II,
Mitsui & Co. Ltd.
Tack Cheol ShinManaging Director and Chief Executive Officer,
Korea LNG Limited
Hisato OkuboDeputy General Manager
Natural Gas Business DevelopmentEnergy, Metals & Minerals Company
Itochu Corporation*
* ITOCHU Corporation attends all Board Meetings but does not have voting rights on the Board.
Chairman’sReportAnnual Report 201110
Our performance in 2011 demonstrates the sustainable robustness of our business proposition to our customers, shareholders, employees, suppliers and communities. Global markets’ uncertainties continued in 2011 with many fearing recessions in the developed economies spilling over into the emerging markets of Asia, South America and the Middle East.
The tragic earthquake and tsunami in Japan which led to overall economic decline in that country led to increased demand for liquefied natural gas (LNG) as its nuclear power generation was reduced to a fraction of installed capacity. Against some predictions, emerging economies continued to grow and energy prices strengthened in 2011 to an average of over US$ 100 per barrel compared to US$ 77 per barrel in 2010.
At home, investment-led economic growth and rising expectations of a burgeoning young population in need of gainful employment brought three areas of significant challenge to the fore: gas supply, talent retention and meaningful employment opportunity creation. The strategies adopted by the Company in 2011 helped Oman LNG overcome these challenges, emerge stronger and ready to serve its customers, support its communities and add to shareholder value.
The investment in Oman LNG has been a great success story from the first (1st) export cargo in 2000. This twelfth (12th) annual report bears witness to this. The impact on revenues and the gross domestic product (GDP) of the country continues to be significant – second only to oil - and Oman LNG’s investment in Corporate Social Responsibility is now second to none in Oman. Its investment in the training and development of its own employees is also exemplary and makes it an employer of choice amongst young Omanis.
As LNG export volumes have grown, so also has the domestic consumption of natural gas for power, industry and other strategically important commercial initiatives. By 2010 domestic consumption
had already overtaken exports and “Natural Gas” was transformed from being the “unwelcome by-product of oil” to being a strategic resource in Oman’s overall growth.
Today, natural gas is central to meeting Oman’s demand for power – which is growing by around five per cent (5%) per annum. To maintain oil production levels, Oman will need more energy intensive EOR (Enhanced Oil Recovery) technologies in the immediate future. The continuing diversification of Oman’s industrial base and the drive to support Small and Medium Enterprises (SMEs) for employment creation require more gas. Not surprisingly, our government’s priorities for natural gas have changed and any growth in LNG exports in the coming years will be a balance between meeting identified domestic needs and the incentives of foreign revenues which together are essential for sustaining the momentum of Oman’s economic growth and diversification.
The resulting challenges for Oman LNG are fourfold. Firstly, it must continue to grow the value it generates along the entire LNG value chain. It must seek new ways with its Gas Supplier to optimise the deployment of each molecule of natural gas it receives. Secondly, Oman LNG must continue to sustain Oman’s reputation as a partner of choice in global markets through continuing to be the preferred supplier to our key foundation buyers in a rapidly changing LNG market. Our partnership with communities and government in investing in sustainable economic self-sufficiency and the preservation of Oman’s cultural heritage and natural environment will not diminish in importance.
In the execution of business, safety is a value that lies at the heart of our operations and reputation. We are learning from the major accidents in our industry sector that have led to loss of life and serious environmental damage. Oman LNG’s ability to ensure the integrity of its operations and assets, and to vouchsafe the safety and health of everyone who works for the company remains critically
Sustaining the Momentum
Annual Report 201111
important and challenging. Ensuring rigorous compliance to the highest standards is not negotiable.
Thirdly, Oman LNG’s ability to attract, develop and retain Omani talent who now represent over eighty-eight per cent (88%) of its total employee pool will remain a key factor in future success. Over US$ 4.5 million was invested in 2011 in the training and development of employees who now occupy most of the senior roles in the Company, including five (5) of the seven (7) Executive Management Team positions. This level of investment and commitment will continue to be needed to ensure Oman’s growing need for talented and experienced professionals.
Finally, over the last decade Oman LNG has developed a number of best practices, some of which have received international recognition. The company has a key role to play within Oman in championing these best practices in stakeholder engagement, organisational efficiency and governance and environmental management.
In conclusion, Oman LNG continues to be a significant contributor to the Government’s aspirations for growth and diversification of the wealth base of Oman and its people. I am pleased to record that Oman LNG’s contributions to the economy of the Sultanate are now second only to that of oil. The directors of Oman LNG, its management team and staff are wholly committed to ensuring the sustained success of this Company in the challenging years ahead and wish to thank His Majesty Sultan Qaboos Bin Said for his continued support, guidance and interest in the Company.
