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NNPC optimistic crude price may hit $45 per barrel

Raising hope that crude oil price may rise to $40 to $45 per barrel as countries gradually recovered from the pandemic, the Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Mr. Mele Kyari has assured that the reduction of Unit Operating Cost (UOC) of producing crude oil in Nigeria to $10 per barrel by December 2021 is achievable.

He also warned oil companies, both indigenous and international, against padding crude oil cost production in other to remain competitive and also remain in business.

Speaking during a webinar titled: Impact of COVID-19 on the Nigerian Oil and Gas Industry – the Way Forward, organised by Nigerian Association of Petroleum Explorationists (NAPE) on Wednesday, the NNPC boss stated that when he took charge, “we knew all along that our cost of production was very high. Such cost is not acceptable, as a result of lots of issues including structural inefficiencies in our processes.

He said some Production Sharing Companies (PSC) were producing oil as high over $30 per barrel by building in cost of risk that was not necessary, thereby inflating the production cost.

 “It is not acceptable and this cannot continue. Our target is to bring it down to $10 per barrel by December 2021 and this is achievable.

“Any company that does not operate at $10 per barrel cost of production is free to go because the upstream sector is not a subsidised market, ” the NNPC boss said.

He maintained that some of the oil and gas companies had over bloated management structures which impacted on the production cost.“We are going to do things very differently.

We are engaging our Joint Venture partners on the areas of inefficiency that they can do away with.“Also, there is need for adoption of technology to enhance productivity, reduce waste and improve system efficiency, ” Kyari said.

He explained that the COVID-19 pandemic that brought about oil glut in the international oil market made NNPC to sell crude oil with discount, which led to a reduction in the country’s expected revenue.

According to him, this has made the corporation to restrategise on how to move forward and put in place measures that would help to address the challenges going forward.

He explained that the future of the industry was gas, stressing that the Federal Government was committed in judiciously utilising it to improve the country’s economy.

Kyari said the recently signed deal with Siemens would help Nigeria improve power generation, transmission and distribution to 25, 000MW in the next few years.

“No country has developed without having power and what we have to do as a country is to make sure that we establish our power infrastructure.

To do this, the resource we need to do this is the gas that we have in abundance, and it is possible and realistic to achieve this, ” he said.

“There is also an issue of environmental consideration. Contractors will factor all associated risks for doing business here in terms of human resources, materials or whatever you can think of. Every cost has a premium that is related to our environment. Those premiums are so exaggerated, it is not true. Suppliers and contractors have taken advantage of it to hype the cost (of production) in this country and that’s the reality.

“We have become a transactional industry. People are bothered about putting contracts in place, without worry about what is the end value of it. To that effect specifically, regarding our local oil companies, they have the least governance structure, processes are not clearly significant and it has a way of wiping on the International Oil Companies (IOCs) and the end result is what we are seeing today which is producing cost beyond its cost.”