…Petroleum to remain relevant in the next 30 to 40 years
…Nigeria has highest personnel cost in the oil industry
…There will be massive investment in gas in 2020
The Nigerian National Petroleum Corporation (NNPC) has the highest equity participation in the oil and gas business in Nigeria. The state-owned oil company operates actively in all the value chain of the industry from upstream, midstream and downstream. It is in the frontline with regards to the oil industry in Nigeria.
The Group Managing Director (GMD) of NNPC, Mallam Mele Kyari, in a panel session on webinar with World Energy Council, said the oil industry is resilience and has survived against all odds. “We all know that the energy industry particularly petroleum will continue to remain relevant in the next 30 to 40 years to come. All indications and assumptions being forecast by any organization have shown that by 2050 petroleum will continue at least 50% to 70% of the energy mix and this business will continue to be relevant.”
The oil and gas business is capital intensive, it means without profit, it will crash, “you can only make money when there is confidence on the business.”
As financial institution, banks view cash flow and consider the future, if there is hope. “I can confirm without mincing words that there is hope in this industry. Banks will put their money into this industry, definitely price will come back, it may not be today or tomorrow, very unlikely.”
Kyari was optimistic that oil price will increase to $45 per barrel before the end of the year. OPEC+ cut and other intervention to ensure balancing between demand and supply in the market are done for more investments.
Due to the current situation there is lull in investment in 2020 with 20% drop which leads to deferment of projects.
Kyari enjoined companies to collaborate in sharing resources, facilities, services and ultimately reduce needless burden for the industry. He said, “the highest personnel cost in the oil and gas industry is in Nigeria, which is not acceptable, something is wrong in the structure.”
There is nowhere any business will allow 15% of its cash flow to pay for human resources and survive in the oil and gas business. It is not possible. Industry operators should be technology driven while making concerted efforts to build local capacity. Huge cost of human resources is impossible for any company operating in the oil and gas space either local or national company. “Today, I know companies whose total cash flow is about 36%to 40% going into personnel cost.” Whereas the average cost of personnel in any organization should never exceed 11% of its total cash flow. It means the structure is faulty and there are more personnel than the company needs.
As a strategy to contain the present situation confronting the industry, Kyari said NNPC will not sack any of its workers but tactically reduce cost and make money for the state-owned oil company.
NNPC has plan to invest in gas particularly when the Minister of State for Petroleum Resources, Chief Timipre Sylva has made it known that 2020 is a year of gas.
Operators have argued that Crude Handling Charge (CHC) is high at a time when the price of oil is low. Kyari said CHC cost is in the excess of $7 to the barrel which is not sustainable, for instance, to move a barrel of crude from Nigeria to China cost less than $2 to the barrel. Then for 50 to 60 kilometres distance the charge is $7 per barrel, obviously, this cannot be explained. The corporation has identified the issues and it is engaging partners in the industry to resolve it.
On the aspect of building human capacity, the GMD emphasized that the corporation is focused on developing young people hence it recruited one thousand and fifty young Nigerians. They emerged from different background and fields – engineering, social sciences, accounting and among others. In spite Covid-19 period, they were employed. He said they have great potentials as the corporation imbibes the culture of inclusiveness across the country to build a global company.
Regardless of challenges, Kyari is hopeful with gas as a succor and collaboration by stakeholders, the industry will resuscitate.
SOURCE: energyfocusreport.com