H.E. Dr. Mohammed bin Hamad Al RumhyMinister of Oil and GasChairman of the Board of Directors of Oman LNG L.L.C.
An aerial view of Qalhat Complex.
Annual Report 201112
Corporate Governance is the set of laws, regulations, rules, policies and delegated authorities which determine how the business of a corporation is conducted, administered and controlled through its executive management and staff to achieve the long-term strategic objectives of the shareholders and other stakeholders, including creditors, employees, customers, suppliers and the community in which it operates without prejudice or bias to any one stakeholder.
Corporate Governance controls the relations among company’s stakeholders and strikes a fine balance between the interests of stakeholders on the basis of accountability, transparency and cooperation to ensure protection of the interests of all the stakeholders and to prevent the unfair dominance of the interests of any stakeholder over those of the others.
Oman LNG LLC is committed to the highest standards of Corporate Governance in the belief that by doing so it will achieve outstanding performance in all areas of profitability, corporate social responsibility, growth of its business and the development of employees.
In 1994 Oman LNG LLC was formed by a Royal Decree, based upon a detailed Shareholders Agreement and Constitutive Contract. An Omani company, it is also governed by the laws and regulations of the Sultanate of Oman. Other important documents that constitute a part of Oman LNG’s Governance Framework are Gas Supply Agreements, Sales and Purchase Agreements, Loan Facility Agreement as well as Oman LNG’s Mission, Vision, Values and Statement of General Business Principles.
The resulting Governance Framework translates into non-executive and executive structures, policies, strategies, key business objectives and goals, delegated authorities and controls which are regularly reviewed and updated by the Board of Directors and Management to ensure the success of the enterprise and adherence with best practice.
The ShareholdersThe Shareholders of Oman LNG LLC are: Government of the Sultanate of Oman: 51%, Shell Gas B.V: 30%, Total S.A: 5.54%, Korea LNG: 5%, Mitsubishi Corporation: 2.77%, Mitsui & Co. Ltd.: 2.77%, Patex (Oman) Corporation: 2%, and Itochu Corporation: 0.92%
The shareholders convoke an Annual General Meeting each year (usually immediately after the first annual meeting of the Board of Directors) at which the Financial Statements for the previous year are approved along with the final dividend
declaration for that year and the appointment of the Company auditor for the current year.
The shareholders’ meeting for 2011 was held at Oman LNG Head Office, Muscat, Sultanate of Oman on 29 March 2011.
The Board of DirectorsThe Board of Directors is responsible for ensuring that the business of the company is managed in accordance with the Shareholders’ Agreement. The Board delegates some of its authority to the General Manager and Chief Executive Officer for the efficient and effective management of the Company. The Board of Directors meets three times each calendar year, however if urgent matters arise between scheduled meetings, decisions can be taken through circular resolution of the directors.
Board CompositionThe Board of Directors comprises a maximum of fourteen (14) non-executive members as follows:Government of the Sultanate of Oman: Seven (7) members, including the Chairman and the Vice- ChairmanShell: Two (2) membersOther shareholders (except Itochu Corporation): One (1) member eachItochu Corporation is represented at Board meetings by an Itochu nominee who has no voting rights.
Board Activities in 2011In 2011, the Board of Directors met in March, July and November.
At the March meeting, the Board reviewed the 2010 corporate performance and scorecard and approved the final dividend. Following the recommendation of the Board, the General meeting of the Shareholders approved the appointment of KPMG as the company’s external auditors for 2011. The Board also reviewed the status and associated KPIs of the Organisational Effectiveness Projects and BP Initiatives. It also discussed and approved Oman LNG’s response to His Majesty the Sultan’s commitment to employment in Oman.
In the July meeting, the Board reviewed the 2011 Scorecard Performance Update and the Oman LNG Business Plan 2012-2016 Premises. On the employee side, deployment of additional 100 recruits in 2011 was discussed, while the company’s Social Investment Performance received close attention when the Board reviewed the company’s strategy for the coming 5 years under the Oman LNG Development Foundation.
