38 minute read
Majorwaves admitted founding member of Diversity SWG, NCCF of NCDMB
By Mordi Chukwunonso
Margaret Okojokwu, Editor Majorwaves Energy Report, and other panellists at a function
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Ma r g a r e t O k o j o k w u , representing Majorwaves Energy Report, alongside six other women have been admitted as founding members of the maiden Diversity Sectorial Working Group (SWG) of the Nigerian Content Consultative Forum, NCCF. The group was officially inaugurated by the Executive Secretary of the NCDMB, Engr Simbi Wabote in a virtual engagement meeting with members of the entire NCCF groups.
Other members of the newly created SWG include Alero Omosode of Seplat Petroleum Development Company, Patricia Simon Hart of Aftrac Limited, Pricilla Thorpe-Monclus of Mrs Oil Limited, Audrey Joe-Ezigbo of Falcon Oil and Gas Corporation Limited, Michele Aiyegbusi of SLC Resources Limited, Nkechi Obi of Techno Oil Limited, Anita Okuribido of Similling Simon Limited and Oladunni Owo of Blackgold Authorities.
Inaugurating the Diversity SWG is part of the Board’s commitment which was made during the NCCF Retreat in 2019. It had also promised to set up special funding in support of women participation in the oil and gas industry.
The Executive Secretary stated that the creation of the diversity SWG was a product from the Women in Oil & Gas workshop organized by the Board in October 2019. He hinted that the aim of the group is to improve the participation of women in the industry as well as to promote all-inclusive gender policies. He reiterated that by mainstreaming women in the oil and gas industry the sector engender greater growth of the economy. In his words, Wabote said: ”I am convinced that if we mainstream women in the oil and gas industry, we are going to achieve a lot.” Wabote announced that a portion of the Nigerian Content Intervention Fund (NCIF) domiciled with the Bank of Industry will set aside to support women operating in the oil and gas industry. Stressing that section 57 and 58 of the NOGICD Act 2010 supported the creation of a robust platform for sharing information and to serve as ‘think-tank’ to develop policies and implement frameworks that will achieve sustainable development of the Nigerian content in oil sector, Wabote charged the members of the two newly created sectorial groups to be proactive and develop recommendations that the Board can implement.
Along with the Diversity group, the Executive Secretary inaugurated the Gas Value Chain SWG whose members include Lanre Runsewe from Rungas Industries Limited; Nuhu Yakubu, representing Nigeria LP Gas Association (NLPGA); Taji Ogbe, representing Nigeria Gas Association (NGA) and Bassey Essien, representing Nigerian Association of LPG Marketers. Other members are Frank Ibi from Nigeria Gas Company Limited (NGC); Charles Epelle from the Nigeria Liquefied Natural Gas Company (NLNG) and Mohammed Ahmed from the Nigeria Gas Marketing Company Limited. Giving reasons for the inauguration of the Gas Value Chain Group, the Executive Secretary stated that the Board believes that the future of fossil fuels is in maximizing gas development and utilization. He noted that Nigeria has about 203 trillion cubic feet (TCF) of gas reserves and recalled that the Honourable Minister of State for Petroleum Resources, Chief Timipre Sylva had at the beginning of the year declared 2020 as the Year of Gas. Prior to this, there had been 10 sectorial committees. They include; Information and Communication Technolog y, Education and Training, Engineering, Fabrication, Essential Services, Shipping and Logistics, Finance, Legal Services and Insurance, PETAN, Material and Manufacturing and Multinationals & Indigenous Producers.
The chairpersons for this groups include: Mr Attanda Deremi, Dr Mayowa Afe, Engr. George Okoyo, Dr Timi AustenPeters, Mr Michael Oluwagbemi, Mr Mina Oforiokuma, Mr Robert Ade-Odiachi, Mr Matthew Oweleke, Chief Vassily OyeBarberopoulas, and Mr Anthony Attah.
Margaret Okojokwu is the editor of Majorwaves Energy Report. She is a public speaker, a public relations practitioner and a marketing communications expert. Margaret is also a Mandela Washington Fellow with international exposures and multiple paper presentations at global events. As a social entrepreneur, she is passionate about local content development in relation to capacity building, human capital development, advocacy for resource host community relationship and conflict resolutions across Africa. She has over ten years of experience in the media industry and has largely focused on energy reporting.
The NCCF, is an integral part of the NCDMB established by the Nigerian Oil and Gas Industry Content Development (NOGICD) ACT of 2010. It is set up to provide a robust platform for information sharing on upcoming projects and local capabilities relating to the Nigerian oil and gas industry.
