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Oil Minister Laments High Oil Production Cost in Nigeria

Oil Minister Laments High Oil Production Cost in Nigeria

The federal government yesterday expressed deep concern over the high cost of producing a barrel of crude oil and its attendant effects on the nation’s revenue.

According to the government, Nigeria’s input into the production of a barrel of oil remains one of the highest among all Organisation of Petroleum Exporting Countries (OPEC), adding that the high cost of production is affecting oil revenues and by extension threatening net revenue as well as stunting growth and development in the country.

Minister of State, Petroleum, Mr. Timipre Sylva, expressed the concern yesterday in Yenagoa, the Bayelsa State capital, at the ninth edition of the Practical Nigerian Content (PNC), hosted by the Nigerian Content Development and Monitoring Board (NCDMB).

Although Sylva did not say how much it costs to produce a barrel of oil at the Yenagoa event, he had in October put the cost at $35 per barrel as against $10 it cost Kuwait to produce the same quantity of crude oil.

Sylva, at a seminar organised by the Petroleum Technology Development Fund (PTDF), in Lagos, had said: “The cost of crude oil production in the 80s/90s was around $4 per barrel, in the early 2000, it was between $5 and $6 per barrel, while today, it is over $35 per barrel. It is interesting to note that some countries like Kuwait and UAE are producing at less than $10 per barrel.

However, the minister, at yesterday’s event, also said the federal government would push forward with its decision to refurbish the nation’s oil refineries as it is costlier to abandon them.

He said: “As key stakeholders in the oil and gas industry, we must be aware that the entire country is looking up to our sector for increased revenue earnings to fund annual budgets and develop critical infrastructure.
“For this reason, we must all be genuinely concerned that our cost per barrel of crude oil is one of the highest among OPEC countries. While we can easily reel out reasons for this anomaly, the reality is that this high cost of production often erodes our net revenue from crude oil sales and depletes the resources meant for development.

“We must, therefore, take practical steps to ensure that we curtail the various elements that contribute to the high cost of production.”

At the event, which was attended by major players in the oil industry, Sylva said henceforth the federal government would enter into an Operation and Maintenance (O and M) agreement with those with the technical know-how to cut down the importation of refined products and ensure secured supply all year round.

He said: “If you say refurbishment of local refineries is a waste of money, you also have to look at the other aspect of leaving them, which is even more waste of money. I think that definitely the best way to go is to refurbish the refineries. The problem with the refineries has never been the refineries themselves but the management of the facilities.

“So, going forward, what we are trying to do is that we are trying to refurbish the refineries and we put them on O and M contract, so the management actually changes and we expect that we will have a better and more secure product supply.”

He listed the current priorities of the ministry under his superintendence to include the eradication of smuggling of petrol across Nigerian borders, the completion of gas flare commercialisation programme; increase of crude oil production to three million barrels per day and reduction of the cost of crude oil production by at least five per cent.

Other priorities are the passage of the Petroleum Industry Bill (PIB), increasing domestic refining capacity and the implementation of the amended Deep Offshore and Inland Basin Production Sharing Contract Act.

The minister added that the key outcomes of the priority areas will be job creation and poverty reduction, which are the cardinal aspirations of the ‘Next Level Agenda’ of President Muhammadu Buhari’s government.

The minister said the local vendors had an obligation to deliver premium services and support the federal government’s avowed strategy of using local content to reduce the cost of crude oil production, increase the contribution of the oil sector to the Gross Domestic Product (GDP) and guarantee the security of oil production.
Also, local content must not become an excuse for cost over runs, slippages in project delivery schedule or shoddy jobs, he said.

About Femi Ige