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Cost, contracting cycle top oil industry stakeholders’ concerns

Cost, contracting cycle top oil industry stakeholders’ concerns

Dr. Ibe Kachikwu, Minister of State for Petroleum

The high cost of production and long contracting cycle in Nigeria have been identified by industry stakeholders as two major issues that must be urgently addressed to ensure the growth of the oil and gas industry.

The stakeholders, who converged on Lagos for the 2017 Nigeria Annual International Conference and Exhibition organised by the Society for Petroleum Engineers from Monday to Wednesday, discussed how to ride the waves of boom and bust in the industry.

The Minister for State for Petroleum Resources, Dr. Ibe Kachikwu, said the country was being left behind by its peers that had dramatically reduced their costs of production.

“When you look at the cost of production in Nigeria, it remains blatantly high. Our cost per barrel today is about $27 per barrel for JV (joint venture) fields. In Saudi Arabia, it is about $9. So, we are way apart in terms of cost that anything that happens will hit us very hard,” Kachikwu said.

He added that the government would compel a reduction in the cost because “there is no way this country will produce oil at this sort of swelling prices that we see; there will be no margins left for this country.

“For me, you rather leave the oil in the ground than produce at a cost that doesn’t make sense. So, cost is going to be a very high driver. So, that is certainly one area we are focusing on; we are working collaboratively with oil companies. But let’s make no mistake about it: If we cannot negotiate it down, we will compel it or we will stop the production; it does not make any sense.”

The Managing Director, Integrated Data Services Limited, a subsidiary of the Nigerian National Petroleum Corporation, Mr. Roland Ewubare, said he was in a meeting on Monday with the Economic and Financial Crimes Commission over a petition that came from the National Petroleum Investment Management Services, another NNPC subsidiary.

He said, “We were discussing a contract, a tender process that began in 2002 and the award, which was the basis of the petition by the contractor, was made in 2013. It took 11 years to put in place a diving contract. Now, the operator has to remain in business and do its work; diving is absolutely essential to its process.

“The operator’s argument was, ‘While we were waiting for the NNPC to go back and forth and muck around with putting a contract in place, we had to, on a stopgap basis, go on with the existing contractor we had.’ The issue around the contracting cycle is a big one; we are trying to drive it down to six months.”

The Executive General Manager, Total E&P Nigeria Limited, Mrs. Chinyere Uche, said the NNPC had over the years become more involved in the contracting process, adding, “Today, we have an industry where for any contract, you have pressure coming in from everybody.

“If we are to have a strong and robust oil and gas industry, we have to really cut it off from government and politicians. Costs have gone down everywhere but in Nigeria it is becoming practically impossible to reduce costs,” she added.

The Executive Secretary, Nigerian Content Development and Monitoring Board, Mr. Simbi Wabote, said the board was looking at operational excellence with respect to cost leadership, reduction in contracting cycle, and in terms of increasing productivity and the bottom line.

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