Oil production still 300% higher than Nigeria’s projection

MINISTER of State for Petroleum Resources, Timipre Sylva, yesterday revealed that Nigeria still spends around $ 30 in producing a barrel of crude oil despite the undulating price of the commodity at the international market.

Although the Federal Government has been making efforts to bring down the cost to about $ 10, the current cost for Joint Venture production is 300 per cent higher than the projected target. Speaking at the launch of the Nigerian Upstream Cost Optimisation Programme ( NUCOP), in Abuja, Sylva put the figure for joint venture production at $ 20/ barrel, and Production Sharing Contract ( PSC) at about $ 20/ barrel.

Oil price has been unstable for over two years, as the Organization of the Petroleum Exporting Countries ( OPEC), and its allies had repeatedly cut supply to the market to defend price. Although the price stood at about $ 60.64 per barrel yesterday, it had slumped into negative in 2020, on the backdrop of the COVID- 19 pandemic.

With Nigeria’s heavy dependence on crude oil for revenue and without refineries to process the crude, high cost of oil production means low revenue or losses, depending on the price at the international market.

Sylva had insisted that there was a need for cost optimisation to keep the oil and gas industry afloat in Nigeria.

“Today’s engagement with industry stakeholders, under the NUCOP, is part of the resolve of this administration to confront this challenge of high production cost. I expect robust discussions and a realistic roadmap to achieve the cost optimisation objectives,” he said.

The Group Managing Director, Nigerian National Petroleum, Corporation ( NNPC), Mele Kyari, also asked stakeholders in the industry to join in working towards reducing operations cost to achieve the $ 10 or less per barrel production cost target.

Nigeria reportedly has the highest personnel cost among global operators, thus making it difficult to produce oil at a profitable price of below $ 10/ barrel. Over 50 per cent of operators cash flow reportedly goes to personnel costs. Kyari said the current reality dictated by the global energy transition and demand erosion occasioned by the Covid- 19 pandemic has made cost optimization imperative.

“It is in our informed interest to optimize our cost of production. The realities of energy transition and investor choices are very much clear to us. There is nowhere in this world where a less cost- efficient operator can survive today,” he posited.

He called on industry players to adopt such measures as transparency, collaboration, efficiency and shared services to help in driving down cost in order to meet the target.

Kyari disclosed that under the NNPC operational theme for the year known as ‘ Execution Excellence’, the Corporation intends to achieve a contracting cycle of six months or less, which would help create efficiency and drive down unit operating cost to sub $ 10 per barrel level.