FG Moves to Peg Crude Oil Production Cost at $10

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The Federal Government has made its intention to fix the Unit Operating Cost (UOC) of producing crude oil in Nigeria to $10 per barrel.

The Group Managing Director of Nigeria National Petroleum Corporation, Mele Kyari made the disclosure on Wednesday during the second webinar series by the Nigerian Association of Explorationists (NAPE), themed “The Impact of COVID-19 on the Nigerian Oil and Gas Industry – The Way Forward”. He said the reduction would come into effect December 2021.

Speaking on the impact and reaction of Nigeria’s to the COVID-19 crsisi, the NNPC boss said while Nigeria remained resilient in the face of the Coronavirus crisis, however, noted that the situation left the country with revenue instability.

He hinted that the move for reduction in the cost of oil production is part of the government’s response to new realities.

Kyari said the cost of production have been too high for too long, adding that government had initiated the conversation on cost reduction with industry operators but was stalled by the Coronavirus outbreak.

He noted that government’s industry-wide intervention pointed to the need for a substantial reduction in the cost of production.

He said “a number of cost elements we deal with today shouldn’t be there in the first instance.  We can work on our cost structure to bring down the cost of production.

“We are engaging our Joint Venture partners on the areas of inefficiency that they can do away with. Also, there is need for adoption of technology to enhance productivity, reduce waste and improve system efficiency,” he said.

Speaking further, NNPC boss provided official data on upstream production cost which revealed varying costs of production by NNPC joint venture partners. While some produced at $93 per barrel in 2019, an unnamed operator produced at $57 per barrel in the 2020.

Also, costs from production-sharing contracts (PSCs) were lower. The highest cost of production from PSCs, which tend to be offshore, came in at $35.97 per barrel, while the lowest was $6.18 per barrel, Kyari stated.

He said, “Some companies are producing at $90 per barrel, while others are at $9. This is unacceptable and industry must work together to bring this down. There are no subsidies for the upstream, if it is not economic it must shut down,”

“It is not acceptable and this cannot continue. Our target is to bring it down to $10 per barrel by December 2021 and this is achievable.

“Any company that does not operate at $10 per barrel cost of production is free to go because the upstream sector is not a subsidised market, ” the NNPC boss said.

Continuing, Kyari said “some of the oil and gas companies had over bloated management structures which impacted on the production cost

“We are going to do things very differently.  “We need to focus on projects that generate more cash, produce more resources – and at cheaper costs.”

Peace Obi


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