Chief External Relations Officer
Internal Audit*
Chief Human Resources Officer
Deputy CEO
Chief Operating Officer
Chief Commercial Officer
Chief Financial Officer
Board of Directors
Shareholders
General Manager & CEO
Board Committees:- Audit Committee- Management Remuneration and Succession Committee
Shareholders’Committees:- Technical- Joint (Personnel, Finance, Commercial)
GOVERNANCE STRUCTURE
*Reports directly to the Audit Committee Chairman
Corporate Governance
Annual Report 201113
The first two meetings were held at the company’s Head Office in Muscat, Oman. The November meeting was hosted by Korea LNG at the Alpensia Resort, Peongchang, South Korea. At this meeting, the Board approved the Proposed Business Plan 2012– 2016 and the Operating and Capital Budgets for 2012. The proposal to prepay part of the company’s Long Term loan was approval. The Management’s proposed HAS School Expansion Implementation Strategy received the Board’s approval. The Power Purchase Initiative was discussed extensively and agreed to be explored further prior to a possible final approved. To set the scene for 2012, the Board approved the 2012 meeting schedule for the Board and Shareholders Committee meetings.
The highest number of changes in the Board membership in recent times occured in 2011. There were four changes in all. H.E. Dr. Mohammad bin Hamad Al Rumhy replaced H.E. Nasser bin Khamis Al Jashmi as Chairman of the Board of Oman LNG. There were two other changes in the Government nominated directors: Mr. Saber bin Said Al Harbi succeeded Mr. Adil Al Raisi, while Mr. Bader Ali Al Sariri succeeded Mr. Nasser Al Madaelwy. There was one change from the private shareholders – the Itochu Representative on the Board changed, with Mr. Hisato Okubo (who left the Board in 2009) making a return to replace Mr. Haruo Maeda.
The new chairman and all the directors expressed their appreciation to the outgoing members for their contribution to the Board, particularly the former chairman, H.E. Nasser bin Khamis Al Jashmi for steering the Board’s activities for the period of 8 years as chairman and his participation before then as a director.
Shareholders’ CommitteesThe Shareholders’ Committees were established under the Shareholders’ Agreement to assist the Board in an advisory capacity to manage the Company.
There are four committees which address 1) Technical 2) Personnel 3) Financial and 4) Commercial matters and meet prior to each board meeting. Each shareholder has the right to be represented on each shareholder committee.
To improve efficiency, the Personnel, Financial and Commercial Committees meet jointly, whilst the Technical Committee sits separately.
After sitting jointly for about three years and with the Board and shareholders being satisfied, the Terms of Reference of the Joint Committee was formally approved by a Board Circular Resolution in June 2009. Since September 2008 the Joint Shareholders’ Committee is chaired by a shareholder representative, whilst the Technical Committee continues to be chaired by the General Manager and Chief Executive Officer.
The Shareholder Committees do not take decisions for the company, but review and endorse the management recommendations for the Board of Directors to approve.
Each committee came together three times during 2011. As planned these meetings were prior to the meetings of the Board.
Board CommitteesThere are two Board Committees:
1) Audit Committee and
2) Management Remuneration and Succession Committee.
The Audit CommitteeThe purpose of the Audit Committee is to provide an independent oversight of the systems of internal controls and financial reporting processes through a review of the quality, independence and effectiveness of internal and external audits. The Audit Committee reports directly to the Board of Directors via its Chairman and comprises non-executive members as follows:
Government of the Sultanate of Oman: Three (3) representatives, including the Chairman
Shell: One (1) member
Non-Shell shareholders: One (1) representative chosen in rotation
Any Shareholder: One (1 ) technical representative agreed by the shareholders.
The Audit Committee met three times in 2011. The meetings were attended by the Chief Internal Auditor and the General Manager and Chief Executive Officer. The Chief Financial Officer was present when the Statutory Financial Audit and Management Letter were presented by the Statutory External Auditor.
Audit Activities in 2011To ensure independence, the Chief Internal Auditor reports directly to the Chairman of the Audit Committee. In line with best practice, the Internal Audit department adopts a risk based methodology in proposing and executing its audit programme in order to provide assurance that a fit for purpose and effective internal control framework is in place to support the achievement of the Company’s objectives. Several assurance audits were also carried out by external parties, including the Company’s External Auditors, Shareholders, International Standards Organizations (ISO) and Technical Advisors. During the 2011 meetings, the various audits carried out during the year were reviewed by the committee for levels of compliance with the control framework.
In addition, the Audit Committee also reviewed proposals relating to Anti-Bribery and Corruption
(ABC) Guidelines as part of Company’s Code of Conduct, introduction of accounting policy relating to unpaid creditors etc…. As part of its mandate to ensure a fit for purpose control is in place, the committee tracked the management's compliance with proper / timely closure of agreed audit actions in order to close the control gaps identified.
