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Sylva: FG cuts 30% off major oil contracts’ cost

Four refineries grounded, production hits zero – Kyari
NNPC: How we stopped $125m payment to syndicate

The Federal Government, yesterday, officially confirmed that there is a threat to Nigeria’s oil prosperity, maintaining that it has slashed cost of some major oil contracts by 30 per cent. Minister of State for Petroleum Resources, Timipre Sylva, who said this at the Seplat Energy Sum-mit 2020, maintained that the threat to the oil revenues would not ease until after 2022. The aggressive industry- wide cost containment measures being embarked upon was to strengthen the oil and gas sector in order to cushion the effect of COVID- 19 pandemic on the economy.

Sylva’s view, who was special guest of honour at the virtual summit, themed; “Business Sustainability and Strategic Leadership in Africa,” was corroborated by the Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, who declared that at the moment, none of the four refineries is producing. Sylva noted that the government had also embarked on aggressive capital allocation to priority projects with low cost of production. According to him, some of the measures are renegotiation of contracts to achieve minimum 30 per cent cost reduction, downward renegotiation of all contracts and other business obligation.

He said that government, through the NNPC had rolled out strategies to achieve $10/bbl unit operating cost without jeopardising the business. “Going forward, we foresee that global upstream investment will continue on the decline trend and recovery is likely to come beyond 2022.

“In the U.S., total oil rig count declined significantly from 678 rigs in March 2020 to 287 rigs in June 2020. “We have declared this year 2020 as “the Year of Gas” and have commenced the National Gas Expansion Programme (NGEP). “On January 16, we inaugurated an Inter-agency Committee saddled with the responsibility of coordinating our concerted ef-forts to ensure the penetration of domestic utilisation of LPG, encourage auto Liquefied Petroleum Gas, Compressed Natural Gas and Liquefied Natural Gas for the domestic market.

“This will drastically reduce the massive outflow of the nation’s foreign exchange currently being expended in the importation of Premium Motor Spirit (PMS),” he said. Commenting on COVID- 19 and Nigerian Oil and Gas industry, Sylva said the pandemic had caused demand-supply imbalance, revenue decline due to low oil price as well as decline in demand of crude oil due to the global lockdown. He added that the pandemic had caused pressure on Nigeria’s crude oil selling price due to supply glut and lack of buyers and production uncertainties due to refineries shutdowns in major refining centres across Europe and Asia.

“The huge revenue lost due to sheer drop in oil price arising from supplydemand imbalance has significantly impacted the Nigerian economy due to budget deficits and delivery challenges, project slippages, job losses in the private sector,” Sylva said. On his part, Kyari reiterated government’s target to boost crude oil production to three million barrels per day. Kyari said that the significance of the oil and gas business in the continent was huge and could not be neglected. According to him, economic activities within the continent will tend to play a part in the NNPC’s drive toward sustainability, but Africa remains the next destination of oil and gas businesses. “All four national refineries are down at the moment, but we are working round the clock to see how we can fix them.

“We will also continue to support the completion of the Dangote refinery and create space for local skills to come into play so as to reduce cost and contribute to economic growth. “We remain committed to achieving our target of increasing crude oil production to the national target of three million barrels per day and reserves of 40 million barrels,” Kyari said.

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