Kachikwu: Nigeria Can Maximise OPEC Exemption with Low Production Cost

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Ibe Kachikwu
Minister of State for Petroleum Resources, Dr. Ibe Kachikwu

Chineme Okafor in Abuja

The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, has said that Nigeria could make the most of her exemption from oil production cap agreed by member countries of the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC countries, by working hard to reduce the cost of producing a barrel of oil from her fields.

Speaking in an interaction with THISDAY in Vienna during the 173rd meeting of OPEC countries, and the third meeting of the OPEC and its non-OPEC allies where a decision was made to extend the oil production cut they agreed in December 2016, Kachikwu, explained Nigeria was losing its competitiveness amongst other oil producers with its high production cost.

According to him, the country currently produced oil at between $23 and $24 per barrel, and that it was not competitive when compared to other producers like Saudi Arabia and Iran. He noted that this would have to come down for her to fully maximise the output exemption given to her by the group.

“The next battle for me is cost, because at the end of all these, it doesn’t matter what the volumes are if we do not get our cost to a point that is reasonable and comparative to the high performing OPEC members – Saudi Arabia, and Iran, it doesn’t matter what numbers anybody gives us, we are blowing it, and that is why you see me shouting all the time about cost,” said Kachikwu.

He further stated: “I will have to work with the NNPC, all the parastatals and oil companies to keep driving those numbers down because quite frankly, even if I have a million barrels and I am producing at $15 a barrel, if you do a simple calculation, you will find out that your returns are about as good as you doing two million barrels and producing at $30 a barrel.

“So, cost is key for us to enjoy the benefits of the exemptions that we have. We have come down from an all-time of $28-29, and now about $23-24, but that is nowhere near where we should be. We need to be edging towards $18-15, and that is going to be the big work for next year.”

The minister also talked about the government’s plans for the sector in 2018, indicating that other than driving down production costs, development of gas would take a priority position in its itinerary for the industry.
He explained that: “We have our eyes on gas, and have passed the gas policy at the FEC. We just passed the gas commercialisation programme, we are focused very heavily on gas.

“We are also now trying to under our fiscal policy provide an incentive enough to be able to produce gas as of right, not gas as associated because every gas we have in Nigeria today is associated gas, in other words, people go to the upstream numbers and charge the cost of producing the gas to the cost of producing the oil, and so at the end of the day you are basically providing 100 per cent incentives and people would be lazy.”

“Now, we are saying gas is a different ball game – these are the terms and incentives for gas, don’t charge it to oil production and that will immediately take off $3-4 off the cost, but focus you on how you can explore for gas.
“There is only so much you can push for with regulation at the end of the day and that is why we need to work with the assembly. The infrastructure needed in the oil and gas sector is in excess of $30 billion, it is not going to ever be done by the government and that is the reality. We need to provide enough fiscal structures, enough tariffing incentives for people to come in and invest in these infrastructures,” he added.