The Committee also reviewed audit reports, the management letter and associated Financial Statements for 2010 by the Statutory External Auditors for endorsement by the Board of Directors. Furthermore, the committee discussed and endorsed the appointment of KPMG as company’s external auditors for 2011 as previous auditors – Deloitte and Touche completed four years as company’s auditors, the maximum allowed as per Company policy.
Management Remuneration and Succession CommitteeThe Management Remuneration and Succession Committee was established in November 2008 by a Board Resolution to ensure that Oman LNG continues to identify, and develop its leadership talent for the future and provide the current leadership with rewards and incentives commensurate and competitive with current market practices.
The Committee reports directly to the Board of Directors via its Chairman and comprises non-executive members as follows:
Government of the Sultanate of Oman: Three (3) representatives, including the Chairman
Shell: One (1) member;
Non-Shell Shareholders: Two (2) representatives chosen in rotation.
The first sitting of the Committee was held in 2009.
The Company Management
The General Manager and Chief Executive Officer and the executive management of the Company implement an Enterprise-wide Risk Management (ERM) approach which provides a proactive framework of risk management for managing and mitigating risks and their potential impacts on the achievement of company’s strategic objectives and goals.
Each identified risk is assessed and measures are introduced to provide all reasonable assurance that the risk will not materialise and in the event that it does, that any adverse impact is minimised. The process and identified risks are reviewed annually at the start of the year.
Business Planning CycleThe agreed management and mitigation measures are subsequently reflected through any necessary amendments to relevant company policies, procedures and practices.
The outlook for the LNG industry is encouraging, despite the fears of recessions in developed economies and slowdowns in the emerging markets. Globally, natural gas supply is becoming more secure as conventional reserves are extended and unconventional sources, such as tight and shale gas, coal bed methane, etc., are proving to be bountiful, technically feasible to exploit and economically viable. Whereas pipelines remain the delivery mode of choice for gas deliveries between neighbouring countries and regions, LNG continues to expand at an increasingly higher pace as the most effective delivery method to many key markets and as a valuable strategic option to others.The Middle East is experiencing rapidly growing populations and economies leading to steep rises in energy demands that are having to be met by natural gas imports, often in the form of LNG, and the diversion of oil for power. All these factors are driving the exploration and production of natural gas with greater determination than ever before in the region.These global and regional developments offer Oman LNG unique opportunities to build upon its central role as a generator of significant wealth for Oman and as a leading investor in Oman’s social infrastructure and people.Oman LNG’s core purpose is to produce LNG safely, reliably and profitably for its customers and those of its sister company, Qalhat LNG. As we have seen our profitability expanding over the years – including 2011, we have also been focused on developing our Omani employees who in 2011 occupied over 88% of the established positions in the Company. Our Social Investments at over US$ 11 million in 2011 re-enforced Oman LNG’s position as the single largest corporate enabler of economic self-sufficiency in communities and individuals in the country and a major supporter of cultural and environmental conservation and revitalisation.Operationally, the company saw its reliability level stabilise and increase somewhat over last year’s. Whilst this was satisfactory, we remain some distance away from what we believe is achievable. To this end we will continue to reform and improve our systems, processes and internal competences to achieve significantly better results in the coming 1-2 years.
Our Major Challenges in 20112011 was a year of significant unrest in the Middle East and rising expectations amongst its people. In March 2011, a horrific earthquake and tsunami struck the east coast of Japan resulting in thousands of deaths and whole communities left homeless and the bases of their
economic livelihoods destroyed. Matters were further exacerbated when control of some nuclear reactors at the Fukushima power plant was lost leading to a crisis of confidence in all 54 nuclear power plants in Japan.
Our ResponsesThe key critical areas that the management and staff of Oman LNG focused on in 2011 were:
Production• Improving HSE and Asset Integrity/Process Safety Assurance• Stabilising and Increasing Operational Reliability• Maximising stakeholder value through meeting all our contractual
commitments and deploying the Sohar LNG efficiently and almost continuously throughout the year
Response to Demands• Improving Company’s overall Employee Value Proposition to its staff• Creating 100 new employment opportunities for Omanis inside the
Company and identifying 52 candidates• Expanding our HRD programmes for getting unemployed Omanis
into employment• Offering an additional 100 tertiary level scholarships and• Winning the support of the Government of Oman to establish our
Social Investment Programme as a Charitable FoundationJapanAssisting the Government of Oman in the delivery of two (2) relief cargoes of LNG to Japan and provided over US$ 1 million of aid assistance.
