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NNPC GMD blames expatriates, local firms for high oil production cost

Nigeria’s highest and unacceptable crude oil production cost comes from indigenous oil firms, the Group Managing Director, Nigerian National Petroleum Corporation, Mele Kyari, said on Thursday.

Kyari, who said this during a Seplat Energy Summit 2020 webinar, also noted that the deployment of expatriates was contributory to high production cost, as some companies produced crude oil for as high as $45/barrel.

The cost of the commodity had hovered around $43/barrel in about two weeks.

Kyari had recently disclosed that some oil firms in the country were producing at over $90 per barrel.

The NNPC boss, however, stated that few companies such as Seplat would achieve the target of cutting down the production cost to $10/barrel by 2021.

Kyari said, “When you come to the indigenous oil companies, and I’ve made an exception of Seplat and, of course, a few others, I can share with you that the highest cost of production that we have in this industry comes from companies operated by local oil firms.

“Unfortunately as it is, that is the reality.”

He insisted that production cost must be reduced in the oil sector, as there was no way way the country could sustain the current cost structure.

“Some of our assets are producing oil in the excess of $45/barrel. It is simply not feasible in today’s circumstance,” Kyari said.

He added, “It simply also means that probably you are subsidising the upstream, and, of course, nobody subsidises the upstream anywhere in the world. But that is what we are practically doing.”

Kyari also stated that surprisingly, some multinational oil companies and partners of NNPC were also producing oil at completely unacceptable prices.

He joined the Minister of State for Petroleum Resources, Timipre Sylva, to call on operators to cut down on oil production cost.

Sylva, who gave the opening remarks at the summit, stated that government had rolled out strategies to reduce oil production unit cost.

Kyari called for the enhancement of local skills in the sector, stressing that expatriates were so many in the industry and this often increased running cost.

He said there was a need to create adequate local skills in the Nigerian oil and gas sector.

Kyari said, “Today, with all the best of our intentions, we still have significant inflow of expatriate skills and staff. This is not available in our industry; it is a very global industry. You cannot have all the skills but today you still need to work on this.

“So that by having local skills available you are able to reduce cost, you are also able to create wealth in communities where we work throughout the country and the continent.

“And this will contribute to economic growth, bringing down the cost of production and, of course, introducing more efficiency in our business.”

On the non-passage of the Petroleum Industry Bill for more than a decade, Kyari said he was confident that the bill would get through before this year ends.

“First of all, let me defer the question about the PIB to the Minister of State for Petroleum Resources, but I’m aware that as we draw to the close of this year, we will be in a position to get through this legislation around the PIB.”

The minister, however, was unavailable at the time to comment on the bill.

Kyari also spoke on the country’s refineries. He noted that all four refineries were down.

He stated that based on this, Nigeria was importing practically every refined petroleum product being consumed across the country.

He said the corporation was working on fixing the refineries, as well as on establishing condensate refineries in certain areas.

The GMD said several licenses had been granted to private investors by government for the establishment of refineries.

He, however, noted that the licensees could not build the facilities because of issues around the market structure.

“But I’m happy that we have transited into a deregulated market, which means that companies can now predict what will be the price of petroleum and they can now have basis for investment,” he said.

He said the country’s three million barrels per day oil production target was attainable, as Nigeria attained about about 2.45 million barrels per day some time in April this year.

He further told participants at the summit that gas business was the future of the sector, adding that it was the only sub-sector that was not impacted adversely by COVID-19.