Nigeria focuses on cost reduction in oil & gas sector

Nigeria

Published on Thursday, 10 August 2017 Back to articles

Minister for Petroleum Resources Ibe Kachikwu

The Federal Government (FG) is now focused on reducing oil production costs by paying greater scrutiny to them. Sources in the Ministry of Petroleum have informed Nigeria Politics & Security that the government is concerned that the oil majors are declaring significant profits in their operations while giving the impression that production costs in Nigeria are too high. The average cost of producing a barrel of Nigerian crude is estimated at US$27-US$30, which remains one of the highest globally, despite the country having desirable light sweet crude oil.

Deputy Minister of Petroleum Resources Ibe Kachikwu said on 2 August that only companies that demonstrate high levels of cost efficiency would remain in the country. He said that insecurity — which many oil majors blame for the high cost of operation in the country — is ‘overly exaggerated.’ The FG has therefore set up a committee to look at ways that the costs can be reduced to an average of US$15 per barrel.

But, besides insecurity in the oil producing regions of the Niger Delta, another cost factor is the long contracting cycle — which, again, is one of the world’s longest — which often exceeds six months. The cause of the long cycle has been put on the multiplicity of bidders and applications for manual tools in bid evaluation, but also divergent tender requirements by approving entities such as the Nigerian Content Development and Monitoring Board (NCDMB), National Petroleum Investment and Management Services (NAPIMS) and the international oil companies (IOCs).

With the expectation that oil prices will continue to stagnate, the government is seeing ways of cutting production costs to enhance the sector’s competitiveness. However, industry sources have warned that the government cannot enforce cost reduction measures, but should instead put in place incentives to achieve it.

This is an excerpt from an article in our weekly Nigeria Politics & Security publication. 

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