Transformative Change at PPL

t
os
LCA039
rP
LEADING TRANSFORMATIVE CHANGE AT PPL
We have a responsibility towards building the nation. We cannot take the approach of a private
company. Our discoveries are not just going to generate returns, they will generate jobs, support
industries and power the growth of the country. – Wamiq Bokhari (CEO & MD PPL)
yo
Wamiq Bokhari, CEO of Pakistan Petroleum Limited (PPL), was looking at the latest performance figures for
June 2016 in the company’s monthly newsletter Progress. He was very proud of the organisational turnaround he
had orchestrated since taking over the reins of the company just fifteen months ago. Immediately upon his arrival
in the company, he changed the organisation’s structure from a traditional functional-based setup to a hybrid
asset-based setup. The restructuring effort entailed hiring new people, re-assigning current employees to new
roles, rolling out an aggressive training and development plan for all employees and implementing a revised
performance evaluation and reward system.
op
Under Bokhari’s leadership, the company managed to achieve many firsts in the past 15 months: deepest oil
discovery in the country, maximum number of wells drilled in a year (23), record production of 164,535 tonnes
of barite1, record pace of construction at Kandhkot Gas Field, record completion of Adhi Plant’s ATT2 in 12 days,
and record reduction in procurement cycle.
Despite these landmarks, due to a sharp drop in oil price, the company’s profitability had been affected: there was
tC
a 48% drop in profit after tax between July-June 2014-15 and July-June 2015-16. Similarly, earnings per share
continued to decline over the same period from PKR 19.47 3 per share to PKR 8.744 per share. An employee
engagement survey conducted in October 2015 showed more than 50% of the employees to be moderately to
severely disengaged. Since the timing of the survey was just after the change process had started, according to
Bokhari the survey gave a good idea of the changing climate, but was not an indication of the success or failure
of the change initiatives.
Bokhari took a great deal of satisfaction from the results he had accomplished in PPL as a result of his change
No
initiatives. However, given the limited term contract of his tenure (three years), he was concerned about the extent
to which these changes had been institutionalised, and whether the changes would sustain if he were to leave at
the end of his tenure. Furthermore, there was an increased level of anxiety as a result of the recently implemented
forced ranking in the performance evaluation system.
1
Mineral used in drilling.
Do
2
Annual turnaround time (downtime for maintenance and repair).
3
In 2014-2015, the average exchange rate for the U.S Dollar to the Pakistani Rupee was 101.80. Source: State Bank of Pakistan,
www.sbp.org.pk/ecodata/ibf_arch.xls, accessed November 25, 2016.
4
In 2015-2016, the average exchange rate for the U.S Dollar to the Pakistani Rupee was 103.65. Source: State Bank of Pakistan,
www.sbp.org.pk/ecodata/ibf_arch.xls, accessed November 25, 2016.
This case was written by Dr Muhammad Adeel Zaffar and Dr Anwar Khurshid at the Lahore University of Management Sciences to serve as
basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. This material may not
be quoted, photocopied or reproduced in any form without the prior written consent of the Lahore University of Management Sciences.
© 2018 Suleman Dawood School of Business, Lahore University of Management Sciences
This document is authorized for educator review use only by KHURAM SHAHZAD, University of Management and Technology until May 2021. Copying or posting is an infringement of
copyright. Permissions@hbsp.harvard.edu or 617.783.7860
Leading Transformative Change At PPL LCA039
t
os
ENERGY DEMAND IN PAKISTAN
Pakistan’s sources of energy included oil, natural gas, electricity, nuclear power and alternative energy sources.
Multiple companies, ministries, sub-agencies and regulatory bodies made up the key players in the sector (Exhibit
1). For the past many years the country had heavily relied on oil and gas to meet its overall energy requirements
(Exhibit 2). Depleting reserves and limited discoveries were some of the key issues facing the energy sector5.
rP
Pakistan’s daily production of gas was about 4 BCF6. Government projections showed a shortage of 1.2 BCF per
day. Assuming a totally unconstrained demand7, the government estimated the shortage could be as high as 4
BCF per day. However, if the energy demands of countries were mapped against their growth and development
journey, Pakistan needed far more energy (roughly 16 BCF 8 per day) than the numbers projected by the
government. In 2011 Pakistan ranked 141 st in terms of energy per capita with a requirement of 482 kg of oil
equivalent, compared to India’s 614, China’s 2029, and the United States’ 7032. Historic trends showed that the
world’s energy consumption had been closely related to the world population. Pakistan’s population had
yo
approximately doubled every 23 years which meant that the country’s energy demands would continue to grow
at a rapid rate. New discoveries to ensure future production were lower in comparison to current production
(Exhibit 3) and projected production was expected to fall (Exhibit 4).
According to Bokhari:
It takes us 7-8 years to develop a field. There is no major find today in Pakistan and in the next
10 years hardly anything is coming up. We need to be planning for 30-40 BCFD (Billion Cubic
op
Feet per Day) for the next 20-25 years! We will always be chasing the requirement and will
never catch up.
The historical focus of exploration for gas in Pakistan had been limited to certain areas. Pakistan had 827,000 Km
of explorable area. The Government of Pakistan had issued licenses to explore over 44% of that area. However,
only 10% of this area had so far been explored in Pakistan. Furthermore, the number of exploration activities in
Pakistan since Independence in 1947 had been on the lower side (Exhibit 5). From 1947 to 1983 there were on
tC
average 3.5 wells drilled per year. After the discovery of Badin Oil Fields in Sindh by Union Texas, the interest
of Exploration and Production (E&P) companies increased in the country. The exploration activity picked up
(about 25 wells drilled per year) but mostly in areas where there were very few reserves. In the last five years, the
average size of reserves per discovery was about 3 MMBOE (million barrels of oil equivalents)9, which was
equivalent to Pakistan’s energy requirements of less than 4 days.
PAKISTAN PETROLEUM LIMITED

