Marginal oil producers need to produce crude oil at under $20 per barrel to remain competitive – stakeholders

Nigerian oil firms, especially marginal field operators, need to keep the production cost of its crude oil at sub-$20 per barrel to remain competitive and maintain profitability in this era of low oil prices and battle for market share.

Speaking at the 40th edition of the Society of Petroleum Engineers NAICE 2016, Ademola Adeyemi-Bero, managing director, First E and P Development Company Limited, in his lead paper on practical approach to militating associated project risk and uncertainties in marginal field development – key elements and economic consideration, predicted that crude oil prices would remain volatile over the next few years, thus, the need to focus on production cost by marginal field operators so as to deal with the tripartite problems of low oil prices, forex challenges and renewed insurgency.

Adeyemi-Bero observed that for Nigeria to achieve its competitiveness anytime in the future, government needed to assure of some level of certainty in contractual agreement to encourage investors to grow the oil and gas sector.

“There is the need for Nigeria to drive diversification beyond upstream, extending the value chain to encourage mix of production to further deepen her production output,” he said.

The current unit cost of production hovering over $28 per barrel is worsened by militant activities and security, posing threat to the operations of the international oil companies and marginal field operators.

Adeyemi-Bero maintained that government should urgently address reform lethargy as it had significantly impacted on investor confidence, adding that certainty and growth in the marginal fields would also help shape productivity to drive the country’s economy.

“Government needs to enhance certainty by developing better strategies to monetise gas and tackle the issues around ease of doing business, especially as it relates to regulatory oversight, will make Nigeria attractive to investors.

“Marginal field operators need to collaborate more with service companies as this would strengthen their operation for further effectiveness and this can drive production cost lower to sub-$10 per barrel,” he said.

Felix Amieyofori, managing director, Energia Company Limited, said Nigeria had much bigger issue with security in the country at the moment, in the oil and gas industry, saying that the growing uncertainties in several parts of the country had further heighten drilling risk, development of marginal field risk and the price volatility in the foreign exchange.

“Marginal field operators face low level risks such as threats and kidnappings, which impact negatively on their cost and which never get reported by the media or gets government’s attention,” Amieyofori said.

There is also the issue of strategic engagement with communities. The panellists said there was need for the recalibration of the mindset of people on the role of marginal field operator, which will lead to improvement in efficiency and lowering of the production cost through an all stakeholders approach.

Gbenga Onadeko, senior vice president, Weltec, said with improved technology, marginal field operators could further drive their cost down and improve their production output.

Onadeko said strategic investment in the use of modern aspect of technology across the value chain of production would no doubt enhance maximisation of output for each field in the long run.