Our scorecard on social investments – Shell
Shell Companies in Nigeria (SCiN) including Shell Petroleum D e v e l o p m e n t C o m p a n y Limited (SPDC), Shell Nigeria Exploration and Production Company (SNEPCo) and Shell Nigeria Gas (SNG) have contributed in various ways to the development of the economy. Besides contributions through payment of taxes and royalties, among others, they have also through their social investment projects, helped to impact in positives ways the lives of their host communities and Nigerians. In their 2020 Shell Briefing Notes – an annual scorecard of the Royal Dutch oil giant, they listed what they did in 2019 and beyond as responsible corporate citizens.
Nigeria is a thriving and vibrant country, offering opportunities for people to improve their livelihoods. These opportunities are mirrored by the scale of the challenges to provide affordable energy, education, healthcare and conditions for local businesses to grow. To enable the citizens attain these goals, Shell has in various ways under its social investments initiatives, created projects that helped Nigerians and communities to grow.
In its 2020 Briefing Notes, the oil giant said its operating arms in Nigeria – SPDC, SNEPCo and SNG, in 2019, made direct social investments of $40 million in Nigeria, making the country the largest concentration of social investment spending in the Shell Group. These investments, the company said, include access to affordable healthcare, supporting education, enterprise support, accelerating access to energy, assistance and safety.
The Shell Nigeria Briefing Notes gives update on activities and programmes undertaken by several Nigerian companies either wholly-owned by Shell or in which Shell has an interest. Together these are referred to as the Shell Companies in Nigeria (SCiN). SCiN comprises SPDC – a wholly-owned Shell subsidiary that operates an unincorporated joint venture (SPDC JV) in which SPDC holds a 30 per cent interest; two other wholly-owned Shell subsidiaries SNEPCo and SNG, and the Nigeria Liquefied Natural Gas (NLNG) Limited; an incorporated joint venture in which Shell has a 25.6 percent interest. SCiN undertakes two types of social investment activities – Direct social investment across Nigeria and Community-driven development programmes and initiatives in the Niger Delta. Direct social investment focuses on community and enterprise development, education, community health, access-to-energy, road safety and biodiversity, which was added in 2018. Community-driven development programmes and initiatives in the Niger Delta focus on various themes as determined by benefitting communities and delivered through a Global Memorandum of Understanding (GMoU). There are 39 active GMoUs in Abia, Bayelsa, Delta, Imo and Rivers States. According to the Brief Notes, Shell Companies in Nigeria have invested in healthcare and education initiatives in Nigeria for decades and they continue to support a range of programmes.
In 2019, three new GMoUs were deployed and 10 GMOUs renewed. The GMoUs provide a secure five-year funding for communities to implement development projects of their choice. GMoU projects cover community health,
education, enterprise development and social infrastructure, such as improved water and power supply, and sanitation. Since 2006, a total of $252 million has been disbursed to communities through these GMoUs. It also noted that since 2010, more than 27,000 babies have been delivered safely at Obio Cottage Hospital, a secondary health care centre in Port Harcourt, while the Community Health Insurance Scheme was also launched in 2010 at the Hospital.
Promoting innovation
In 2018, Nigerian Yolo Bakumor Smith, CEO of De-Rabacon Plastics, won the first-ever Shell LiveWIRE Top Ten Innovators Awards for his business. De-Rabacon is a Nigeriabased plastic recycling and waste management Solution Company that recycles end-consumer plastics to viable commercial products such as pavement blocks, buckets, cans, and carpets. “There is often a paper-thin line between success and failure in business, especially for a start-up. The training, support systems and valuable networks I have gained over the last five years courtesy of Shell LiveWIRE, have gone a long way to ensure that my business start-up, De-Rabacon Plastics is thriving.
“Shell’s approach to supporting local enterprises to grow and excel is enabling us to scale up our business and focus on designing eco-friendly, energy-efficient and affordable products. Today, my organisation employs 16 people and has recycled over 800,000 tonnes of plastic waste. We plan to achieve two million tonnes by the end of 2020,” Yolo said.
Access to affordable healthcare
Shell has supported community health programmes in Nigeria since the 1980s with equipment and pharmaceutical donations, emergency care and screening services, hospital maintenance and focused interventions on HIV/ AIDS, malaria, cancer and vision care. Currently, Shell seeks to increase access to health services, introduce health insurance schemes and strengthen health systems. According to the Briefing Notes, Shell continues to work with key stakeholders to achieve universal health coverage by increasing access to health and the uptake of services in the communities. The SPDC Joint Venture (JV) and SNEPCo support 20 healthcare centres and signature intervention projects throughout the country, which include Health-InMotion community care programme, Community
Health Insurance Scheme
Health-in-Motion (HIM) is a mobile health outreach programme that takes free medical services to where people live and work. Funded by the SPDC JV and SNEPCo, it reaches an average of 50 communities annually. In 2019, HIM services benefitted 27,490 individuals in Imo, Bayelsa, Delta, Rivers and Ogun States. Since its launch in 2010, more than 667,000 people have benefitted from the programme. The Community Health Insurance Scheme (CHIS) is a partnership between SPDC, Rivers State Government and local communities. The programme aims to provide affordable, quality healthcare to the people of Rivers State. CHIS was launched in 2010 at Obio Cottage Hospital, a secondary health care centre, just a short walk from the SPDC JV offices in Port Harcourt. CHIS costs individuals $30 per year and covers about 95 per cent of people’s health care needs. Since 2010, more than 67,000 people have been enrolled.
