-By Gideon Osaka
Nigeria’s high oil production cost may be reduced drastically going by the determination of the Nigerian National Petroleum Corporation (NNPC), to achieving production cost of $10 per barrel before the end of the year 2021.
Speaking at the 38th Annual International Conference and Exhibition of the Nigeria Association of Petroleum Explorationists, NAPE, which held both physically and virtually, the Group Managing Director, NNPC, Mallam Mele Kyari, stated that for the nation to sustain the growing attraction of more foreign and local investors to the oil and gas industry, urgent action must be taken to reduce the cost of production of a barrel of oil in Nigeria. “Nigeria is one of the most expensive cost-producing countries in the world. And if care is not taken and cost not drastically reduced, we would find ourselves in a position where we would produce oil without buyers,” he said.
Giving an inkling into the economic downturn in the industry, Kyari explained that Nigeria had lost about $3 trillion in 2020 due to the slum in price occasioned by the ravaging COVID-19 pandemic. As a result, he said, the country is left with just two options; either to cut down costs or to increase revenue. “However, what we are more focused on at the moment is cost reduction,” he added.
Corroborating the position of the NNPC, Vice-President Yemi Osinbajo, who was represented by the Minister of State for Petroleum Resources, Timipre Sylva stated that the country looks forward to seeing NNPC achieving a single-digit production cost in no distant time. The Vice President also tasked stakeholders in the oil and gas industry on the need to establish development and research centres across the country as one of the ways of achieving cost reduction, as well as cost-reflective exploration activities.
The World Bank had forecast that crude oil prices would rise gradually from an average of $42 per barrel in 2021 to $44.5 per barrel in 2022 and $47pb in 2023. It also explained that brent crude oil prices may average $41 per barrel during the second half of 2020 and $50 per barrel in 2021. This means that the chances of oil price rising above $60 are very slim.
According to the GMD, NNPC, Nigeria is competing in a global market with countries such as Saudi Arabia who are producing oil at about $5/b. The best of our production cost system is at about $15 to $17 to a barrel. “There are many countries whose cost of production is at least $30 and we are one of them. “When crude oil goes to $32 and you are producing at $30, you are out of business. “And beyond that also, there are competition because people are producing at lower cost than you are.
Industry stakeholders had contended that operating in Nigeria’s Niger Delta region is fraught with risks such as kidnapping, pipeline vandalism and host community youth restiveness. While the IOCs and independents pay millions of naira yearly to public and private security agencies to protect their personnel and facilities, oil sector experts said there is need to leverage on digital processes for optimal efficiency in the oil sector.
Speaking recently at the Asset Management Operational webinar series, organised by the Integrated Data Services Limited of Nigerian National Petroleum Corporation, the Stakeholders said time had come for operators to embrace innovations that will ensure optimal use of resources as well as reduce cost of operation to $10 per barrel.
According to Sophia Weaver, Manager, Production Technology, First E and P, the past few years have been challenging for the sector with so much volatility exacerbated by the Coronavirus pandemic. She explained that continuing with the conventional model of operation would not yield the desired growth in the sector.
Weaver also 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.”
Adding their voices to the urgent need for the Industry to cutdown the production cost per barrel, the Chief Operating Officer Upstream, NNPC Engr. Adokiye Tombomieye and the Managing Director of IDSL, Engr. Ayebateke Bariwei, both of whom spoke during another webinar put together by the NNPC subsidiary with the theme: ‘Leveraging Digital Technology to improve Asset Management Efficiency, agreed that efficient use of technology was an inevitable ingredient to achieve the proposed target next year.
Tombomieye revealed that in the not-too-distant-past, lack of effective technology-driven solutions and uncertainties in the fiscal framework and rising operational costs had impacted negatively on hydrocarbon exploitation, adding that the downturn in the global market should quicken its adoption.
“To become more efficient, the call for digital revolution, he said, “we need to look at our unit operating cost in comparison to other oil-producing countries across the world. There have been significant efforts to reduce unit cost. Over the years, we have had cost as high as $41 per barrel as far back as 2014. Tombomieye disclosed.
He maintained that the recent fall in the international crude oil prices calls for a drastic approach in appraising cost of doing business, stating that NNPC has taken the bull by the horns to remain afloat.
To achieve the $10 per barrel production cost, he went on, the corporation must be transparent and accountable, pointing out that downturn has afforded the NNPC the opportunity to re-strategize and centre its operations around data and remote monitoring technologies.
“This real time solution will eliminate bottlenecks when it comes to accessing quality data and creation of centralized data storage system, all geared towards decision-making and transparency, he said, stressing the need for high performance operations and a motivated workforce were key to profitability and productivity.