No
PPL was the oldest E&P company in Pakistan and one of the oldest E&P companies in the world. It was founded
by Burma Oil PLC in 1950 and in 1952 the Sui Gas Field was discovered 10. Over the past many years, most of
PPL’s production had come from three sites: Sui, Kandhkot (discovered in 1959) and Adhi (discovered in 1978
– see Exhibit 6 for a timeline of key events in the company’s history). These fields were depleting but still
contributed about 20% of Pakistan’s gas production as of May 2016 and more than 90% of PPL’s current
production. In 1997 the Government of Pakistan (GoP) purchased about 64% of the equity of PPL to increase its
holdings to 93%, which was subsequently reduced by GoP through IPO and SPO to 67.5%. The company had
limited operations internationally in Iraq and Yemen. PPL also owned the largest mining company in Pakistan –
Do
5
Butt A. N. and Hemani S. S., “Energy Sector of Pakistan (2006-2012): The Impact of Shortfall and Rising Costs”.
6
BCF = billion cubic feet.
7
In other words, if all power plants, industry and gas stations get all the gas they want (source: case writer’s interview notes with PPL
executives).
8
These projections are based on the assumption that the oil and gas composition to meet overall energy demands remains what it is right now
(which is 43% gas and 36% oil).
9
In cubic feet this is just under 18 BCF – Pakistan produces 4 BCF a day so that is just 4 days’ production.
10
13 trillion cubic feet of gas reserves; located at the junction of three provinces (in Dera Bugti, Balochistan, but near Punjab and Sindh
border) and at the time of writing of this case remained the largest discovery in the area.
2
t
os
Bolan Mining Enterprise, which was active in Balochistan. This was a 50-50 joint venture with the government
of Balochistan. There were a total of 85 assets (fields) in the country, 45 were operated by PPL and the rest were
operated through joint venture partnerships 11 (see Exhibit 7 for the company’s recent financial performance).
Furthermore, the Corporate Social Responsibility (CSR) programme of PPL based on the company’s philosophy
of giving back to society had received multiple awards from Pakistan Centre of Philanthropy12.
rP
Changes in Governance in Recent Years
Throughout the history of PPL, CEOs were promoted from within the company and the departure of a retiring
CEO/MD automatically meant that the next in line would assume the role. In September 2011, the government
changed the MDs of five key state-owned oil and gas companies in the country, including PPL, citing “failure to
deliver” as the main reason13. Asim Murtaza Khan, a 29-year veteran of the company was appointed as the next
CEO of PPL. During his three-year term as CEO, the company renewed participation in bidding rounds for
exploration blocks, acquired international blocks in Iraq and Yemen and additional discoveries were made in the
yo
area of Gambat South. However, with his departure in 2014, the board changed as well. Additional Secretary,
Ministry of Petroleum and Natural Resources, Arshad Mirza, was appointed as acting MD in 2014, and a head-
hunting firm was appointed to look for a new MD. Internal candidates were encouraged to apply as well. In March
2015, Wamiq Bokhari, an external candidate with extensive international experience in the oil and gas sector, was
appointed as the new CEO and MD of PPL (Exhibit 8). His appointment was received with mixed reactions:
Wamiq is a professional — there should be no doubt about it,” said an industry official. “But
what happened to the people waiting in line for promotion is very unfair. What about rewarding
op
their effort?14 (Express Tribune, March 19th, 2015),
The general manager said:
I don’t mind the fact that the board has brought someone from outside. At least he is from our
industry and has good international experience.
tC
Change in Organisational Structure
Bokhari, a petroleum engineer with over 30 years of experience in the oil and gas sector, brought in international
exposure from having worked in three major oil companies in USA, Italy and Kuwait.
PPL’s organisational structure did not seem to have evolved since 1950. Today, you will rarely
No
come across a functionally organised E&P company. In a functional setup, nobody takes
responsibility of the asset because everybody claims that they have done their (functional) bit
even as the overall project fails. Also, when you make a new discovery, everybody likes
working on it as they want to be part of the success and the rest of the fields and assets get
neglected. The asset-based setup is more natural to our industry as it forces collective ownership
of the asset over its entire lifecycle and ensures focus on the entire business at all times.
Do
11
One of the partners leads the operations and this partner’s expenses are borne by all the other partners. Drilling costs per day are around
USD 40k per loaded drilling rig (source: case writer’s interview notes with PPL).
12
CSR programme is about PKR 1.2 billion.
13
Sial A. “Govt appoints MDs of 5 state owned oil and gas companies”, Pakistan Today, 28 th September 2011, accessed online at
http://www.pakistantoday.com.pk/2011/09/28/business/govt-appoints-mds-of-5-state-owned-oil-and-gas-companies. Accessed on
November 25, 2016.
14
Hasan, S. 2015. “In a first: PPL throne passed on to outsider.” The Express Tribune, March 19, 2015. Accessed November 25, 2016.
http://tribune.com.pk/story/855425/in-a-first-ppl-throne-passed-on-to-outsider.
3
t
os
In less than two months Mr Bokhari had acquainted himself with people in different tiers of PPL over informal
conversations. He wanted to confirm whether his assessment of the problems and the kind of broad changes
required were in line with the needs of the organisation.
As Bokhari said:
rP
It turned out that most staff was in agreement. It seemed that they were waiting for change to
happen. Still, abrupt change is top-down and it is risky because very few people are involved
in making this huge change. What if we were wrong? We could destroy an important resource
of Pakistan. But since I had been through restructuring efforts before [at KUFPEC], I had the
experience, had seen the results, knew the model would work here and was able to convince
the board.
The board approved Bokhari’s plan to restructure the organisation into an asset-based setup15 with nine assets and
yo
key service areas shared across the assets (see Exhibit 9 for the old and new organograms). Asset-based
structuring necessitated several changes:
First, people from different disciplines had to be placed in assets as opposed to a centralised function. This
highlighted the shortage of manpower in key disciplines. For example, there were 200 people with a background
in finance and accounts but only 14 petroleum engineers. Second, asymmetrical assets in terms of their size meant
some assets like Sui had to hire more people than smaller assets. Third, asset-level accountability meant greater
responsibility for individual employees. For example, previously a petroleum engineer in the functional setup was
op
evaluated with peers on general KPIs (Key Performance Indicators) for petroleum engineers. However, in the
new setup, he had to be responsible for the life of the asset with his KPIs defined specifically in the context of
that asset. Fourth, employees had to develop a broader understanding of the business. Previously, the functional
setup afforded a degree of isolation, where for example, a sub-surface engineer need only be concerned with the
knowledge of his area. However, the asset-based setup meant that the engineer had to work closely with
colleagues from other functional areas to manage the entire lifecycle of that particular asset. This required greater
exposure to the overall business and a greater need for training in non-core areas.
tC
Bokhari created three new departments: corporate planning, commercial and reservoir modelling. The HR
function played a key role as a catalyst in the restructuring implementation. A number of exercises were conducted
to determine suitable candidates for new positions in the restructured organisation.
I interviewed top performers and went through their HR files. Then I had them evaluate each
No
other. So I was able to get multiple different views of the real top performers. Then I sat down
with HR and we conducted a day-long session to assign people to different roles in the
restructured setup.
As a result of the restructuring, a number of people were promoted. Skill gaps were identified across different job
groups and asset requirements to devise recruitment plans for new positions. For example, in the new setup an
engineer had to have knowledge of and training in the core area as well as other subjects such as geology, QHSE
(Quality, Health, Safety and Environment), finance and management skills. A set of courses were identified for
each of these fields with the help of the functional areas. For example, a catalogue of more than 180 professional
Do
development courses was put together which supervisors could use to identify the development needs of their
subordinates.
15
Parums A. M., “Assets are individual fields or logical groupings of fields or other facilities (for example a pipeline network). An Asset
must have sufficient independence of other facilities to be considered as a reasonably stand-alone operation and quasi-business” (p. 32). .
“Environmental Excellence and Profitability in Asset-based Upstream Organisations”, SPE/UKOOA European Environmental Conference,
Aberdeen, 15-16 April 1997, p. 31-35.
4
t
os
Early Wins and Challenges
Bokhari said:
With such a drastic change in a company after so many years, I was really afraid there would
be a lot of resistance. So one of the things I wanted was to get a few quick and easy wins. I was
rP
incredibly lucky here.
The New Cafeteria
Prior to the arrival of Bokhari, PPL had titles for junior and senior executives in its management cadre that entitled
them to different privileges. These practices had existed since the Burma Oil era, reflecting the British Raj
practices. It meant that 65% of the company’s management was treated differently from the 35% that had a posh
lifestyle. For example, there were separate bathrooms for senior and junior executives; there were towels with
yo
names on them for senior executives in the bathrooms; senior executives were served a multi-course meal in the
company’s cafeteria, while junior executives were not allowed to eat in the cafeteria. As one junior executive told
Mr. Bokhari on his third day at PPL, “Sir hum to shudar hain [we are untouchables]. We are not allowed to eat
here [in the cafeteria]”. The same day, Bokhari called the senior management into his room and proposed that the
system should be abolished. Some people raised concerns about the cost of feeding 450 people (instead of 180)
and the lack of space to accommodate all.
Bokhari explained:
op
After listening to them I said I am going to abolish this, and when you walk out of my office
now you are all going to be my ambassadors, and nobody is going to oppose this. The next day
we served all 450 people.
Naturally, some of the senior executives were not pleased.