In 2019, nearly 8,500 new clients registered. The hospital has also seen an increase in the uptake of services. For example, the average number of patients using the facility increased from about 600 at inception to about 7,700 per month in 2019, making Obio one of the most utilised health facilities in the region. This successful pilot has now been expanded to three other locations including the Oloibiri Health Programme (OHP), highlighting the possibility for extended healthcare coverage in Nigeria.
The Oloibiri Health Programme is a Shell-sponsored local government initiative in the Ogbia area of Bayelsa State. It is designed to improve health outcomes in an innovative and holistic way. The initiative included a full refurbishment of the Kolo General Hospital, which was inaugurated in July 2019. More broadly, the initiative focuses on improving and maintaining health, not just treating illness. It strengthens local healthcare systems by upgrading and integrating facilities, training and supporting local healthcare and community workers and ensuring a reliable supply of medicines.
The programme has seen increase in service utilisation to 4,210 patients in 2019 from an average of 833 patients in 2017. It has also provided training for over 130 health workers at community, local and state government levels. In addition to this, it has trained 117 volunteers as facility-based extension workers in house-to-house healthcare. To anchor the sustainability of the OHP, the initiative aims to establish the Oloibiri Health Foundation that will institute the Ogbia Health Insurance Scheme akin to the scheme in place at the Obio Cottage Hospital. The scheme will be launched with a onetime contribution from Shell and the Bayelsa State Government.
Supporting education
Since the 1950s, the Shell scholarship schemes have supported several thousands of students many of whom are among Nigeria’s business, political and social leaders. In 2019, the SPDC JV and SNEPCo invested $7.8 million in scholarships. Since 2011, the schemes have awarded more than 9,400 secondary school grants and over 6,000 university grants to students. The SPDC JV and SNEPCo invest in the Cradleto-Career scholarship programme, which pays for children from rural communities to attend some of the country’s top secondary schools. The SPDC JV has awarded a cumulative 6 0 0 Cra dle-to - C are er (c 2c) scholarships in the Niger Delta. In 2014, SNEPCo began offering these scholarships to applicants across the country, and so far, 471 students have benefitted. Since 2010, more than 1,000 students have received scholarships. The scholarships cover
the full cost of tuition, travel, accommodation, uniforms, books and laptops.
For the best tertiary education, Shell invests in advancing education through university scholarships, student exchange programmes and focused research. Since 2011, the SPDC JV and SNEPCo have awarded more than 6,000 university scholarships. As part of the drive to motivate students and reward the high performers in the University Scholarship Scheme, the highest-achieving students are then also given the opportunity to participate in the SPDC JV Students Industrial Work Experience (SIWE) programme. The SPDC JV also established the Shell Niger Delta Post Graduate scholarship programme which has benefitted 92 students from the region over the last decade. The programme offers one-year scholarships to three UK universities for studies related to the oil and gas industry. The SPDC JV, in collaboration with the University of Benin, funds a Centre of Excellence (CoE) in Geosciences and Petroleum Engineering and in 2017, collaborated with the Rivers State University to set up a CoE, which specialises in Marine and Offshore Engineering. By the end of 2019, over 75 students had graduated from the programmes and over 81 per cent of these graduates are currently employed.
Enterprise support
Shell works to improve the chances for Nigerians to achieve their ambitions. In addition to providing access to loans to small and medium businesses which could become Shell suppliers and contractors, there is also the LiveWIRE youth enterprise development programme. LiveWIRE was launched in Nigeria in 2003 and provides training and finance to young people between the ages of 18-35 to start or expand their own businesses. In 2019, 140 people benefitted from the LiveWIRE programme, receiving training in enterprise development and management, as well as business start-up grants.
More than 7,000 Nigerian youths have so far been trained under the programme and almost 4,000 young entrepreneurs were provided with business grants. Two Nigerian enterprises were shortlisted in 2019 for the Shell Global Top Ten Innovators Awards – a global competition, which highlights and rewards businesses that demonstrate excellence in innovation as well as giving entrepreneurs a chance to shine on a global platform. The enterprises were FarmToJuice and Foods Nigeria Limited and Basiled Energy Ventures. FarmToJuice produces juices, processing any waste into livestock feed and using a biogas digester to provide energy. Basiled provides solar lamps, solar installation maintenance and repair and solar battery recycling services.
