The cost of producing a barrel of oil in Nigeria at over $20 is very high and uncompetitive compared with what other oil-producing countries, the Group Chief Executive Officer of Oilserv Limited, Mr. Emeka Okwuosa, has said.
He said oil production at above $20 per barrel couldn’t be profitable with appropriate cost management. He lamented that the cost of production per barrel in Nigeria is very high at above $20.
Okwuosa, who spoke to The Nation on the sidelines of the Offshore Technology Conference in Houston, Texas, United States (U.S.), said the fall in oil price is not Nigeria’s problem but that the problem is that of undue cost of production which makes operation uneconomic. He said the rise and fall in oil price was normal in the industry and should be expected.
The Oilserv chief said: “On low crude oil price, what is important to be noted is that oil price never remains the same. It goes up and down and it is driven by market forces, which is basically demand and supply. In some cases, geopolitical forces too. What is important is cost of production.
“In Nigeria, when cost of production presently goes beyond $20 per barrel, it becomes a problem. Compare this with Saudi Arabia where in some of their engagements, production is about $8 per barrel. When crude oil price is even $15 per barrel, they are still making profit. But in Nigeria, at $20, you cannot do anything but to shut down. You can’t spend more than you are getting.
“The main problem is cost of production. When oil price is at $40 per barrel depending on how your industry works,it may still manage it. If it is at $80 per barrel, it is a plus, but it comes with a caveat because the higher the cost of crude, the higher the cost of production because there is this tendency that when oil price is $100 per barrel, exploration and production (E&P) companies will take more risks. Embark on expensive projects because there is money.
He also noted that there is need to drastically reduce the frame in tendering processes of oil and gas contracts as such lengthy periods add to cost escalation. So efforts should be made by relevant agencies to reduce tendering processes in Nigeria to be at par with other countries of the world.
He said: ”I’m not sure that it is the government. I think it has to do with owners of the projects. Whether it is the Nigerian National Petroleum Corporation (NNPC) or the international oil companies (IOCs), which in this case you have National Petroleum Investment Management Services (NAPIMS) being the major partner that controls things. It’s about making a conscious effort to put up a process that fits for purpose. When you start a tender and the tendering process goes beyond six month, you are in a different territory. You have a situation where inflation may have changed, and prices may have changed. Some tendering processes take up to 18 months. That should end, it requires concerted efforts. You have heard the Minister of State for Petroleum Resources, Dr. Emmanuel Ibe Kachikwu say that it has to end. There is need for concerted efforts to streamline the process of tendering to make sure that it is done within a shorter time and that requires directive from the minister, and it is driven down from there.”
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