tC
According to a senior executive:
We used to be served a good meal with soup, salad, two main dishes, dessert and fruit in the
buffet. The dining room was a comfortable place to sit and eat peacefully. The MD changed it
immediately upon his arrival: no soup, salad, one main dish, only fruit or dessert, and a
crowded dining area besides...
It took most employees over 10 years to make it to the senior executive cadre, as a result, many good performers
No
moved to other companies for better titles and a more respectable treatment. The categories of junior and senior
executives were abolished. Job titles were also revised to give greater respectability to the employees who had
been with the company for many years.
The Challenges of Restructuring
Bokhari faced several challenges inside as well as outside of the company during the restructuring process. Since
there were three assets in the central and northern parts of the country, some of the offices from Karachi were
relocated to Islamabad. This fuelled different speculations within the media and political circles that the company
Do
was being broken up and taken out of Sindh.
As Bokhari put it:
The senior management of Pakistan Petroleum Limited (PPL) has decided to shift company
headquarters from Karachi to Islamabad at a considerable cost and inconvenience to the staff.
According to reliable sources, the management of the country's second largest oil/gas
Exploration and Production (E&P) company has divided the company into four groups to
5
t
os
facilitate privatisation with each part being sold separately. (Business Recorder, November 13,
201516)
I had the support of the Minister (Shahid Khaqan Abbasi) as well as the board. So amidst all
the misleading rhetoric in the media and political circles I was saying this is Pakistan Petroleum,
not Karachi Petroleum, or Islamabad or Sui Petroleum. Some politicians were not happy with
rP
this change. People made negative remarks on TV and in newspapers. I was taken to court and
letters were written to NAB (National Accountability Bureau). With the support I had, I decided
to ignore this noise. If you start worrying about these things you can’t make a difference.
Furthermore, there were some people across different tiers within the organisation who were not happy with the
changes and the rapid pace at which the changes were being introduced.
As a senior executive said:
yo
We used to say that once you join PPL there are only two ways of leaving it: you retire or you
die. It seems now there is a third way as well: you can leave. Pension and LPR encashment for
new hires has been removed. On the other hand, senior positions are being filled by people
from outside of Pakistan, attracted through hefty pay packages and joining bonuses, who faced
an uncertain future in their own companies due to the slump in the global oil market.
In some cases, the restructuring required more work. Prior to restructuring, the additional load could have been
op
distributed across resources within the same functional area. Now assets had to have their own resources.
According to a junior executive:
My job description has not changed so much but the quantum of work has increased 200 times.
Sometimes my boss just tells me that we need this tomorrow so I stay overnight to make sure
it gets done.
tC
As a senior manager explained:
We need more resources in the asset-based setup. Previously, I could ask for resources within
my department or give them to others depending on their requirement. Now that’s not possible.
The Adhi asset will not release the reservoir engineer – I need my own.
A senior executive said:

No
We have suddenly gone from gear 1 to gear 5. Work-life balance has gone out of the window.
My team did achieve its stretch targets, and yes I was promoted. But where are we going with
this? Too many changes have been made at too rapid a pace. I think we need to slow down
and consolidate these changes.
Furthermore, there was mixed response towards some changes that were meant to bring PPL in line with the
norms prevalent in the E&P sector. For example, PPL had a 20-10 field rotation system that allowed people to
work in the field for 20 days and take 10 days off. However, the current norm in the industry is a 21-21 day model
Do
in which employees work for three straight weeks and take the next three weeks off.
16
Rasheed, A. 2015. “PPL headquarters being shifted to Islamabad.” Business Recorder, November 13, 2015. Accessed November 25,
2016. https://fp.brecorder.com/2015/11/201511131246024/
6
t
os
One junior executive explained:
I am not too thrilled with the ROTA [abbreviation for field rotation] system. It used to be 20-
10, now it is 21-21. The previous system was working fine – why try to “fix” it? We used to
have a daily food stipend and could use our [20] earned leaves to extend the off days from the
field. Now, the catering has been contracted at high rates, and I no longer have earned leaves.
rP
I can get three emergency leaves if need be, and those too get used if I am travelling to a
remote location.
There were many others who welcomed the change.
As put by a senior engineer at Kandhkot:
None of the people in my team had any exposure to the Kandhkot asset. Some of the people
yo
who were looking after Kandhkot [prior to restructuring] were assigned to Adhi, and one of
my team members was from Adhi, so that became a basis for a great exchange of knowledge
which helped both teams. Previously the workload was functionally distributed, but now we
seem to be moving very fast and our production is improving.
Said a senior executive:
I was in PPL prior to Bokhari sahab’s arrival but left it because I found the whole setup to be
op
too bureaucratic. He brought me back. I built my own team with people mostly from outside
PPL. Each person was hired through the regular process and within the stipulated salary
brackets. We spent the first few months analysing past drilling efforts and consolidating
internal knowledge on drilling. Then we began drilling with new and more informed practices
and have set drilling records within PPL.
Another senior executive felt that “despite suppressed oil prices employees have gotten enhanced gratuity and
tC
improved benefits.” While a junior executive shared, “ROTA is good. I have gone to the field for the first time
so the experience has been quite good from my personal development perspective.”
NEW SYSTEMS AND PRACTICES
Corporate Planning Department
A new corporate planning department was formed. One of the main tasks of the department was to develop a
No
master plan that mapped and helped coordinate all activities across and within different assets.
A senior executive explained:
The well driller may be ready but needs to have the land ready; the land person needs to have
the location identified and acquired; for that, he needs the geologists’ help in approval of
acquiring a particular location etc. So it is a cycle where things are connected.
A dedicated team within the department ensured that the plan was updated on a monthly basis. Furthermore, for
Do
the first time, the department helped develop a five-year strategy plan that laid out the company’s strategic outlook
and success metrics (Exhibit 10). Previously, there was a small team in the finance department that looked after
some planning, and most of the direction and approval came from the board.
The newly formed corporate planning department was given the task of coordinating the development of
Corporate Balance Scorecard (BSC) which was linked to the vision and mission of PPL. This was in turn linked
to the targets and BSC/KPIs of the different assets and resources allocated to each asset and department. Monthly
t
os
Management Review (MMR) began in which scorecards were discussed on a regular basis. A senior executive
shared, “the good thing is that an element of subjectivity has been reduced and the evaluation form is simplified.”
Performance Evaluation System
Bokhari said:
rP
I wanted to propose a new performance evaluation system. However, the board felt that I had
already put in quite a few transformational changes and another one might prove to be too much
for the organisation.
A refined forced ranking system was developed by HR for evaluating individual employees in different assets. A
similar forced ranking system was already in place but was never implemented in spirit (see Exhibit 11 for the
old and new forced ranking system). Several changes were initiated: First, the evaluation year was changed from
yo
the calendar year to fiscal year. Second, a mid-year evaluation process was introduced for the first time with the
view to provide early feedback on the performance of all employees by December. This was tracked and
incorporated in the overall appraisal report of each employee. Third, self-appraisal was introduced, which was
done at the time of the annual appraisal. Fourth, variable pay for performance was introduced and the annual
increments with respect to the performance grades (A-E) were changed. The entire system was built in SAP and
completely automated to remove subjectivity and introduce controls.
A senior executive shared:

op
I have about 10 people in my team. Under the new ranking system, I ended up giving 1 A, 1
B and 1 E. This is different from their appraisal/promotion evaluation. My team is good and I
didn’t want to do this [i.e. give an E]. I am not sure how that team member will receive the
news. He had satisfactory mid-year and final performance, but when you consolidate
everyone’s performance and rank them, someone has to be at the bottom.
tC
Each supervisor ranked his team members. This list was merged by the manager of that function with the lists
provided by other supervisors. The merging process was conducted in collaboration with the supervisors.
Therefore, conceivably, someone at the top of her supervisor’s list may not have ended up in the overall top 5%
(“A” grade) of the department’s ranked list. Senior managers then merged the lists provided by their respective
managers. The final list was prepared by department heads after merging all input from various senior managers.
This evaluation process was conducted between April-June 2016 with the view to announce ratings on July 1 st,
2016.
No
Training
In order to address the skill gaps, skill matrices for each job grade in each discipline were devised by HR with the
help of focal people across different departments within the first few months of MD’s arrival. Within the skill
matrix, core and support areas were identified. This was in turn used to develop a training matrix which helped
in developing individual training and development plans. In view of the huge anticipated requirement of trainings,
Bokhari identified the need for the development of a purpose-built training centre in August 2015 which was
inaugurated on 2nd November 2015. The office space in the West Wharf area in Karachi which was not being
utilised was transformed into two training centres with the capacity to conduct trainings for 100-120 people.
Do
Although PPL invested a lot on training and development of employees through various local and international
public programmes, on average only 3-4 in-house technical trainings were conducted in a year through
international facilitators. Now, the plan was to conduct 3-4 such trainings per month. A total of 19 trainings in
diverse technical areas through foreign trainers were conducted in 7-8 months in these centres since they began
operating in late 2015.
t
os
As Bokhari put it:
Today we bring instructors from outside in those training centres. We conduct classes on soft
and technical skills. Our systems are working so well that our partner companies have started
sending their employees to us. This is helping us with the cost of the centres as well.
rP
The result was an increased number of training hours throughout the year (Exhibit 12). This increased the
quantum of work for both HR as well as the supervisors who had to assign training requirements for their
employees. For example, there were in excess of 100 different types of professional trainings that managers could
choose from for the development of their employees. Furthermore, a new e-learning portal was introduced which
provided access to over 1200 courses from IHRDC 17.
One senior executive shared his point of view thus:
yo
Previously, trainings used to be done somewhat arbitrarily. Now we have a more systematic
and structured approach towards training and development. There is still some more work to be
done in terms of really identifying who needs a particular type of training.
Training needs were now identified for each employee at the time of his or her annual performance evaluation.
The training plan was linked in SAP 18 with the performance evaluation plan. The supervisor of each employee
identified training needs and selected courses from a menu available in SAP based on the employee’s
performance. This plan provided relevant data to the training & development team in HR to organise various
op
training courses throughout the year. In addition, three tiers of development had been introduced.
First, for fresh graduates a new two-year training program was introduced wherein the first year they were given
broad-based training about different aspects of the industry, and in the second year a discipline-specific training
was provided. Second, for young professionals up to job group 8, training was provided in line with the skill
matrix to ensure proper skills development. These skills were developed through on-the-job training, job rotation,
professional courses and eLearning. Third, for senior professionals, a three-year individual development plan was
tC
prepared to develop them for senior management and leadership positions.
Information Technology
Under the restructuring effort, a number of key systems and processes in the procurement lifecycle, asset
operations, training activities and revised performance management system were heavily dependent on an IT
platform that could facilitate the execution of the changes. Previously, SAP had existed in PPL but its use was
limited to very few functions and by a few people. MD set up a multi-disciplinary team of users to understand
No
why full utilisation of SAP had not succeeded in PPL. These team members were removed from their departments
and assigned this task on a full-time basis for a period of three months. The team identified 273 gaps that were
preventing full incorporation of SAP. A KPI was set for the company to resolve 100% of the critical, and 50% of
the total gaps within the year 2015-2016.
Many processes, such as performance evaluation, were largely paper-based. This was a major concern identified
by Bokhari and he addressed the issue immediately upon his arrival. By May 2015, while the SAP User’s team
was still identifying gaps, work began on the design and development of the new performance evaluation system
through SAP19. On July 1st, 2015, the new system was launched with limited features. This launch was critical
Do
since the performance cycle had to be aligned with the fiscal year for the first time. The full implementation of
all the features of the performance evaluation system took six months. However, out of 135 high priority gaps
17
International Human Resources Development Corporation provides online courses for training in the Oil and Gas sector. Accessed
November 25, 2016. https://www.ihrdc.com
18
A German multinational company that provides enterprise software solutions.
19
Previously, paper-based forms of Hay Group’s performance evaluation system were used.
9
t
os
identified in the overall SAP implementation, 95% had been addressed by the IT team by the end of the year (see
Exhibit 13 for a brief look at the changes in the IT platform from 2015-2016).
Quality Health Safety Environment (HSE)
In one senior executive’s opinion:
rP
We have been weak in HSE for two reasons: First, we have never had an aggressive work plan,
and the local regulatory system of HSE and its enforcement have not been up to the mark.
Second, despite many joint ventures, home-grown senior leadership has not had exposure of
latest knowledge with respect to HSE. We could have survived with such weaknesses when we
were drilling one or two wells a year but not when are talking about 22 wells a year!
One of the first things that changed with Bokhari’s arrival was that PPL hired its own HSE field staff. Previously,
yo
contracted staff used to manage HSE-related activities in the field. The transition towards an asset-based setup
further helped the conversation on HSE. The issue received greater attention at the asset level which tended to
get diluted when this information was reported at the organisational level.
A senior executive in HSE shared:
In many organisations in Pakistan, HSE is becoming a core value – various units compete with
each other on this criteria so collectively the organisation is able to improve its HSE
op
performance. In PPL right now we are just in a position to influence people – nobody reports
to us so we are not in a position to enforce these things.
A DuPont safety solutions survey conducted in March/April 2016 still showed discouraging numbers. Similar
results were obtained in 2008. Bokhari said, “We understand the long-term importance of improving our HSE
record. We intend to develop an improvement implementation programme that will help us improve our numbers
over the next few years.”
tC
WAY FORWARD: 2016 AND BEYOND
As Bokhari put it:
Given the enormity of the task and the pace with which we have implemented massive changes
across the organisation, I think we have done well. What’s more, I didn’t do it! It’s the same
people who were here before – with some guidance they have managed to do things better
No
(Exhibits 14-15), cheaper, faster (drilling records in Adhi, Kandhkot and Sui, Exhibit 16) and
of better quality (Exhibit 17). But I think many of the things we have done we should have
done 30 years ago! So, going forward, we will continue at the same pace: spud more wells, do
more joint-venture partnerships, acquire more blocks inside and outside of Pakistan, develop
technical capacity within PPL to do offshore drilling, invest in the training and development of
our staff, strive to be safe and discharge our responsibility as the national E&P as best as
possible. That is the message I intend my ExComm (Executive Committee) to take to their
respective teams.
Do
Many people within the organisation shared Bokhari’s enthusiasm and were buoyed by the leadership he
provided:
A senior executive said:
You may disagree with him in terms of some of the decisions he has made or the pace with
which he has tried to do so many things but I give him credit that he inspires by setting a clear
vision and has the capabilities to drive the team.
10
t
os
As said by the general manager:
More than anything else I think he is a leader because he cares about developing people. You
saw that when he ventured into oil exploration himself through New Horizon. Although their
exploratory wells turned up dry, I heard he looked after the people, he offered health packages
and he conducted the business in a very professional manner. You can see that here at PPL as
rP
well.
Another senior executive commented:
I think he has a crystal clear vision, understands the dynamics of the business end-to-end, and
executes really well according to his plans. Look at the field rotation policy for example. I had
been hearing for the last 17 years that we will change it – but it never happened. Similarly, there
had been some talk about becoming asset-based some time ago, but nobody really had a plan.
yo
But Bokhari came and managed to get these massive changes done within his first 100 days!
One reservoir engineer shared:
I think people who complain that profitability has gone down are ignoring the path he has
already set us on. We are aggressively doing our business instead of just sitting on a billion
rupees worth of cash! Isn’t that what we are supposed to do – drilling? And yes, by its very
nature we will drill, and find many dry wells, but then one well we hit will pay for the other 10.
op
Despite the enthusiasm expressed by Bokhari, there were some who were cautiously awaiting the outcome of the
performance evaluation system and what the new (fiscal) year may have to offer:
According to a senior executive:
Yes, we seem to have achieved a lot, but profitability continues to decline. I understand we
tC
cannot be as profitable at USD 40/barrel as we were at USD 90/barrel but back then we were
not drilling so many wells a year either! Also, on the one hand, we are told to tighten our belts:
so no pension, reduced benefits – car and petrol usage has been monetised, field allowances
have been reduced, and increments have been reduced. On the other hand, returning Pakistanis
have been hired in the senior cadre – naturally on attractive packages – so I am not sure what’s
going on?
As put by a junior executive:

