Ibe Kachikwu, Nigeria’s minister of state for Petroleum Resources has said that only cost-efficient oil companies will remain in the country following a renewed push to compel companies to cut down on cost of oil production.
Oil companies in Nigeria claim a cost as high as $27 per barrel of oil production, a development that reduces Nigeria’s earnings from joint venture operations. Going forward, “only oil companies which demonstrate high level of cost efficiency in their operations will remain in Nigeria,” said Kachikwu.
Oil markets typically characterised by periods of boom and bust are experiencing some of the worst bust in about 20 years, and this has seen prices topple from a high of $100/bbl in 2014 to sub $30 in the first quarter of 2016. Experts say prices will remain bearish in the medium to long-term.
In anticipation of this development, Kachikwu said the cost of oil producers will now be subjected to rigorous examination. Security, which is usually a component that producers blame for high cost of oil production in Nigeria is seen as overly exaggerated.
Kachikwu in his keynote address at the 41st Nigeria Annual International Conference and Exhibition ( NAICE) organised by the Society of Petroleum Engineers in Lagos, Monday, observed that the future of oil the oil industry in Nigeria is not exciting, on account of the high cost of production, adding that the next five years will be critical, if the nation hopes to strengthen any gains from her huge natural resources.
He further states that policy concerning investment in the oil sector must be long term, as only then can Nigeria attract the needed investors.
Outlining some critical decisions which need to be addressed, the minister of state for petroleum said irrespective of oil pricing, Nigeria must make efforts to save from her oil earnings and this can be achieved through the elimination of systemic corruption which has hindered the nation in the past.
He further pointed out that the Federal Government is intensifying efforts to set incentives to attract new investors by putting in place measures that will take away the government monopoly and loosen the grip of government on the operation, to make the sector thrive.
In the area of investment, Kachikwu said Nigeria needs to look at economic models that have worked for other countries and imbibe them to drive not just investment from America and Asia, but also to drive investment from other African countries.
However, Austin Avuru, CEO Seplat, in his remarks disagreed with Kachikwu on enforcing cost efficiency. “Efforts to control cost should be collaborative, rather than enforcement.”
Avuru insists that operators should not see the current low oil prices as bust, but as a reality for a long time and the focus of policy should be turning oil to an enabler for economic development and domestic energy security, rather than export commodity.
Janeen Judah, 2017 International president of the SPE, in her presentation on the theme of the conference: ‘Riding the waves of Boom and Bust: common objective, diverse perspective’ observed that during downturn in the oil and gas sector, operators are quick to take the retrenchment route as their first action point, which they see as solution to saving cost.
Judah however said that innovation is a strategic solution to the volatile oil and gas sector today, adding that organisations rather than retrench, should seek out innovative ways to add value to their operations at a very reduced price.
According to her “Big Data is another strategy that will help the oil industry in the future to manage and transform their operations in the oil and gas space.”