In 2014, Shell extended LiveWIRE to Ogoniland despite the SPDC JV no longer producing oil and gas in the area. Shell’s aim was to help raise living standards and reduce crude oil theft in the area through the promotion of sustainable alternative livelihoods. This was in line with one of the recommendations of the 2011 United Nations Environment Programme (UNEP) Report for the restoration of the Ogoni environment. In 2018, 100 Ogoni youths from communities near the Trans Niger Pipeline participated in training with 80 top performing trainees receiving business start-up funding amounting to more than $90,000. In 2019, the Ogoniland programme gave way to a livelihood programme led and executed by the Hydrocarbon Pollution Remediation Project (HYPREP), an agency established by the federal government and to which the SPDC JV contributes funds. The programme will train 1,200 Ogoni women in various skills.
Every year Shell LiveWIRE supports thousands of individuals to access the knowledge, skills, networks and resources to turn their business ideas into successful enterprises which provide a sustainable income, create jobs and drive innovation. The purpose of LiveWIRE is to improve opportunities for young people to realise their potential through the creation and development of their own businesses.
Humanitarian assistance
For many years, Shell has sustained a culture of care by supporting humanitarian programmes in Nigeria to save lives, especially during crisis and disaster. In 2017, a contribution of more than $3 million to the Mercy Corps and Family Health International programme benefitted over 70,000 displaced persons in north eastern Nigeria. In 2018, SPDC provided relief materials worth $1 million to communities hit by floods in the Niger Delta and two other severely impacted states in the country. In 2019, SNG continued to demonstrate its commitment to road safety in Nigeria by extending existing collaboration with the Federal Road Safety Corps in Ogun State to Rivers State. The campaign has held 26 road safety awareness events and reached more than 5,000 people since its launch in 2007. SNG also held a one-day hydrocarbon training for firefighters from Abia and Ogun States to further strengthen their capability.
Since 2018, SPDC and SNEPCo have committed $6 million to the government-driven strategic intervention projects for Internally Displaced Persons (IDP) in Yobe and Borno States. The projects focus on immediate relief and critical support development related to health, water and sanitation, education and shelter.
Access to energy
Shell aims to provide a reliable electricity supply to 100 million people, primarily in Africa and Asia by 2030. Nigeria features in that vision. Despite its oil and gas resources, Nigeria has one of the highest levels of energy poverty in the world. In addition to investing in Nigeria’s gas development and distribution network, Shell has established All On to boost off-grid supply to homes and small businesses in the Niger Delta. All On, an impact investing company, became operational in 2017 and is an independent Nigerian company that works with partners to increase access to commercial energy products and services. In December 2019, Shell made a significant additional long-term financing commitment to All On.
ACROSS AFRICA COVER STORY
Nigeria’s Odyssey to Cutting Production Cost per Barrel
By JEROME ONOJA AND AMOS IKE
Nigeria had consistently battled with the high cost of production for its barrel of crude oil and this plays a major part in depriving the country of the full benefits of its oil exploration activities, especially when meagre profits are recorded even during periods of high crude oil prices. This article explores Nigeria’s renewed interest in upping its earnings from the petroleum industry and the quest to bring down the cost of producing crude oil and gas in the country.
Nigeria had for many years, shown little concern to the cost at which it produces its crude oil. This nonchalance towards the cost of production may be as a result of the fact that the price of the “ commodity had always stayed
high at
the international market. But the narratives appeared to have changed, and with the looming global economic downturn, occasioned by the COVID-19 pandemic and the low crude oil prices, Nigeria is beginning to show serious concerns. It is a known fact that among member countries of the Organisation of Petroleum Exporting Countries (OPEC), and also among major oil-producing countries, Nigeria ranks high for countries with most expensive cost of crude oil production per barrel. According to data obtained from global energy data firm, Knoema.com, in 2014, Nigeria ranked 10th among countries with the highest cost of crude oil production, after countries like United Kingdom, Brazil, Canada, Australia, Equatorial Guinea, Gabon, Malaysia, Thailand and Colombia.
However, in 2016, Nigeria was ranked third among countries with the highest cost of crude oil production, behind the United Kingdom and Brazil. Confirming this, the Nigerian National Petroleum Corporation
The NNPC said the figure was attained by its subsidiary, National Petroleum Investment Management Services (NAPIMS), by looking at the difference between the $78 and $23, which represents the old and new production cost relative to Nigeria’s current daily average production cost. It, however, noted then, that the medium to long term target was to bring the cost of production to $17 and $19 for onshore and offshore production respectively. In addition, former Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, had also in August 2017, put the average cost of crude oil production in Nigeria at $32 per barrel, saying that it was making the cost of Foreign Direct Investment very expensive. Kachikwu, who was speaking at the 2017 Annual Conference of the National Association of Energy Correspondents in Lagos, had stated that
declared that it had been able to bring down the country’s cost of crude oil production by 70.5 per cent, from $78 per barrel, as at August 2015, to $23 per barrel as at August 2017, thus saving an estimate of about $3 billion per annum.
