For Integrated Data Services Limited (IDSL), a subsidiary of the Nigerian National Petroleum Corporation (NNPC), cutting the cost of oil production reported by Nigerian oil companies, which is among the highest in the world after shale oil producers in the US, is now a matter of survival.
The need to reset the cost of production structure in Africa’s biggest oil producing is a topical issue that’s gaining attention of most stakeholders in the oil and gas sector.
Other oil-producing countries like Norway, the United States, Brazil and Organisation of Petroleum Producing Countries (OPEC) members have been innovative and taking proactive measures to reduce the cost of producing oil per barrel while Nigeria remains stuck, a development that remains huge concerns for investors.
At the Asset Management Operational webinar series, organised by IDSL, stakeholders stressed the need to embrace innovations that will ensure optimal use of resources as well as reduce cost of operation to $10 per barrel.
Sophia Weaver, Production Technology manager at First Exploration & Petroleum Development Ltd (First E&P) explained that the past few years have been challenging for the sector with so much volatility exacerbated by the Coronavirus pandemic.
She said that continuing with the conventional model of operation will not yield the desired growth in the sector.
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Weaver stressed the need for operators to be more responsive to fluctuating oil prices, adding that there is need to exert control over the rather high cost of operation to ensure process efficiency.
She said, “Achieving operational excellence involves transforming the way we work and digitalize our processes in areas such as oil well and reservoirs management, drilling, logistics and supply chain management.
“Process digitalization involves the use of digital data and technologies to transform existing business process into more efficient, optimised, more profitable and value adding operations.
“There is need for us to begin to see data as the new oil, data is critical to the development of the sector.”
Speaking further, Weaver said that achieving operational efficiency requires the re-engineering of traditional processes, optimisation of resources and reducing waste.
The slump in oil prices on account of the COVID-19 pandemic notwithstanding, the cost of the production of the black gold in the most populous nation has been hovering around $28.99 whereas it goes for less than $8 per barrel in some countries.
The rate is highest in the United Kingdom where it stands at about $44.33 (based on geological reasons), and lowest in Saudi Arabia at $8.98. Nigeria is believed to be the third highest at $28.99 after Brazil, which produces at $34.99. In Iran, the figure is only $9 and $10 in Iraq.
The Managing Director of Integrated Data Services Limited (IDSL), Ayebateke Bariwei, stressed the need to address perennial issues associated with operational inefficiencies in the sector.
Bariwei noted that adopting digitalised process is key to enhancing productivity, reducing waste and improving system efficiency.
“Process digitalization is about unlocking new value by using digitalised data to change the way things are done.
“Our objective is to ensure that we operate in the industry bringing the unit operating cost to $10/ barrel by 2021”.
The Chief Operating officer of Nigerian Petroleum Development Company Ltd, Western Niger Delta Edirin Abamwa, said that regulators must develop environment that encourages process digitalization and help operators thrive in the sector.
“The operation cost cannot decline in isolation, there is need for an enabling environment, incentives that enable operators modify their ways of doing business and I doubt it this current environment will make that happen.
“We still lack the adequate data to aid effective decision making by operators. We still are not traditionally set up to mitigate disaster shut down, until remedy is carried out.
“It is time to move away from the traditional ways, there are a lot if development that enable operators establish census and determine if machines are operating optimally, these are still lacking among operators today.”
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As Africa’s leading producer of oil, Nigeria is of high status in the hydrocarbons sphere. But the good times are coming to an end according to investors. Nigeria is home to about 37 billion barrels in oil reserves. And while the country has 32 active oil rigs, only 81 wells were completed last year – down from 141 in 2014.
In its outlook for 2020, analysts at United Capital admitted that the high cost of crude oil production, which is estimated at over $20 per barrel remains a sour patch in boosting investment and gaining a competitive edge over other exploration destinations.
Oil exports are the largest single source of oil revenues for the Nigerian state, and anything that makes these more appealing to buyers would help revenues grow. However, production costs are not the only factor at play when it comes to oil revenues.
Local communities continue to be a hotbed for militant activity as they see only a fraction of the money Nigeria receives for its oil exports. This, in turn, makes investors reluctant to commit more funds and other resources to field exploration and development in Nigeria.
Data provided by state owned Nigeria National Petroleum Corporation (NNPC) official demonstrated that one of the company’s joint venture partners had been producing at $93 per barrel in 2019. While this unnamed operator has reduced costs, to $57 per barrel in the 2020, this remains too high.
Costs from production-sharing contracts (PSCS) are lower. The highest cost production from PSCS, which tend to be offshore, came in at $35.97 per barrel, while the lowest was $6.18 per barrel.
Nigeria’s offshore domain is one of the most fertile hydrocarbon provinces in the world. Current oil reserve in the country estimated at 36 billion barrels and over 202 trillion cubic feet of natural gas reserves.
Nigeria’s success in boosting offshore developments will, however, also depend on its efforts to make the regulatory and legislative backdrop more certain for investors.
Writing of the new Petroleum Industry Bill (PIB) had been due to be delivered by the end of July but has been delayed because of the coronavirus. Despite this delay, NNPC boss Mele Kyari was certain that legislation would be delivered this year.
It is time to move away from the traditional ways, there are a lot if development that enable operators establish census and determine if machines are operating optimally, these are still lacking among operators today
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