The Nigerian National Petroleum Corporation has said some of its partners are producing a barrel of crude oil in the country at $93, a development it described as unacceptable.
The Group Managing Director, NNPC, Mallam Mele Kyari, who disclosed this on Wednesday, said many oil companies operating in Nigeria had personnel costs that had become unsustainable under the current market realities.
Last week, the Senate Committee on Finance condemned in strong terms the explanation by the NNPC that it spent $21 to produce a barrel of oil.
The Chairman of the Senate panel, Senator Solomon Adeola, had asked the NNPC, represented by its Chief Operating Officer, Upstream, Mr Yemi Adetunji, to explain why it was proposing $21 as production cost per barrel of crude when the new oil benchmark proposed in the revised budget was $25 per barrel.
“We want you (NNPC) to take us through why Nigeria’s cost of production per barrel of crude oil is the most expensive in the world by giving us the breakdown of what constitute those costs in to the variables and the technical cost and we want to know what you are doing as an agency of government to bring down this cost,” Adeola had said.
Kyari, in his presentation at a webinar organised by the Nigerian Association of Petroleum Explorationists on Wednesday, said a number of steps were being taken to bring down the cost of production in the industry to $10 per barrel.
He said, “Some of our partners are producing oil at $93 per barrel. It is impossible. What is simply means is that you are subsidising this business; others are paying for it. And there are assets that are producing as low as $9 per barrel.
“You cannot explain this gap between one company producing oil at $93 per barrel and another at $9. It means the one that is producing at $9 is the one subsidising. It is unacceptable; this cannot continue, and the industry must work together to bring this down.”
Kyari said the national oil firm would not lay off its workers despite the oil price collapse occasioned by the COVID-19 pandemic.
“The impact is monumental; we lost revenue, and we ran into budget deficit,” he said of the fallout from the pandemic.
“We, in NNPC, won’t do that. We will do something different; we will cut our costs so that we can continue to maintain our workforce.”
He added, “Many companies today have very high cost level, most of the costs are coming from personnel cost – unparalleled in the industry.
“When you compare our cost of manpower in this country to other jurisdictions, we know we have one of the highest in the upstream in relative terms.
“So, it is impossible to sustain this structure; the current cash flow cannot sustain it. So, we will not be surprised when companies consider the possibility of cutting down either numbers or the cost itself.”
According to him, a number of cost elements companies are dealing with are unnecessary.
He said, “COVID-19 has made us realise how many people we can do without, how many services we don’t have to live with, and the end result is that we can work on our cost structure so that we can bring down our costs and then sustain production.
“We need to also put measures in place to ensure cost discipline across businesses; we are engaging our partners across all assets, from the production sharing contracts to the joint ventures. The reality is that today’s costs are unrealistic; some assets produce in the excess of $40 per barrel.”
Kyari said the country has the capacity to increase our production to three million barrels per day by 2021, considering the number of projects lined up.
“We have clear visibility around having a $10 oil production cost by the end of 2021. It is either you produce it at that low cost or you shut down,” he added.