Dr. Ibe Kachikwu
“the Federal Government was
making frantic efforts to bring down the cost to $15 per barrel
in order to significantly bring down the cost of FDI.
However, by April 2019, Kachikwu disclosed that the average production cost for a barrel of crude oil in Nigeria had declined to $23 per barrel, adding that oil companies were not stopping there and were aiming to reduce this further, to $15 a barrel. Making his own submission to the issue, Group Managing Director of the NNPC, Mallam Mele Kyari, had at a Central Bank of Nigeria Round Table discussion in March 2020, stated that as at then, the cost of crude oil production in the country was within the range of $15 to $17 per barrel.
He noted that due to the uncertainties of the global crude oil market, countries that produce at the cheapest price would remain in the market while jurisdiction with high cost of crude oil production would not be able to cope with the competing prices.
Concerns
Furthermore, Kyari, had in an interview in June this year, disclosed that among issues that are of serious concern to the NNPC, was the issue of the cost of production of crude oil per barrel. Kyari had argued that if efforts were not made to bring down the cost, there would not be any tax revenues, and therefore investments in the oil sector would become worthless, adding that the end result would be that expectations would not be met and businesses in the sector would become something nobody would want to venture into. He said, “In Saudi Arabia, one can produce oil at less than $5. Their reservoirs are very different from ours. One can lay the oil pipelines on the surface and nobody will tamper with it. The environment there is different from the Niger Delta. But, that does not explain why some of our partners should be producing oil at as high as $93, $40, $30 per barrel in all terrains of our operations in both Production Sharing Contracts (PSCs) and the Joint Ventures. “When crude oil prices go to as low as $12 or $13 to the barrel, it means, technically, the operators are subsidizing crude oil production. Nobody does that anywhere in the world.” Kyari added that production maintenance costs accounted for about 80 per cent of JV and 60 per cent of PSCs operational expenses.
Mele-Kyari
He said, “For instance, the personnel cost in this country is higher than any other jurisdiction in the world. This is unbelievable. It has to come down. It has to be challenged. We cannot pay for more than we can afford. We cannot take cash flow from one business to practically subsidise other businesses. “When prices are low, and one partner has cost of production of about $36 to the barrel, one should know one is subsidising the other. Some of them have sustained high profile over a long period of time. “Although oil production and sales are going on, in reality it is other businesses that are producing cheap oil at $11 or $10 that are doing it for them.”
Senate wades in
The issue of the high cost of crude oil production got worrisome that the Nigerian National Assembly was forced to wade in. Specifically, the Senate had in June this year, criticized the NNPC, for what it described as the astronomical cost of production. It said, the cost peaked at $21.2 per barrel. The Senate, through its Committee on Finance, had stated that the production cost was far higher than the $4 and $10 cost of production in other oil producing countries like Saudi Arabia and Russia.
T h e c o m m i t t e e e x p r e s s e d displeasure over the cost during its meeting with the Minister of Finance and heads of revenue generating agencies over the revised 2020 budget in Senate committee room 204. Chairman of the Committee, S enator Olamilekan Adeola , disclosed that while cost of oil production in Saudi Arabia was $4 per barrel and $3 per barrel in Russia, it is $21.2 per barrel in Nigeria, indicating very poor marginal profit of about $3 per barrel based on the new oil price benchmark of $25 per barrel. He said,
“
“With the benchmark of $25 as proposed, Nigeria is going to have just $3 as its own return on investment
Senator Olamilekan Adeola
as I begin to look at the oil revenue and the mineral revenue as proposed in the Medium Term Expenditure Framework (MTEF) which has dropped from almost N8.86 trillion to N3.33 trillion. Are you saying that it is worthwhile investment for us as a nation? “Going by the fact that the cost of producing one barrel is $21 and the benchmark is $25 for over 180 million Nigerians and all these cost you have listed, who determines them? How do you ensure that Nigeria is being charged the right cost on each barrel of oil? In Saudi Arabia, it is $4 per barrel cost of production, in Russia it is about $3 per barrel, Nigeria is $21, we are beginning to be afraid as to why we are channelling all our efforts to this oil and gas if the return on investment is nothing to write home about.”
