The Federal government has declared that the high cost of crude oil production in Nigeria would no longer be accepted, calling for an urgent reduction in the cost from the current $30 per barrel to around $10 per barrel.
Speaking at a seminar organised by the Petroleum Technology Development Fund (PTDF) in collaboration with the Quantity Surveyors Registration Board of Nigeria (QSRBN), the Minister of State for Petroleum Resources, Mr. Timipre Sylva, disclosed that cost of crude oil production in Nigeria is still one of the highest in the world.
According to Sylva, in the regime of $50 to $60 per barrel price of crude oil, a cost of over $30 per barrel is unsustainable, and that is why we need to come up with what we need to do to reverse the trend.
He 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.
“In other words, the need to achieve effective cost management in the oil sector is an urgency of yesterday.”
Sylva, who was represented by Chief of Staff Engr. Moses Olamide, explained that the Federal Government, in realization of the urgency of the situation, had set up a committee, headed by the Permanent Secretary of the Ministry of Petroleum Resources, to come up with solutions that would bring about a significant reduction in the cost of crude oil production and also crash the contracting cycle in the oil sector.
He added that the Federal government had set a target, through an industry policy document to reduce the cost of crude extraction by at least 30 per cent.
Sylva noted that the document recognised that it was imperative to cut production cost, reduce contract approval cycle, and ensure transparency, reduce regulatory transaction cost among others.
The minister, however, identified factors driving production cost to include insecurity n the oil-producing regions, improper governance structure, fiscal policies, local content issues, bureaucracy, overlapping national oil company functions and corruption among others.
He said: “Effective cost management in the oil and gas is particularly important, given the strategic importance of the sector as the main stay of our nation’s economy. This necessitated the dire need of managing the cost of production of crude oil which will eventually shore up revenue allocation to execute the government projects, as well as fast tracking inter-sectorial linkages to enhance value creation.
Also speaking, Minister of Works and Housing, Babatunde Fashola, said the oil and gas sector was one of the most important sectors in Nigeria’s economy as it contributes about 10 per cent to the national GDP.
Fashola, who was represented by Mr. Temitope Samuel, Deputy Director, Quantity Surveyor Department of the Ministry of Works and Housing, stated that President Muhammadu Buhari’s administration placed high premium on projects and administrative cost reduction.
He noted that the activities in the sector were crucial and relevant to the growth and prosperity of Nigeria.
He said, “The registered quantity surveyors, equipped with the requisite knowledge and skill in cost management, cost auditing, cost appraisal, hold the key to unravelling the mystery behind the high cost arising from factors other than market forces.
“The involvement of quantity surveyors in oil and gas sector such as exploration, pipelines installation, road, bridges, building, heavy engineering services with other professionals will ensure efficient allocation and utilisation of resources, probity, value for money in our infrastructural development in Nigeria, “he said.
In his remarks, Executive Secretary of the PTDF, Dr. Bello Gusau, stated that in the fund’s industry skill and competency gap analysis, issues of cost engineering control, estimating was among the areas of greatest challenge in the oil sector.
He added that it was against this background that the fund is collaborating with the QSBRN in organising this workshop towards placing this very important issues in the front burner,” he said.
He assured that the PTDF was willing to partner and collaborate with industry in finding solution to critical issues affecting full realisation of government vision for the oil and gas sector.
“We will be prepared to work with professional bodies and academia towards developing home grown solution to support the industry efforts to stay competitive through effective cost management,” he added.