Our ResultsIn this annual report we are happy to share with you the progress we made in all our key challenge areas in 2011. We remain a trusted partner, we believe, to our Gas Supplier and customers throughout the LNG value chain and with communities throughout Oman in the growth, development and diversification of the economy bases of the Sultanate and its people.The management and staff of Oman LNG are aware that our success would not be possible without the continuing guidance and support of our shareholders, the Board of Directors and its Chairman. We also recognise the opportunities that have been created for all of us through the continuing growth of Oman, a result of the remarkable vision and stewardship of His Majesty Sultan Qaboos bin Said. We congratulate him for his energy, insightfulness and wise leadership and wish him good health and continued wisdom in the years to come.
Dr. Brian BuckleyGeneral Manager & CEO
14
Chief Executive’sSummaryAnnual Report 2011
Annual Report 201115
ManagementTeam
Dr. Brian BuckleyGeneral Manager &
CEO
Amor Al Matani Deputy CEO
Adnan RajabChief Commercial Officer
Shukri Al MandharyChief Human Resources Officer
Rene de NierChief Operating Officer
Maqbool Al LawatiChief Financial Officer
Ali Al HasharChief External Relations Officer
Annual Report 201116
In 2011, Oman LNG remained committed to its policy of no harm to People, Assets, Environment & Reputation. We therefore re-launched the 12 Life Saving Rules for all staff and contractors to re-assure and re-focus on all of the good HSE practices. Some of the achievements of the year included:
HEALTH AND SAFETY• By end 2011, Oman LNG and its contractors
had worked 570 days (more than 4 million man-hours) without a Lost Time Injury (LTI). The re-focus and re-launch of the 12 Life Saving Rules had significant impact on achieving this record, along with the increasing engagement and intervention by employees to prevent unsafe working practices, which is reflected by a total of 4862 unsafe act & condition observations and reported safety walks.
• Oman LNG adopted the implementation of the HSSE and Social Performance Control Framework (HSSE & SP CF). In 2011 we achieved just over 30% completion progress, with a target of 80% planned for 2012 and 100% completion in 2013.
• Oman LNG revised its Hazards and Effect register and utilized the Bow-Tie methodology to review all major hazards in the Red, 5A & 5B risks of the Risk Assessment Matrix. This demonstrates that Oman LNG effectively manages all risks to as low as reasonably practicable (ALARP).
• Oman LNG carried out numerous HSE improvement programs and awareness sessions to promote compliance to
requirement of both Omani legislations and HSSE & SP CF, particularly in the areas of Heat Stress Management during the summer months, Fatigue Management, Road Safety - introduction and training of Bus-Monitors for all school and staff and contractor buses.
• HSE week with the theme of “You and I Comply” offered an opportunity for staff, contractors and families to reflect on good Process and Personal Safety practices at work and home, Health care enlightenment on Breast Cancer / free screening exercise. All these were to build on commitment to compliance with safety rules and promote Healthy Living amongst OLNG family.
• As part of emergency preparedness and business continuity all planned emergency /drill exercises were carried out and crisis management exercise to test the business continuity were part of the 2011 achievement.
• The company implemented a comprehensive medical insurance scheme for all Omanis and direct hired personnel.
ENVIRONMENT• After a transfer agreement was reached with
two Omani lube oil recycling companies, 44 tons of spent lube oil (13% of our hazardous waste in storage that has accumulated over the last 12 years) were collected by the oil recycling companies for processing and reuse.
SECURITY• Compliance Certification of ISPS Code
was renewed and issued by the Ministry of Transport and Communications for the period
of one year (annual renewal). No inspection visit was conducted.
• Pedestrian gate project between administration area and contractor yard was completed and the gate was successfully opened for use. This project was constructed for the safety of contractor’s staff to avoid crossing the road between the complex and contractor yard area.
• Project of installation of Security Access management system at Sur Town Office and Learning Center was completed and linked to the main security control room.
QUALITY• Oman LNG had been fully re-certified by
the newly appointed third party certification body Vencotte of its Management System ISO 901:2008 Series and ISO 14001:2004 Series the Quality and Environmental Management System
• The company was certified for OHSAS 18001:2007 Series on Occupational Health and Safety. Prior to the certification, Oman LNG conducted a gap analysis against this standard and later was successfully certified by Vencotte the certification body
• The Company’s Laboratory Management Systems had been audited and successfully obtained reconfirmation of its ISO 17025:2005 accreditation by RvA the accreditation body for Laboratory. Areas of improvement were highlighted as a result of the surveillance audit with corrective and preventives measures had been addressed and confirmed by the accreditation body RvA.