On his part, Senator James Manager, a member of the committee, stressed that the high cost of producing Nigeria’s crude oil is no longer tenable, stating that: “The reason given for the high cost of production per barrel are not tenable; because wherever oil is produced they have their own security challenges, including even Saudi Arabia, Iran, Russia. “So, how is our own so peculiar that our cost of production is up to $21 per barrel? Which are those administrative issues? Why are we different from the rest of the world? These are issues that, as National Assembly, we are supposed to take up.” Another committee member, Senator Shaibu Gumau, said: “I just believe even common sense cannot agree with this, not even the National Assembly. How could we expect a situation where cost of production of oil per barrel is $21.2 and the revenue is $25 per barrel? Yet, with other countries in the world, their cost of production is not even up to $10 per barrel. “It is difficult to understand and I don’t think it is only the National Assembly. Even the Executive themselves should sit down and ask themselves this question because we are watchdogs. Not because we are watchdog, that is why we are disturbed but it has got to an extent that they too should be disturbed and there should be a solution and if not, there should be an explanation that somebody can understand and agree, because common sense cannot understand this.” In his own submission, another committee member, Senator Jibrin Issa, also disagreed with the NNPC official over the high cost of oil production, saying that: “I am disturbed because I expected the NNPC to dwell more on fixed costs, but surprisingly you are talking about administrative cost, security. These are variables and even the fixed cost, in the long run, are also variables which you can also work on.”
Militating factors
While the high cost of production is worrisome, various factors had been adduced to it, chief among them are incessant pipeline vandalism and crude oil theft. NNPC’s Chief Operating Officer (Upstream), Mr Yemi Adetunji, attributed the high cost of oil production to a series of peculiarities ranging from security to crude oil theft.
Mr Yemi Adetunji
He said, “Security challenges are kind of peculiar to Nigeria, as in other climes, pipelines are on the surface. You hardly see them being tampered with, but in Nigeria, even when they are buried two metres to three metres deep, they are still being vandalised.
““In some cases, we are trying to
take them to deeper levels but those ones will add to cost of production like going 10 metres to 15 metres deep.
It will add to the cost about three or four times the cost of production as against putting the pipelines on the surface. “We are working with security agencies to put in place new framework to ensure that all the hitches are brought down to the nearest minimum.”
On his own part, Kyari, told members of the Nigerian Guild of Editors few days back, that while NNPC had rolled out strategies aimed at achieving sub-$10 per barrel unit operating cost (UOC), without jeopardizing growth, it had discovered that unit operating cost for 2019 Full-Year Performance, for its Joint Venture (JV) partners exceeded the targeted $10 per barrel in all cases. Kyari said, it was observed that reported performance for the first quarter of 2020 highlighted the need for further cost optimization as UOC figures were above the target of $10 per barrel in all cases. He identified the major cost centers among its JV partners to include: human resources; logistics; service management; direct handling/ transportation; and production maintenance costs, which accounted for about 80 percent of JV operating expenses (OPEX) and 60 percent of Production Sharing Contract (PSC) OPEX.
According to Kyari, personnel and logistics costs were the highest cost elements in crude oil and gas production, with logistics and personnel costs, in some instances,
taking up to 75 per cent respectively of the expenditure of oil firms. Kyari had also lamented that: The oil business may shutdown especially if the price of oil goes below $30 per barrel for a long time.” Kyari noted that other factors responsible for the high cost of production included issues bordering on security and losses on crude oil pipelines. In addition to the above, the private sector players worry that multiple taxes and the huge cost being incurred from Nigeria’s insecurity remained snag on cost reduction.
Private players weigh in
On his part, Mr. Bayo Ojulari, Managing Director of Shell Nigeria E xploration and Pro duc tion Company (SNEPCO), emphasised the need for transparency around open book economies, while he lamented that “ security of facilities in the
country was negatively to cut cost.
For Chairman/Managing Director, ExxonMobil Affiliate Companies in Nigeria, Mr. Paul McGrath, Nigeria “ There is nowhere any company
will spend 50 per cent of its cash flow on human resources and survive. It is not possible.
ranks significantly among the top 10 oil-producing countries with the highest cost of crude oil production per barrel. He said, “Nigeria ranks among the top 10 countries with the highest cost of producing oil per barrel and its equivalent in gas. High cost is a major disincentive to investment, especially at this time of
“which led to the loss of about
2.9 million barrels of crude worth $48.42 million that occurred in 74 points between January and February,
impacting on efforts by oil firms
considerable global competitiveness.
Mr. Bayo Ojulari
due to attendant increase in required maintenance and well work-overs.
Mr. Paul McGrath
Security costs are escalating as peculiarities of the business environment require additional resources to be deployed to secure our people and assets.” He, however, noted that there were fixes that needed to be put in place if the country aspires to maintain and expand the investment profile in the hydrocarbon industry.
Also commenting on the issue, Director of Petroleum Resources/ Chief Executive Officer of the Department of Petroleum Resources, Engr. Sarki Auwalu, noted that the COVID-19 pandemic had brought to the fore the need for efforts to be geared towards bringing down the cost of producing a barrel of crude oil; ensure business efficiency and financial stewardship, as well as the adoption of good corporate governance.
Auwalu disclosed that “
the decision of the Federal Government to conduct a marginal field bid rounds during this period of the COVID-19 pandemic, was borne out of the need to produce crude oil at a lower cost.