No
I am not sure what to expect with the new performance evaluation system. I mean I have
received a ‘satisfactory’ rating throughout the year, but what does that mean in terms of my
expected rank at the end? I don’t know.
A reservoir engineer commented, “I think one year is too short a period to figure out if we’ve been successful or
not.” While yet another senior executive said, “I think Bokhari has been too rigid in his execution style, despite
the fact that many of his ideas have been good. The bureaucratic system was in some ways taken by surprise with
his approach. He has this illusion of unanimity in a culture where people have never really challenged anything.”
Do
11
t
os
Exhibit 1:
Primary Energy Suppliers
Key Players in the Energy Sector of Pakistan
rP
Exploration Oil Refineries
Companies NRL/ARL/PRL POL Imports
OGDCL/PPL PARCO/BYCO
POL Consumers
Gas Companies OMC
Individual
SNGPL/SSGCL Shell/PSO/APL
Industries
yo IPPs Wapda
Generation &
Gencos
Distribution
HUBCO/KAPCO Hydel
KE
Generation and NTDC/CPPA
op
Distribution Supplying
PEPCO
Power Distributors
GoP Subsidy LESCO/HESCO/IESCO/MEPCO/FESCO
PESCO/QESCO
Users
tC
Power Consumers
Individuals, Households, Government,
FATA
Source: Butt, Arif N., and Shezeen S. Hemani. “Energy Sector of Pakistan (2006-2012): The Impact of
Shortfall & Rising Costs: A Technical Note.” LUMS No. 16-295-2014-2. Lahore: Lahore University of
No
Management Sciences Publishing, 2014. https://crc.lums.edu.pk/crcsearch/16-295-2014-2/details, accessed

November 25, 2016.
Acronyms
OGDCL: Oil and Gas Development Company Limited

SNGPL: Sui Northern Gas Pipelines Limited
SSGCL: Sui Southern Gas Company Limited
KE: K-Electric
NRL: National Refinery Limited
Do
PRL: Pakistan Refinery Limited

ARL: Attock Refinery Limited
PARCO: Pakistan Arab Refinery Company Limited
PSO: Pakistan State Oil
IPP: Independent Power Project
POL: Petroleum Oil Lubricants
LESCO: Lahore Electric Supply Company
NTDC: National Transmission and Dispatch Company
CPPA: Central Power Purchasing Agency
12
t
os
Exhibit 2: Contribution of Oil and Gas to Overall Power Supply of Pakistan
rP
yo
Source: Government of Pakistan. 2012-13. “Energy.” Pakistan Economic Survey, chap. 14:189. Accessed
November 25, 2016. http://www.finance.gov.pk/survey/chapters_13/14-Energy.pdf
op
Exhibit 3: Depleting Reserves
Pakistan Production vs Discoveries in last 10 years

350
Total Production Discovered Reserves
300
tC
250
200
MMBOE
150
100
50
No
-
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Presentation made by MD PPL.

Do
13
t
os
Exhibit 4: Pakistan’s Daily Production of Gas – Projections Beyond 2016
Pakistan Production (BCF/D)

5
rP
4
yo
1
0
2010 2013 2016 2019 2022 2025

op
Exhibit 5: Historical Exploration Activity in Pakistan
60
tC
3.5 exploration wells per year until 1983

50 25.5 wells per year since 1983 (mostly Southern Indus Basin)
Last 5 year Avg. reserves/discovery is 3 MMBOE
40 Exploration wells since 1947
Pakistan ~850
US ~550,000
30
No
20
10
0
1947
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Number of Wells
Do
14
t
os
Exhibit 6: A Selection of Key Events from the History of PPL
rP
yo
op
Note: Exploration Bid Rounds are where the Government bids out acreage for companies to explore on. Companies promise a certain work
programme. After the crash in 2008, many companies started thinking about moving out of Pakistan. When the Bid Round in 2009 was
announced, no foreign company wanted to participate. The Minister instructed OGDCL and PPL to put bids for all blocks in the absence of
foreign companies. Both companies picked up a lot of acreages that they didn’t want. The same thing happened again in 2012 – not a single
company participated from outside. This ended up being a blessing because it left PPL with a lot of acreages. PPL started doing seismic
exploration also.
tC

No
Do
15
t
os
Exhibit 7: Financial Highlights (p1 of 2)
2010-11 2011-12 2012-13 2013-14 2014-15

Financial Performance and Profitability
rP
Operating margin (%) 61 60 58 61 48
EBITDA margin to sales (%)1 68 74 69 70 62
Operating leverage (%) 131 145 -41 111 261
Pre-tax margin (%) 62 67 61 62 47
Net profit to sales (%) 40 43 41 43 33
Return on equity (%) 34 33 28 28 18
yo
Return on capital employed (%) 47 44 36 35 22
Operating Performance/Liquidity
Total assets turnover (times) 0.68 0.65 0.53 0.53 0.43
Fixed assets turnover (times) 1.77 1.87 1.61 1.56 1.18
Debtors’ turnover (times) 3.14 2.91 2.74 3.17 2.42
op
Debtors’ turnover (days) 116.42 125.47 133.26 115.15 151.13
Current ratio 2.94 4.05 2.29 3.81 4.25
Quick ratio 2.85 3.95 2.22 3.64 4.08
Cash to current liabilities 1.08 1.63 0.94 0.99 0.99
Cash flow from operation to sales 0.39 0.33 0.66 0.27 0.31
tC
Capital Market/Capital Structure Analysis Ratios

