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How Nigeria Can Lower Oil Production Cost to $6/Barrel – Onadeko

How Nigeria Can Lower Oil Production Cost to $6/Barrel – Onadeko

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Gbenga Onadeko is the Senior Vice President, Africa, for Welltec. In this interview, he speaks on how technology can drive down Nigeria’s cost of oil production from $20 to $6 per barrel and the challenges oil service companies face in Nigeria.

Could you tell us about Welltec?

Welltec has been in Nigeria for about 10 years. We started off with Exxon Mobil and have expanded to all the other companies. Right now we work for most of the international oil companies and for a couple of the marginal oil fields companies.

We have helped a couple of them, including the Nigeria Petroleum Development Company (NPDC), to get back production from wells that had been closed over a long time at relatively cost effective rates.

How difficult was it for service companies in Nigeria during the price collapse of oil?

It was difficult for the industry as a whole; especially those of us on the service side. Over 400,000 jobs were lost globally. Nigeria was affected also with tens of thousands of jobs lost in the industry. But what companies like ours that have technology did during that time was to approach our clients because every client needs production. If crude is selling at $100 per barrel and you are making 10,000 barrels a day, if the price halves, in order for you to get the same income, you will need to think of doubling that.

You have technologies that you can take in to help the clients to double their production. The average cost of production in Nigeria is about $20 per barrel, but we are able to get production at about $6 per barrel. So, that kept us busy obviously; that is in Nigeria. But having a regional focus, we were able to expand to other countries.

During the downturn, we did not lose any of our employees. We simply took employees in Nigeria and deployed them to other countries to work.

That was how we navigated the downturn and obviously we did a lot of cost cutting. Downturns are good times for you to readjust and look at how you are operating.

So, we renegotiated contracts; we did the normal things every company would do to make sure that you survived the downturn.

I’m glad to say that we went through that successfully; and you will agree with me we are not yet out of the downturn because the things that are driving the downturn are still there. We still have OPEC doing its best to adjust production to keep going, but you have the shale producers. They are not regulated; all they need is the price to attain a certain level and to open up their taps. We have to look at it for some time.

At $60 per barrel, when the guys open up their taps, how is it going to look like?

We are not yet out of the woods in my opinion. It is encouraging at $60 per barrel, but that has to be sustained over a period of time before we all get comfortable.

What we learnt during that time; we need to make sure we implement them in terms of efficiency and more importantly, the use of technology. Companies like ours that have got technologies that can help the oil companies become more efficient and stand to benefit during the downturn.

Having a low unit cost does not equate to operational efficiency what drives sustained operation. It is for you to be efficient, and we have to start to hold ourselves accountable in the industry.

Assuming the oil and gas industry operates an aircraft, I will not take our plane because it is simply not efficient. When you look at the airline industry; how are they able to maintain reliability, take people from point A to B 99.9% without having an accident; that is what we need to emulate in our industry.

What are the other challenges that service companies face in Nigeria?

Lots of challenges; and one of the biggest is the contracting cycle. When you put out a tender, you have to wait for three years for it to be out. The Minister of State for Petroleum Resources said they had been able to cut that to one year, but one year is too long.

Example, I operate in Israel and we have operations in Nigeria, I have technologies they need in Israel and Nigeria. In Israel they will get me a contract in two weeks in Nigeria they get me a contract in three years. Where am I going to take the equipment to? I send it to Israel it’s as simple as that.

The other big one is the payment for the services that we execute. At times those things take a long time. We have bills to pay also. If we don’t get paid we cannot meet our obligations. We have salaries and our own contractors to pay also.

We did talk about the local content policy which is very good, but the government needs to do something to make it happen.

We don’t want to penalise our operators just because we want local content because at the end of the day the industry shrinks and it becomes self-defeating.

What efforts have you been making to overcome these challenges in terms of getting service companies together to speak with one voice to engage government or the oil companies?

Obviously, in any business there are anti-competitive rules. You need to make sure you don’t collude with your competitors to fix prices. You have to respect those boundaries. Those are some of the things that prevent you and obviously you don’t want to be disclosing your strategies to some of your competitors.

However, our clients are in close dialogue with us. We are able to go to them to tell them our challenges and we work together.

What is Welltec’s ambition for Nigeria this year and in the years to come?

For us, it is simple. We want to promote efficiency through the use of technology; that is what drives and excites us. Every time we go in to help a client solve a problem they couldn’t solve, that is the source of excitement for us.

In Nigeria, we have a lot of activities with the Nigerian independents, most of them are talking about looking for rigs to drill, but we can get them incremental production by looking at their existing assets and deploying technology in those existing assets to get the production; that is our area of focus.

We have got all these completion technology that overtime helps you reduce the cost of your wells and gives you safer wells. We are looking at deploying those in Nigeria.

We have used it at Folawuyo Aje to help them get production in their only producing well. We are using it for NPDC. We are looking at that being widely deployed. By the time you look at all the cost savings, it is like you are getting completion in the well for free.

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