IOCs Must Work to Produce Oil at $15 per Barrel, Kachikwu Insists

  • NCDMB targets 100% fabrication of modular refineries in Nigeria

Chineme Okafor and Nnenna Akuma in Abuja

The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, thursday said International Oil Companies (IOCs) operating in the Nigerian oil fields must work hard to cut down their cost of producing a barrel of oil from an average of $32 per barrel to $15, saying repeated excuses of militancy as part of reasons for high production costs were no longer tenable.

This is just as the Nigerian Content Development Management Board (NCDMB) has disclosed that in support of the federal government’s efforts to end importation of petrol in 2019, it would target to ensure that all the fabrication works for modular refineries for that purpose in the country would be done locally.

Kachikwu explained during the signing of a Memorandum of Understanding (MoU) on $200 million Nigerian Content Intervention Fund (NCIF) for projects, programmes and activities directed at increasing Nigerian Content in the oil and gas industry, that Nigeria’s target to produce a barrel of oil at $15 was sacrosanct.

He noted that it was on the basis of that the country would be able to compete with other members of the Organisation of Petroleum Exporting Countries (OPEC) for market share in the global oil industry.

“A lot of debates about the cost production is on; $32 was the figure quoted from me, and $23 which the NNPC has quoted. The reality is that production in our offshore is in excess of $32 per barrel, no doubt about that, and production onshore was ranging about $28, NNPC has done a good job of bringing it down to $23, but that is not over yet. Where we are headed is $15 and not $18, we must bring back down production,” said Kachikwu.

He further explained: “We must be able to look at our OPEC brothers in the face and be able to compete favourably. If you look at today, the rundown is that we are the second or third country with the highest production cost figure.
“The issue of militancy among others, we can no longer explain that. We have had militancy for so long that by now, we must have alternatives in defence of that. Oil companies must rise to the challenges of producing oil in this country, and we cannot produce oil in an environment we are unable to with certainty-say what the pricing is going to be and continue to run a high cost model – it will not work. We must drive those numbers down. So for clarity on this issue, the target is $15 per barrel.”

He stated that contracting cycle for projects in the industry must have to come down to within a six-month band to reflect on the production cost, adding: “I have been very frank from day one that there is no reason why this country should have a contracting cycle that is in excess of six months.

“Today, we have moved it from 18 to 24 months, down to 13 to 14 – it is still struggling, but we must put speed to this because it costs money and has a direct linkage with my philosophy that we must reduce the cost of production.”
Speaking on the relevance of the $200 million NCIF which the NCDMB signed a MoU on with the Bank of Industry (BoI), Kachikwu stated that he had a target to drive the fund to about $1 billion within a short time.

According to him, “I congratulate you; it is a huge milestone. It is our hope that this as small as it is – $200 million in the purview of a $16 billion type activities is very small-but that this will ginger everybody to begin to look at how to expand this fund.

“My goal for this fund is $1 billion, and once it is launched today, I will have to set up a team that will work internally to first of all get to BoI and ask what their counterpart support for this because the fund is not just going to sit in BoI. I expect the BoI to support as well as the oil industry.”

The petroleum minister also gave the government expectations from the fund, noting that it must aim to achieve geographic and sectoral spread, in addition to being used to fund projects that involve cutting-edge technologies, among others.

Meanwhile, the Executive Secretary of NCDMB, Mr. Simbi Wabote, disclosed in his opening remarks that as part of efforts to support the government intention to end importation of petrol by 2019, NCDMB would seek to have all the fabrications for modular refineries for this purpose to be done in-country.

“We have also keyed into the drive of the Minister of States for Petroleum Resources to put a stop to the importation of petroleum products, for us in the NCDMB, our strategic initiative is to achieve 100 per cent local fabrication of our modular refineries.

“We have commenced discussions with OEMs and local fabricators to make this a reality. We have set aside areas in oil and gas back scheme for practical training on operations, maintenance and running of modular refineries as a sustainable business model and for fabrication of the units,” Wabote stated.

Following the enactment of the Local Content Act in 2010, Wabote noted that the country now retains up to $5 billion of the monies spent in the industry; has four pipe mills established in-country; as well as growing Nigerians’ ownership and control of marine vessels in the sector to 36 per cent.

“We had no active dry docks. Today we have our active dry dock facilities one each in Port Harcourt and Onne, and two in Lagos. Over 35,000 jobs had been created on the back of the implementation of the Act. In fabrication, today Nigerians can handle fabrication capacity of more than 60,000 metric tons per annum.

“We have moved the country’s value retention from less than five per cent before the Act to the current 26 per cent level. Our goal is to progress to 70 per cent in-country value retention within the next 10 years. We target to retain $14 billion out of the $20 billion yearly spent, create 300,000 direct jobs covering upstream, midstream and downstream areas of our industry with linkages to key sectors of our economy,” he stated.