International Oil Companies (IOCs) operating in the Nigerian oil and gas industry on Wednesday gave conditions for the federal government to meet before the nation could enjoy any reduction in the cost of oil production.
Speaking at the ongoing Nigeria Oil and Gas Conference in Abuja, they stated that for the industry to achieve any reduced cost of production per barrel of oil, the issue of security in the Niger Delta must be fully addressed.
They further noted that non-technical costs, such as money paid to secure production facilities, as well as personnel of oil companies was a major factor responsible for the high cost of producing a unit or barrel of oil.
The Nigerian oil and gas industry is said to have one of the highest production costs in the world at about $26 to $27 per barrel.
“We must be bold enough to take steps to reduce the cost of production, as average cost of production for joint ventures in Nigeria is about $26, $27 per barrel. That absolutely has to come down within the $15 mark, it is a tough order but it is something that we must work on …and I am absolutely committed to driving it because unless we do that, we are not getting anywhere,” said Ibe Kachikwu, Nigeria’s minister of state for petroleum resources.
In order to achieve this, the minister said, there was the need for stakeholders to invest $10 billion every year on infrastructure for the next five years, which will eventually amount to $50 billion.
“Over the next four, five years, we will have to begin to look for ways of bringing into this country an average of about $10 billion of investment in the area of constructing additional oil infrastructure and this is essential if we are going to survive economically,” he stated.
The minister, who promised that the federal government will commence payment of the 2016 Joint Venture (JV) cash call arrears in March 2017, also insisted that there was no guarantee that oil prices may not tumble again to as low as $40 per barrel, while urging companies to cut cost in their operations.
However, Jeff Ewing, who is the managing director of Chevron Nigeria, said the cost of running assets in the industry and security must be drastically reduced before there could be any relative reduction in the unit cost of producing a barrel of oil in Nigeria, expressing further that “these things push up the cost of oil production.”
In his views, Sadiq Adamu, executive director, Mobil Producing Nigeria Limited, argued that long contracting cycles in the industry remain another factor, and that if the contracting cycle is reduced, it will affect the budget for production plans positively and bring down production costs.
Also contributing, Osagie Okunbor, country chair, Shell Companies in Nigeria and managing director of SPDC, said the big drivers of most costs in the oil and gas industry are the service companies that work for exploration and producing firms.
Okunbor however assured that oil companies will soon have a meeting with the National Petroleum and Investment Management Services (NAPIMS) on the issue of cost reduction in the Nigerian oil and gas industry.
Expressing his own opinion on the matter, Nicolas Terraz, the managing director of Total Exploration and Production, said “a lot of stability is required in the industry so as to encourage investors fund projects at a realistic cost of production in order to make the industry function.”
The stakeholders all agreed that “it was not enough to advocate collaboration in the industry without creating an enabling environment for them to operate effectively and efficiently.”
