FG set to reduce operational cost in oil/gas industry

The Federal Government is set to reduce the costs of running the petroleum industry which she says have risen dramatically and to an unacceptable level.

It says the country has become one of the highest cost provinces in the world, adding that in a low oil price world which now prevails, this cannot continue as it severely affects government revenues.

The average cost the production of a barrel of oil is within the region of $29 and $30 in the country as against what is obtainable in other producing nations.

Analysts however have attributed this cost to the militancy activities in the Niger Delta region.

Cost monitoring and control the government says are crucial to the profitability of projects in the value chain; the overall sector economics and therefore must be taken seriously.

To this end the government has planned to take certain steps as enumerated in the new National Petroleum Policy which was recently approved by the Federal Executive Council.

Part of the measures to be taken according to the document, is that, henceforth robust cost estimation and cost control must be adopted as a standard operating practice in the sector.

“The measures to reduce costs in the Nigerian petroleum industry should include (among other measures): Cost optimization, cost management, better asset management, consolidation of contracts where necessary, Performance based incentives, incentives to reward lower cost producers, penalties for higher cost producers, a general move away from higher cost oil, driving down cost to achieve higher revenue, sharing of services and facilities, contract thresholds for projects”.

Other actions that must be taken includes: Cost estimates prepared for any project must be benchmarked across the industry and with peer projects globally, an evaluation of the technical and economic feasibility of any engineering project must be undertaken before proceeding with such project.

Approved cost data for all projects should be recorded in the National Cost Database developed under the leadership of the Commission as well as carrying out effective cost monitoring and control of Joint ventures (JVs) and Production Sharing Contracts (PSCs).

The cost price ratio the document stated should not exceed 30%, which is around the maximum that the fiscal system can bear.

The advent of new technologies it stated provides an opportunity to significantly reduce petroleum costs, in Nigeria as well as in other petroleum provinces around the world. So therefore the industry must take advantage of this.

The intention of the policy the government says is to avoid duplication of and unnecessary costs, and to avoid redundant and underutilised assets.

On the state of metering and measurement of hydrocarbons, the document says it is not satisfactory but steps would be taken to ensure transparency in this area.

“As part of arrangements for a transparently run industry, the policy is that shortcomings in metering, measurement and Fiscalisation of hydrocarbons throughout the value chain will be addressed”.

Olusola Bello