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NNPC warns against ‘padded’ cost of production by oil companies

The Group Managing Director of Nigerian National Petroleum Corporation (NNPC), Mele Kyari, has 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.

“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.”

He argued that the corporation has started engaging stakeholders on cost reduction before COVID-19 hit the country and stalled such conversations.

“What we did was to look at how we can address. We decided to look into projects together to see how we can work together to reduce cost, the conversation was going on then COVID-19 came and threw the challenges at all of us that oil can now sell around less at $10 per barrel.

“We cannot continue in business unless something is done about the cost and it became a very clear opportunity for us to hype our engagement with our partners. So we have an industry that knows that cost must come down. The result today is that there is a structural shift from what we used to do to where we are going today. We have a clear idea that we may have crude at $10 per barrel by the end of 2021 and it is either you produce at that cost or you shut down. It is either you are in business or you are not. We are no longer in that motion of a business subsidizing the other.”