*Insists oil firms must cut production cost to about $10/bbl
The Group Managing Director of the Nigerian National Petroleum Corporation, Mallam Mele Kolo Kyari, has said Africa’s biggest producer will cut its daily production to between 40,000 and 45,000 barrels by mid-July in compliance with ongoing output cut by the Organisation of Petroleum Exporting Countries (OPEC) and its allies, OPEC+ led by Russia.
Speaking yesterday on webinar entitled “The impact of COVID-19 on the Nigeria oil and gas industry – the way forward,” organised by the Nigerian Association of Petroleum Explorationists (NAPE), Kyari said the planned oil production is imperative to enable OPEC and OPEC+ achieve the balancing of the global oil market with prices at reasonable levels.
The NNPC chief also talked tough on the need for oil exploration and production companies operating in Nigeria to cut their cost of production per barrel to $10 in line with current industry realities. To him, with high production per barrel, Nigeria may go out operation or drastically cut down production cost as oil is likely to sell at $10 per barrel next year.
He said: “When we took charge, we knew all along that our cost of production was very high. Such cost is not acceptable, and it is as a result of lots of factors including structural inefficiencies in our processes. There are also issues of environmental considerations. Contractors will factor all associated risks for doing business here in terms of human resources and materials, among others.
“Every cost has a premium that’s related to our environment. Those premiums are so exaggerated and they are not true. Suppliers and contractors have taken advantage of it to hype the cost in this country and that’s the reality.
“We have become transactional industry. People are bothered about putting contracts in place, without worrying about what is the end value of this. 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 a production cost that is beyond the cost of the commodity.
“What we did was to look at how we can address it. We decided to look into projects together to see how we can work together to reduce cost. The conversation was going on when COVID-19 came and threw the challenges at all of us that oil can sell around $10 per barrel or less. 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 structural shift from what we used to do to where we are going. We have clear idea that we may have crude at $10 per barrel by 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 method of a business subsidizing the other.”