Key Highlights Beach cleaning exercise has become a regular activity during the HSE Week.
HSSE Excellence
Annual Report 201117
Quality ISO Certifications demonstrate company’s adherence to global quality standards.
HSE WeekIncreasing awareness of health, safety and environment through interactive sessions.
Work-Life Balance Encouraging staff to participate in various sporting activities.
Protect yourself against a fallwhen working at height
Obtain authorisation beforeoverriding or disabling safety
critical equipment
Verify isolation before workbegins and use the specified
life protecting equipment
Obtain authorisation beforeentering a confined space
While driving, do not useyour mobile and do not
exceed speed limits
No alcohol or drugs whileworking or driving
Wear your seat belt
Follow prescribed journeyManagement plan
Work with a valid WorkPermit when required
Conduct gas testswhen required
Do not smoke outsidedesignated smoking areas
Do not walk undera suspended load
Year 2007 2008 2009 2010 2011
Lost Time Injuries 0 0 2 1 0
Total Recordable Cases 2 3 3 4 2
First Aid Cases 6 7 6 23 10
Near Miss Reports 335 273 187 108 58
Unsafe Act Audit Findings 1519 1739 2530 2642 4287
u u u
12 Life Saving Rules
Key Performance Indicators
Health • Safety • Securi ty • Environment • Qual i ty
0
0.1
0.2%
0.3
0.4
0.5
2007 2008 2009 2010 2011
0.2
0.3
0.2
0.3 0.28
Flaring (as % Weight of Feedgas)
• 0.28% of total feedgas to plant was flared against target of 0.289%.
Annual Report 201118
Commercial Activities
Key Highlights
• A total of 136 LNG cargoes were produced and delivered, 87 for Oman LNG inclusive of 2 relief cargoes to Japan after the earthquake in March. The remaining 49 cargoes were for our sister Company Qalhat LNG SAOG
• 37 condensate cargoes delivered (for Oman LNG and Qalhat LNG)
• Achieved utilisation level of 88% shipping available capacity and accomplished outstanding performance compared to the target level in the KPI through sub-chartering the vessel 'Sohar LNG' into shipping market without any long-term commitment
• Oman LNG receives feedgas from Petroleum Development Oman’s (PDO’s) upstream facilities in Barik, Saih Rawl and Saih Nihayda
Hosting IGU Regional Roundtable Forum to address the challenges and opportunities in the industry.
Number of Cargoes Delivered per year
50
60
70
80
90
100
110
102 102
95
89 87
20072008
20092010
2011
Annual Report 201119
ProfileRegular participation at local and international conferences and exhibitions.
Relationship Robust relationship with buyers.
Deliveries Long-term buyers: Kogas, Osaka Gas and Itochu Corporation.
u u u
• Prices of LNG cargoes are linked to Japan Customs-cleared Crude (JCC)
• Moss and Membrane type vessels are used in transporting LNG
Moss Vessel
Membrane Vessel
LNG Cargoes • NGL Cargoes • Shipping Capacity • Diversions • New Agreements
20
25
30
35
40
39
35 3536
37
2007 2008 2009 2010 2011
Number of NGL Cargoes
0
20
40
60
80
100
90 8587
47
88
2007 2008 20092010
2011
Utilisation of Shipping Capacity
% o
f Util
isatio
n
0
2.5
5.0
7.5
10.0
9.1 8.7 8.68.8 8.7
1.3 1.7 1.81.6 1.7
2007 2008 2009 20102011
LNG Production and Capacity
MTP
A
■ ■ LNG Production (MTPA) ■ ■ Unused Capacity (MTPA)
Annual Report 201120
Oman LNG's world-class operations.
Operational Integrity
Key Highlights
Operations
• LNG production stood at 8.7 million
tonnes per annum (MTPA), against
nameplate capacity of 10.4 MTPA
• Unused nameplate capacity of 1.7 MTPA
• Utilisation of plant was 83.7% of the
nameplate capacity
• No effect from storms and deep pressure
weather conditions
Reliability
• Complex Reliability was 96.1% against a
target of 97.9%
• Plant Availability was 91%
Annual Report 201121
Reliability • Availability • Capacity • Asset management
Building Capacity Young hands inducted into LNG operations.
Shutdown Omani staff are fully equipped to lead the shutdown process.
ShipmentLNG Barka at the jetty.