Market value per share as at June 30 (PKR) 207.07 188.29 211.58 224.34 164.26
Low during the year (PKR) 168.7 160 170.1 188 145.56
High during the year (PKR) 229.8 217.49 229.75 261.8 237.5
Breakup value per share restated (PKR) 47.29 63.38 75.75 92.26 97.36
Basic & diluted EPS (PKR) 2 & 3
No
26.31 31.13 25.53 26.08 17.37

2&3
Basic & diluted EPS - restated (PKR) 15.95 20.76 21.28 26.08 17.37
Price earning ratio4 7.87 6.05 8.29 8.6 9.46
Cash dividend yield (%) 5.8 6.11 4.96 5.57 5.17
Cash dividend cover ratio 2.19 2.71 2.43 2.09 2.04
Do
16
t
os
Exhibit 7: Financial Highlights (p2 of 2)
2010-11 2011-12 2012-13 2013-14 2014-15

Summary of Profit and Loss In PKR millions
rP
Sales - ross (including Govt. levies) 98,613 119,646 123,938 142,960 131,163
Sales - net (excluding Govt. levies) 78,252 96,222 102,357 119,811 104,377
Field expenditure 21,364 26,982 30,603 32,817 42,059
Operating profit 47,655 57,769 59,461 72,694 50,105
Profit before tax 48,365 64,555 62,628 74,547 49,170
yo
Profit after tax 31,446 40,926 41,951 51,417 34,253
EBITDA1 53,525 71,632 70,720 83,443 64,422
1. EBITDA stands for earnings before interest, taxes, depreciation and amortization.
2. The earnings per share for prior years have been restated to take into account the issue of bonus shares in 2006-
07, 2007-08, 2008-09.
3. Convertible preference shares are of insignificant value in the company’s total share capital; therefore, it has a
negligible dilution effect on EPS.
op
4. Price earnings ratio and cash dividend pay-out ratio have been calculated on basic EPS.
Source: Published Financial Reports.
Exhibit 8: Profile of Wamiq Bokhari

tC
A seasoned oil and gas professional, Bokhari has over 31 years of management experience, mainly with three
international big companies Kuwait Foreign Petroleum Exploration Company (KUFPEC), a subsidiary of Kuwait
Petroleum Corporation, Eni S.p.A. and Atlantic Richfield Company, USA.
Bokhari’s professional engagements have entailed assignments in several countries spanning five continents, the
last as Regional Manager KUFPEC, heading all exploration and production activities in Canada and South East
Asia Region, with four country heads reporting to him.
No
He has a bachelor’s degree and a master’s degree in Petroleum Engineering from the University of Texas, USA
and has attended numerous executive management programmes at prestigious institutions, including Oxford
University. He started his career as a GD Pilot in Pakistan Air Force, and held the highest level appointments at
both PAF academies.
He is the Chairman of Pakistan Chapter of Society of Petroleum Engineers and has served as Chairman of Pakistan
Association of Petroleum Geoscientists. He has served on several boards, including Pakistan Institute of
Petroleum (PIP), Pakistan Petroleum Exploration and Production Companies Association (PPEPCA), Lahore
University of Management Sciences (LUMS) and the advisory board of the Petroleum Engineering Department
Do
at NED University of Engineering and Technology, Karachi.
Source: Company Documents.
17
t
os
Exhibit 9: Old and New Organograms of PPL
Pre-Restructuring
rP
yo
op
tC
Post-Restructuring
No
Do
18
t
os
Exhibit 10: Five-year Strategic Objectives and Success Criteria
Strategic Objectives
• Develop people through the best processes to ensure strong skill set and leadership
•
rP
Maximise output from existing producing assets
• Explore in the frontier areas for big finds
• Deploy technologies to unleash gas resources in tight sands
• Increase and expedite exploration and development activity
• Analyse and optimise existing portfolio
• Bring in JV partners – spread risk, shared knowledge and costs
• Acquire new blocks – a sustained increase in activity
• Form alliances with service sector companies to reduce costs
yo
Success Criteria
• The Company’s success will be gauged on
o Arresting production decline and introducing a gradual incline of 5% over the next 5 years
o Sustain increased drilling activity at current levels, especially in frontier areas
o Adding more reserves each year than those produced and sold (over 100% reserve replacement
op
ration)
o Successful utilisation of technology to unleash substantial resources stranded within tight gas
sands
• Annual Balance Scorecards at corporate and functional levels will continue to define operational
efficiency measures against which management performance will be gauged
• Build a learning organisation that continuously evaluates and improves
tC
• Incorporation of best training & development processes for technology and leadership
Source: Adapted from Company Documents.

No
Do
19
t
os
Exhibit 11: Old and New Forced Ranking System
A B C D E
Old system 5% 20% 60% 10% 5%
rP
New system 5% 20% 55% 15% 5%
Variable pay for

30% of basic
performance
annual salary
(annually 20% 10% 5% 0
(not part of
approved by the
base salary)
board)
yo
Annual Merit increase in base salary (approved by the board)
Annual Cost of Living Allowance increase in base salary to compensate for Cola (approved by the board)
Notes:
1. Two bell curves are made – one for Job Group 8 and above and the other for people up to Job Group 7.
2. Changed definition of D – used to be unacceptable earlier (from marginal to acceptable i.e. not fully
satisfactory, did not perform in all areas).
op
3. E: used to be given letters – will continue to get them.
4. In 2015, less than 0.5% received an E grade and just under 3% received A. This is indicative of the
manner in which the previous “forced ranking” system was actually being used. Most E’s were given
to staff who had either resigned or gone on long leave without pay during the year.

tC
Exhibit 12: Training Data (Classroom Only)
2011-12 2012-13 2013-14 2014-15 2015-16

Total number of training hours 24,904 23,016 18,712 20,912 45,564
Number of person-training-days 3,113 2,877 2,339 2,614 5,696
No
As of January 2017 providing on average 5 class room training-days per person per year.
Does not include newly introduced eLearning courses and two-year training provided to fresh graduates.

