The Federal Government yesterday launched the Nigerian Upstream Cost Optimisation Programme (NUCOP) to cut down the cost of crude oil production to $10 per barrel.
The new programme is targeted at boosting industry collaboration and process enhancement, according to the Minister of State, Petroleum Resources, Mr Timipre Sylva, at the ceremony in Abuja.
He said of all the nine priority areas given to the Ministry as its operational mandate, reduction of oil extraction cost remains pivotal.
The minister noted that the Ministry has since identified some initiatives to tackle the challenges stacking against lower production cost.
Sylva added that countries such as Iran and Saudi Arabia record lower cost of crude production as opposed to Nigeria.
He noted that high cost would rob the country of its desire to attract investments and remain globally competitive.
The minister also said capital expenditure, operational cost, policy-related elements, weak collaboration, capacity and capability issues, facility reliability, single sourcing syndrome, high magnitude of crude loss, multiplicity of tariff, among others, were issues that needed to be tackled.
His words: “Members of the NUCOP are officials of the Petroleum Ministry, DPR, NCDMB, PETAN, NNPC, among others.
“They’ve found short and medium term solutions. Average total cost is now below $30/barrel for JV contract and less than $20 for PSC. We need to do more. Engagement should reach a consensus on cost reduction. We are making a case for shared services. Our target is 3mpd daily production and 40 billion barrels reserves.”
Sylva assured the gathering that the executive arm of government was on the same page with the legislature to pass the Petroleum Industry Bill (PIB) this year.
“We want to position Nigeria as the best designation for investment in the hydrocarbon sector. The benefits of NUCOP are many. It includes; reducing the contracting cycle to three months or less, prompting efficiency, profitability and competitiveness. Its success is dependent on collaboration of stakeholders,” he added.
In his remarks, the Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Mr Mele Kyari said Nigeria must pull down production cost, describing it as a self interest pursuit.
He said: “There’s a global energy transition. Less cost efficient company cannot survive today. $50/barrel production cost cannot survive. There are issues around synergy that we’ve not achieved. “There are issues of security. Many companies are hiring their own armies and we can’t continue like that. Issues of taxes and others have to be addressed. Our practices must change so that service providers can deliver.
“So, we can achieve economic growth and our partners can derive benefits. It’s not CSR but pure business. We must have the best of fiscal environment and policies so that cost of operation can come down and our target is at least $10/barrel.
“If we do these, tax benefits will increase and profit margin will increase. This is a task that most be done. This partnership will help the country. Crude has hit the $60 and it comes with products price increase. We are trying to keep the country wet. We are engaging with labour. No provision for subsidy in the budget,” the NNPC boss explained.
In his remarks, the Chairman Senate Committee, Upstream, Mr Albert Bassey Akpan said there is a need to take a second look at production cost for Nigeria to remain competitive.
“We must pay attention to the passage of PIB and pass it before the end of 2021. We need to look at tax structure and security issues. There is need for relevant stakeholders to harmonize their logistics structure”, he said
Also commenting, the Executive Secretary of the Nigerian Content Development and Monitoring Board (NCDMB), Mr Simbi Wabote said that the discussion on cost reduction was long overdue.
He assured of the Board’s support and collaboration towards achieving the target.
“Cost reduction comes with some pain and what’s important is how the business will survive to sustain jobs. Local content is a panacea for cost reduction. There is massive cost savings when Nigerians run the business unlike when expatriates flood the business”, he noted.
For the President of the Petroleum and Natural Gas Workers Senior Staff Association of Nigeria (PENGASSAN), Mr Festus Usifo, he urged the gathering to look at expatriates’ costs as many of them are earning fat pay doing jobs capable Nigerians should handle.