Engr. Sarki Auwalu
According to Auwalu, the cost of producing crude oil from marginal fields was very low, owing to the fact that there is no exploration cost. He said, “The Federal Government chose to go ahead with the conduct of the marginal fields bid round now because of its realization of the need to cut cost in crude oil production at this crucial period in the economic life of the country.”
Role of technology
Prior to now, crude oil produced in the United States from extremely tight formations, called shale, was just about the most expensive worldwide, especially couple of months back, because of the high technology and deep horizontal drilling. It also is a known fact that crude oil produced in other parts of the world, like Saudi Arabia, are the low-cost producers because their crude oil comes from very porous rocks in much greater quantity.
However, shale producers are leveraging technology and in the not-too-distant future, shale would rank among the least expensive. Continued improvement in shale technology has helped in driving down the cost of production for shale companies, such that Artem Abramov, head of global shale research at the consultancy Rystad Energy attested to it recently. He said, “At $30 a barrel, many companies would be able to adapt gradually. But at $20 a barrel, many players – especially those with poor balance sheets – will struggle financially.” Here’s a clear sign of improvement from a $70 - $95 that used to be the cost for producing a barrel via hydraulic fracturing in 2005 at the Permian basin. The present price environment ought to influence producing companies’ appetite for improved technology in order to drive Nigeria’s producing cost down. Due to the high cost of oil production, analysts are afraid, would impact on the realization of Final Investment Decisions on a number of projects, as it would take a longer time for investors in these projects to recoup their investment, considering the impact of the UOC on the cost of the investments.
Tackling high cost
For Sarki Auwalu, cost control and management were key in driving down costs, as well as business ef ficiency, financial stewardship, better negotiation of contract, improved corporate governance, vertical integration model, improvement in refineries, operational excellence, compliance and asset optimization among others.
Auwalu believed the government has a critical role to play, especially in policy and regulation, business environment and investment drive as well as creating an opportunity for lower cost of production. On steps it had taken to bring down cost of production, Kyari said the NNPC engaged stakeholders in the sector on the need to bring down the high cost. He said, “We negotiated contracts, cut down on contract’s life cycle; selected the right projects and engaged the right institutions to bring down the cost. Our ultimate target is to bring the cost to at most $10 per barrel. This is achievable. But, it comes at a cost and huge challenges.
“What that means is that
“
we have to shut down some assets and confront very powerful people, who, either as businesses, individuals or institutions and agencies, have entrenched interest in making sure this does not happen.
With such people, the meaning is that we are paying about three times more than what we should. “But, I can assure you that at any cost, we will take steps to bring this cost down, so that our country will benefit and the oil industry will become a profitable business for the 200 million Nigerians, and not just for a fragment of the society committed to frustrating our efforts. “Otherwise, there are issues we have to confront. Our partners and international oil companies have issues. There are clear constraints to taking investment decisions. We have taken this challenge in. We have engaged. We are drawing the lines. We are changing the processes and procedures, and ultimately, there is no doubt that this will serve the common good of all Nigerians.” On his part, Roland Ewubare, the immediate past Chief Operating Officer, Ventures and Business Development of the NNPC, stated that the NNPC was looking very
closely at such variables as logistics, security, and transportation with a view to reducing cost of production to $10 per barrel or below.
He added that the
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NNPC had set a target of fourth quarter of 2021 to achieve the objective of $10 per barrel UOC of crude oil.
Roland Ewubare
Ewubare explained that a lot of logistics costs would be recalibrated to drive down the cost, stating that: “When you have a low commodity price regime, as the case now, the only way we can squeeze out some reasonable cash and financial gain to the nation is by curtailing and constraining our costs in line with the Group Managing Director’s aspiration to push for a $10 per barrel cost of production. Against this backdrop, the conversation around cost becomes an imperative and urgent one.” He disclosed that much had been done over the years in the area of reducing contracting cycle which used to be a major factor responsible for high cost of production, stressing that the National Petroleum Investment Management Services (NAPIMS) achieved a six-month contracting cycle under him as Group General Manager.
In addition, Ewubare added that the NNPC had taken aggressive capital allocation to prioritize lowcost oil production and additional measures to ensure cost discipline across, including renegotiation of contracts and other business obligations, thus saving 40 percent of proposed budget and cost.
Business as usual
Minister of State for Petroleum Resources, Chief Timipre Sylva, further maintained high production cost was a big problem for the industry, especially because it was not sustainable to have a situation where average cost per barrel is around $30 per barrel. According to him, COVID 19 has taught everybody in the business of crude oil and gas production that it should not be business as usual. He said, “NNPC is doing very well in this regard. They are looking deeper into the budgets of operating companies.
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Chief Timipre Sylva
But, under the current leadership of the Group Managing Director of NNPC, NAPIMS is now deeply more to its responsibility. And we are beginning to see a lot more compliance in the area of auditing of the accounts of the JVCs.
Before now, NAPIMS had completely abdicated its responsibility of auditing the cost of production with the joint venture companies and became the contracting agency.