Do
20
t
os
Exhibit 13: Changes in IT Platform between 2015 and 2016
Projects Product Description

Migrate mailboxes to Microsoft As per license availability, movement of On-Premise users’ mailboxes
public Cloud Office365 to exchange online mailbox, see less without any data loss.
rP
Migrate SharePoint Microsoft Migration of data from On-Premise SharePoint sites to SharePoint
portal sites to Cloud Office365 online sites.
e-Services
Introduce OneDrive Microsoft OneDrive business introduction to users (via email and trainings).
Office365
Replication of local AD Sync Deployment and configuration of Sync Server for synchronisation of
active directory to server for On-Premise Active Directory object with MS Cloud /Azure Active
Azure Active cloud/ Azure Directory.
yo
Directory
Introduce Yammer Microsoft Corporate social network.
Office365
Oil & gas storage – EMC Isilon This project was an expansion in the existing EMC Isilon file cluster
Isilon – archive tier but with different tiers as per the company’s need.
Storage
Tape Libraries for HP Offline backup is part of PPL’s IT backup policy, and to comply with
HO, Sui and DR Sites MSL4048 this policy, it was necessary to replace the obsolete Tape Libraries with
op
new ones. These new Tape Libraries have been procured and deployed
and are being used for the said purpose.
NGF has been deployed to replace the existing obsolete TMG server.
Networks
The solution is providing secure internet to all PPL users and providing
Next Generation
Sophos these services: Web Proxy Gateway, Firewall, Application Publishing
Firewall
(WAF), SSL/IPsec VPN, NATing/PATing, IDS/IPS and online AV
Scanning.
tC
4.6C to To align with SAP Product Matrix, be aligned with the product’s
SAP upgrade (EHP EHP6 – lifecycle and support, gain the advantages of new processes made
upgrade, DB upgrade) ECC7 with available with the new version, reduce the security risk and improve the
Oracle 11g functionality and performance.
SAP
Business
BW Implementation Business Warehouse Implementation with SAP BI server.
Intelligence
No
(BI)
Automation of QHSE
SAP
Processes – incident VelocityEHS Implementation of Cloud based EHS software.

management
Sales and Invoicing SAP SD

Implementation of SAP SD Module for SAP and Billing Process.
Process Module
Hospital Management
Interactive Implementation of HMS system for HO, West Wharf and City Clinic.
System for OPD
Do
Biometric Based
Implementation of Suprema BioStar 2 application and integration with
Attendance Limton
SAP.
management
21
t
os
Exhibit 14: Record Wells Drilled in Operated Areas
rP
Exhibit 15: yo
Source: Presentation made by CEO and MD PPL.
Enhanced Daily Production (MMscfde) Over the Recent Past

op
tC
PPL’s overall share of daily average production from operated and partner-operated fields
No

Do
22
t
os
Exhibit 16: Improved Drilling Rates
Sui Deep Wells: 47% reduction in drilling time
rP
yo
op
Kandhkot High-angle HRL Wells: 68% reduction in drilling time
tC
No
Do
23
t
os
Exhibit 17: Improvement in Output of Gas Fields (Daily Average Production)
Kandhkot Gas Field
rP
Adhi Field
yo
op
tC
No

Do
24

Transformative Change at PPL

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Transformative Change at PPL

Uploaded by

Copyright:

Available Formats

t

© 2018 Suleman Dawood School of Business, Lahore University of Management Sciences

PAKISTAN PETROLEUM LIMITED

The general manager said:

Change in Organisational Structure

The New Cafeteria

Naturally, some of the senior executives were not pleased.

According to a senior executive:

The Challenges of Restructuring

was being broken up and taken out of Sindh.

As Bokhari put it:

As a senior executive said:

According to a junior executive:

As a senior manager explained:

A senior executive said:

There were many others who welcomed the change.

As put by a senior engineer at Kandhkot:

Said a senior executive:

NEW SYSTEMS AND PRACTICES

Corporate Planning Department

A senior executive explained:

Performance Evaluation System

A senior executive shared:

One senior executive shared his point of view thus:

prepared to develop them for senior management and leadership positions.

Quality Health Safety Environment (HSE)

In one senior executive’s opinion:

A senior executive in HSE shared:

WAY FORWARD: 2016 AND BEYOND

As Bokhari put it:

A senior executive said:

Another senior executive commented:

One reservoir engineer shared:

According to a senior executive:

As put by a junior executive:

Management Sciences Publishing, 2014. https://crc.lums.edu.pk/crcsearch/16-295-2014-2/details, accessed

OGDCL: Oil and Gas Development Company Limited

PRL: Pakistan Refinery Limited

Pakistan Production vs Discoveries in last 10 years

Source: Presentation made by MD PPL.

Pakistan Production (BCF/D)

Source: Presentation made by MD PPL.

3.5 exploration wells per year until 1983

Source: Presentation made by MD PPL.

Source: Presentation made by MD PPL.

2010-11 2011-12 2012-13 2013-14 2014-15

Capital Market/Capital Structure Analysis Ratios

26.31 31.13 25.53 26.08 17.37

2010-11 2011-12 2012-13 2013-14 2014-15

Source: Published Financial Reports.

Exhibit 8: Profile of Wamiq Bokhari

at NED University of Engineering and Technology, Karachi.

Source: Company Documents.

Source: Company Documents.

• The Company’s success will be gauged on

Source: Adapted from Company Documents.

Old system 5% 20% 60% 10% 5%

Variable pay for

Source: Company Documents.

Exhibit 12: Training Data (Classroom Only)

2011-12 2012-13 2013-14 2014-15 2015-16

Source: Company Documents.

Projects Product Description

Processes – incident VelocityEHS Implementation of Cloud based EHS software.