Business

Evaluating $10/barrel production cost target

Stakeholders in Nigeria’s oil industry agree with NNPC that the era of $30 per barrel oil production cost is gone in the country, even as the issue of $10 per barrel cost compliance raises concern, ADEOLA YUSUF writes

 

Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, has not mince words on his advocacy for lower oil production cost in Nigeria.

 

On two major occasions last week, he raised his voice on the need for oil producers to comply with the new production cost target.

 

First was the last Thursday’s 38th Annual International Conference and Exhibition organised by Nigerian Association od Petroleum Explorationists (NAPE) and the second, a meeting with energy editors and correspondents.

 

A visibly optimistic Kyari declared to oil producers in the country that the era at which they were allowed to spend $30 to produce a barrel of crude oil no longer exist.

Need for lower production cost

 

NNPC had earlier begun an aggresive action to get oil producers in the country to produce at $10 per barrel and the Group Managing Director of the Corporation stated on Thursday that the COVID-19 hangover on Nigeria’s oil economy, which dipped oil price in the region of $30 to $40 per barrel, made it practically unsustainable for the country to produce at $30 per barrel.

 

“It is instructive to understand that the current market reality cannot support inefficiency and escalated costs of operations. The era of $30/bbl oil no longer exists.

 

“In today’s COVID-19 defined market, sustaining operations and making progress means that all stakeholders must recognise the need to improve efficiency, reduce costs, eliminate wastages, entrench accountability, act with transparency and embrace technology and innovation to drive performance and value realization across strategic investment portfolios,” Kyari said while delivering a goodwill message at the opening ceremony of the 38th Annual International Conference and Exhibition of NAPE where he was a Special Guest.

 

He reiterated the Corporation’s resolve to grow the nation’s hydrocarbon reserves to 40 billion barrels through reinvigorated exploratory activities in the inland frontier basins

 

makacross the country.
Further efforts
A press release by the Group General Manager, Group Public Affairs Division of NNPC, Dr. Kennie Obateru, quoted Mallam Kyari as revealing that crude oil had already been discovered in the Benue Trough in commercial quantity, with Nigerian Geologists spearheading the efforts.

 

He noted that the strategy was to aggressively explore for more oil in the frontier basins in order to grow the nation’s reserve base, in line with the Federal Government’s aspiration to hit the 40billion barrels reserve target.

Mallam Kyari said the theme of this year’s conference: “Accelerating Growth in Nigeria’s Hydrocarbon Reserves: Emerging Concepts, Challenges and Opportunities” fit squarely into NNPC’s key aspiration, which is to grow the nation’s hydrocarbon reserves, reduce unit operating cost of crude oil production to $10 per barrel and improve efficiency across its businesses.

“It is my pleasure to appreciate the good work and resilience of our in-house professionals in the ongoing inland basins exploration activities that culminated in the recent discovery of hydrocarbons in Benue Trough. NNPC is indeed proud that it is NAPE members that are spearheading this effort,” Mallam Kyari stated.

 

According to him, NNPC has made significant progress in improving operational efficiency through the adoption of technology and deliberate effort to curtail soaring cost of operations across strategic assets.

Energy transition

The NNPC helmsman added that in the face of the energy transition, the Corporation is focused on developing gas infrastructure and deepening domestic gas utilization, stressing that gas is the energy of the future.

The GMD expressed optimism that the Petroleum Industry Bill would be passed next year, noting that the fiscal environment proposed would attract more investment into the oil and gas industry.

 

 

 

He assured NAPE and all other industry operators of sustained collaboration from NNPC, saying that the strategy of synergy was required in order to drive down operating cost and survive the emerging challenges in the industry.
Incentives for oil investors

Nigeria has declared fiscal incentives that will attract investments in all its basins and help drive its ambition to hit 40 billion barrels in its oil reserves.
Vice-President, Yemi Osinbajo, who made this declaration at the opening of the conference, (NAPE) in Lagos, maintained that the provisions for the incentives have already been included in the Petroleum Industry Bill (PIB) currently before the National Assembly.

 

The conference has “Accelerating Growth in Nigeria’s Hydrocarbon Reserves: Emerging Concepts, Challenges and Opportunities.’’ as its theme.

 

Represented by the minister of state for Petroleum Resources, Chief Timipre Sylva, Osinbajo maintained that government was committed to growing Nigeria’s oil reserves, which currently stand at 36.89 billion barrels to 40 billion barrels. The gas reserves also stand at 203.16 trillion cubic feet, according to the latest data from the Department of Petroleum Resources (DPR).

 

“In order to grow our reserves, we have proposed fiscal incentives that will attract investments in all our basins in the PIB.

“In addition, the fiscal provisions for gas business will be one of the most attractive in Africa.

“Therefore, opportunities abound for geoscientists, engineers and numerous other service providers in the shortest time to come,” Osinbajo declared.

 

He continued: “In order to significantly grow our hydrocarbon reserves, we need to invest immensely in research and development so as to support the industry.
“We need effective synergy and collaboration between policy makers, academic institutions, professional bodies, oil and gas industry players and the research and development centres.

 

“They need to come up with innovative ideas and technology for cost-effective exploratory and drilling activities.’’

 

The impact of COVID-19 on crude oil prices, the vice-president continued, had made it imperative to reduce the unit cost of production to 10 dollars per barrel. All hands must be on deck to achieve the target, he said.

 

According to him, government is also focussed on ensuring the growth of the country’s reserve base to at least 40 billion barrels of crude oil, as well as the production capacity to three million barrels of oil per day.

 

“We are fully committed to this mandate and confident that we will achieve the desired goal of finding more hydrocarbon deposits in the Nigerian basins notwithstanding the curtailment in production.

 

“We have the assurance that production curtailment will soon be over as the world economy improves,’’ the vice-president added.

 

In his opening remarks, the President of NAPE, Mr Alex Tarka, noted that COVID-19 pandemic had an adverse impact on the oil and gas industry, stressing that the conference would provide opportunities for stakeholders to deliberate on the way forward.

 

Reduction in exploration and production activities had, according to the NAPE boss, dire consequences for Nigeria due to the country’s dependence on crude oil as the mainstay of its economy.

Last line

The target by NNPC to slash oil production cost from $30 per barrel to $10 per barrel should be supported by all and sundry.

 

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