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NGL Production in Tonnes
200,000
220,000
240,000
260,000
280,000273,998
253,306
248,602251,334 251,397
2007 2008 20092010
2011
Plant Reliability (%)
90.0
92.0
94.0
96.0
98.0
100.0
96.3
92.1
94.5
95.8
2007 2008 2009 2010 201190
92
94
96
98
100
97.6
98.8 98.8
95.896.1
2007 2008 2009 2010 2011
91
Plant Available Capacity (%)
% %
0
1
2
3
4
5
3.8
4.3
4.8 4.54.7
2007 20082009
20102011
Annual Report 201122
Staff Development
Key Highlights
• In response to His Majesty’s request to create employment opportunities for nationals, Oman LNG offered 100 direct job opportunities, and 200 job placements through its comprehensive Social Investment Programmes
• Training partnerships were established with Oman Shipping Company and Qalhat LNG
• As part of its community development initiatives government officials from the Public Establishment for Industrial Estates and Ministry of Education were invited to participate in Oman LNG training courses
• 25 staff graduated from BTEC, degree and certified programmes sponsored by Oman LNG
• 47 new joiners – a record number – enrolled in company’s Learning & Development Centre
• New business simulators introduced in Learning and Development Centre workshop
The hi-tech plant is operated by skilled Omani workforce.
Investment in Training & Development
US$
mill
ion
Annual Report 201123
Recruitment • Retention • Learning • Development
Training Abundant investment on manpower asset.
Career Fair Participating in local career fairs to attract young talents.
Staff Recognition Long Service Award highlighting staff's commitment and dedication.
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Expat. Joiners Expat. Leavers Net Expat. Intake/ Exit
Omani Joiners Omani Leavers Net Intake/ Exit
Omani Total Staff
-40
-20
0
20
40
60
80
23 31
9 15
73
-12-22
-9-10
-13
11 95
60
20072008
20092010
2011
0
100
200
300
400
500
343 334 343 348
409399 402 398 402
465
2007 2008 20092010
2011
-20
-15
-10
-5
0
5
10
15
20
911
1416
10
-17 -17-18 -17
-3-8
-6 -4-1
7
2007 2008 2009 20102011
Omani Joiners & Leavers
Employment Profile
Expatriate Joiners & Leavers
Key Highlights
REVENUES & NET INCOME AFTER TAX (NIAT)• Revenue in 2011 was US$ 3,963
million, US$ 832 million higher than 2010. This was despite two (2) fewer LNG cargoes in 2011 and is mainly due to higher average energy prices – US$ 101.68/bbl in 2011 compared to US$ 77.42/bbl in 2010
• Net income after tax in 2011 was US$ 1,782 million, an increase of US$ 400 millions over 2010
OPEX & FINANCING• The Company’s operating expenditure
in 2011 was US$ 158 million aganist the approved budget of US$171 million. Savings were mainly realised through lower financing costs associated with the Company’s long-term loans and increased fixed deposits’ income from working capital managements
• Overall Contractor Omanisation mounted to 78%
Annual Report 201124
Cost Leadership
Revenue vs. Net Income After Tax 2007-2011
A cross-section of the Finance team at the Company warehouse in Sur.
-
1,250
2,500
3,750
5,000
2,950
4,445
2,611
3,131
3,963
1,335
2,225
1,137 1,387
1,782
20072008
20092010
2011Revenue NIAT
US$
mill
ion
Annual Report 201125
Revenues • Costs • F inancing • C&P
Contracts Mutually beneficial contracts to company and suppliers.
RevenueRising energy prices drove Company revenues 25% higher than 2010.
OpexAstute financial management has guided expenditure.
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Contractors & Suppliers
US$ Million Percentage to total orders
InternationalOrders
OmaniOrders Total Orders International
Orders %Omani
Orders %
Blanket Orders 0 436,378 436,378 0.00% 100.00%
Purchase Orders 7,875,747 8,195,429 16,071,176 49.01% 50.99%
Stand Alone Work Orders 5,612,186 9,189,548 14,801,734 37.92% 62.08%
Contracts Awarded 6,736,511 49,359,525 56,096,036 12.01% 87.99%
Grand Total 20,224,444 67,180,880 87,405,324 23.14% 76.86%
SIP
Interest
Manufacturing
Corporate
Manpower
Shutdown
8% 13%
11%
19%
20%
29%
0
25
50
75
100
125
150
175
200
193
158172
150
158
2007 2008 2009 2010 2011
Historical Opex 2007-2011
Opex 2011 (Budget)
US$
mill
ion
Annual Report 201126
Key Highlights
In December 2011, the Cabinet of Ministers approved the establishment of “Oman LNG Development Foundation”. The purpose of the Foundation is to ensure the sustainability of Oman LNG’s successful and extensive Social Investment Programme (SIP) which is funded by its shareholders dedication of 1.5 per cent of the company’s annual net income after tax (NIAT).