“The contracting cycle was also a big problem. The long contracting cycle led to higher costs of projects, and by extension, higher cost per barrel. “But, now our regulatory agencies and bodies are living up to their billing by shortening approvals and contracting cycles as a result bringing down the cost of projects. We will begin to see soon, a reduction in the cost per barrel.” He explained that the Nigerian Content Development Monitoring Board (NCDMB), NNPC and the DPR were involved very largely in this.
Role of local content
This had brought to the fore, the critical role played by the local content policy in driving down production cost. Specifically, Sylva, disclosed that the Federal Government would deepen the implementation of the Nigerian Oil and Gas Industry Content Development (NOGICD) Ac t because it is an effective strategy for lowering Nigeria’s high crude oil production cost. Sylva emphasized that government’s primary target in the sector was to significantly reduce the unit cost of producing per barrel of crude oil. According to him,
local contractors tend to be cheaper than expatriates and international contractors,
“hence, the need to encourage Local Content and give more opportunities to local contractors. He said, “By extension we will reduce the cost of doing business in the oil and gas industry in Nigeria. Local Content is part of cost reduction strategy. That’s why I came here, to encourage more local participation in the activities of the industry.” In addition, Executive Secretary of the Nigerian Content Development and Monitoring Board (NCDMB), Simbi Wabote, confirmed that Local Content implementation lowers the cost of crude oil production, particularly in the long run. He had listed other key elements that contribute to high crude oil production cost in Nigeria
to include security and infrastructural challenges as well as protracted contrac ting cycle. He noted that several Nigerian oil service companies had executed several projects at costs much lower than their international counterparts, explaining that countries like Brazil, Malaysia and Norway, that had practiced Local Content in their oil sector for decades had long enjoyed significant cost reduction in their per barrel cost.
Wabote also noted that Local Content serves as an opportunity for the Federal Government to empower its citizens and get them involved in the activities of the oil and gas industry. He added that Local Content guarantees security of supply in the industry, recalling that billion in funding involving a score of banks, despite a slowdown in energy investment as the coronavirus hammers the global economy. It is the biggest foreign direct investment in Africa yet, according to law firm
White & Case LLP, which advised the financiers. Financial close is expected by the end of September, it said.
The African Development Bank will provide $400 million in senior loans and the Japan Bank for International Cooperation signed a loan agreement for as much as $3 billion for the scheme in northern Mozambique, they said “
local service companies and skilled Nigerian personnel ensured that operations of the oil and gas industry continued apace during the height of restiveness in the Niger Delta region
a few years ago, when most foreign companies and their staff had pulled out. As the world continues to battle the COVID-19 pandemic and oil-producing nations navigate the volatility in the global market, Nigeria would either hope that crude oil price remains way above the cost of producing the commodity in the country, or channel all its efforts towards ensuring that the costs of
Engr. Simbi Kesiye
Simbi Wabote
Total secures Africa’s biggest debt financing with LNG deal
To t a l S A’s M o z a m b i q u e liquefied natural gas project has completed as much as $16 production continue to dip.
Thursday in separate announcements. The amount raised, which includes a loan from the ExportImport Bank of the U. S., matches the African nation’s gross domestic product. Oil India Ltd., a partner, a l s o c o n f i r m e d the financing in a statement. A Maputobased spokeswoman for the Total-led project didn’t respond to a request for comment.
T h e f i n a n c i n g a c h i e v e m e n t underscores the faith being shown in the $23 billion project known as Mozambique LNG. While crude oil has staged a partial comeback from the worst effects of the pandemic, the gas market continues to face a massive oversupply. Despite this, lenders are betting on the country’s location in southern Africa for ease of export, and the sheer size of gas deposits linked to the project. The project, which could be transformational for the country’s economy, still faces significant challenges including its location in an area where an Islamist insurgency began in 2017. Similar
ACROSS AFRICA
schemes, including Exxon Mobil Corp.’s Rovuma LNG to be built next to Total’s facility, have been delayed due to depressed energy prices and the pandemic. Mozambique LNG’s funding effort still raised $600 million more than planned, with pricing at pre-coronavirus levels, according to Societe Generale SA, the financial adviser for the project. Mozambique LNG will generate about $50 billion in revenue for Mozambique’s government over 25 years, according to Total. That will be supplemented by sales from the even bigger project led by Exxon.
While the site is in a geographically strategic location between Europe and Asia, the onshore plant, which is being built in the northern Cabo Delgado province faces other challenges. The site registered a number of Mozambique’s early infections of Covid-19, with control efforts complicated by the movement of foreign workers. Mozambique’s state-owned Empresa Nacional de Hidrocarbonetos, Mitsui & Co Ltd., ONGC Videsh Ltd., PTT Exploration and Production Pcl and Bharat Petroleum Corp. are also partners in Mozambique LNG.