The Company has invested over OMR 35 million in more than 270 projects in its first 10 years of operation.
Some examples of Oman LNG’s Social Investments in 2011 include:
INFRASTRUCTURE• Sponsoring of modern irrigation network project in Jalan Bani Bu
Hassan• Rehabilitation improvements for 30 house units for people with
disabilities, in Sharqiyah - South Governorate
HEALTH• New Laparoscopy in Sur Hospital• The development of intensive care unit at Sur hospital• Medical Equipment, Beds and Laparoscopies, for Khoula Hospital
EDUCATION• Sponsoring Internal Diploma Degree Scholarships for students with
limited income and other special cases• Equipping Laboratories and Workshops of Engineering Department
at Ibri College of Technology • Supporting the Laboratory technology project for a number of schools
in Al-Wusta Governorate• Setting up two new high-tech laboratories and equipping the institution’s
Hotel Management Training Centre at Oman College of Tourism
SKILLS FOR EMPLOYMENTTraining into employment for:• 75 Omani citizens in AutoCAD programme in 9 months• 30 Omani citizens in Technical programmes in 9 months (10 Electrical
technician, 10 Welding, 10 Mechanical technician)• Acquisition of home manufacturing tools and equipment for 72 women
who successfully completed the training programme “Made in my Home”• Establishing 14 carpet-weaving workshops in Sharqiya South &
North Governorates• Financing a leadership programme for ladies in Omani Women’s
Association in Muscat• Cheese manufacture in Salalah
CULTURE & HERITAGE• Furnishing Sinaw Public Library
SOCIAL• Provision of a bus to transport students to Al Wafa Social Centre in Sur• Supporting various needs for 3 Child Growth Houses in Ibri• Funding of special education diploma programme for volunteers of
Al Wafa Social Centres• Financing acquisition of essential pieces of equipment for Al Wafa
Social Centre of Nizwa
EVENTS & EXHIBITIONS • Oman LNG co-hosted the International Gas Union’s Middle East
Roundtable Forum on Geopolitics and Natural Gas in Muscat• The company was one of the main sponsors in GasTech Exhibition in
the Netherlands• Oman LNG co-sponsored 7th Gas Arab Summit which was held in
Muscat for the first time
Brand & Reputation
Graduation ceremony of technical and AutoCad training programmes funded by Oman LNG.
National Fund • Community Fund • Sponsorship & Donations • Human Resource Development
Annual Report 201127
• Investing in PeopleInvestment in new laboratories in institutions like Musana College of Technology will nurse students with technical skills that are imperative to Oman’s growing industrialisation.
• Championing Innovations New dental equipment, funded by Oman LNG for the Taribya Al-Fikriya School of the mentally disabled at Al-Khuwair has led to better dental care for mentally-challenged patients.
CSR Workshops held to address and introduce different aspects of the CSR business.
HealthcareMajor agreement with Ministry of Health supplying equipment for accurate diagnosis of illnesses.
SustainabilityDevelopment Foundation Approved.
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Community Fund Human Resource Development Sponsorship & DonationsNational Projects
-
2.0
4.0
6.0
8.0
10.0
4.5 4.6
3.6
4.5
3
2 2 2 1.5
2.2
5 4.9
7.7
6 5.54
0.5 0.71.3
1.20.85
2007 2008 20092010
2011
US$
mill
ion
Social Investment Programmes Budget - SIP
• Empowering CommunitiesAs part of our commitment in setting up a tailoring workshop in Qalhat village, Oman LNG sponsored the training of 50 women in tailoring, to equip them with skills required to run the workshop.
Annual Report 201128 Annual Report 201128
OurNumbersstaff - Graduated with Business and Technology Council (BTEC) from the company’s Edexcel Accredited Training Centre.
million OMR amount invested in 270 projects all across the Sultanate of Oman in the past decade.
of yearly allocation for Social Investment is put aside as Reserve Fund to secure the future viability of Oman LNG’s Social Investment Programmes.
million USD, approximately - The amount expended on staff training and development.
staff are undergoing professional courses, sponsored by Oman LNG.
Information provided are as at
December 2011.
Omanisation - Oman LNG has remained at the forefront of attracting and retaining the best talent with Omani nationals occupying 5 positions of the seven slots in the company’s Management Team.
of staff are sponsored by the company for tertiary education.
of the company’s
for Social Investment.
www.omanlng.com
22
35
35%
4.7
114
88.9%
9%
1.5%
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