By Toyin Akinosho
..Contradicts Minister’s Statement at Davos 2016
The draft Petroleum Policy for Nigeria, which is currently being debated by stakeholders, has delivered a verdict that has been subject of whispers in the boardrooms until now.
“Nigeria is one of the highest cost of extraction oil provinces in the world, estimated at $29/bbl, “says the 115page document on its 15th page.
“Nigeria has to substantially reduce the costs of production if the country is to be competitive in the modern low oil price world, and if it is to have anything more than a bare minimum government take,” the draft advises.
According to the document, Nigeria is only less expensive, as a cost per barrel producer, than Brazil and UK, in a 12 country ranking that includes Saudi Arabia, Iran, Iraq, Russia, Indonesia, Norway, US Non Shale, US Shale, Canada and Venezuela.
The cost ranking, pulled out of a U Cube analysis by Rystad Energy, the Norwegian consulting firm, doesn’t indicate whether this was an average of a basket that includes crudes from deepwater, shallow water and onshore terrains. Which is significant, especially as it features different figures for US Shale:$23.35/bbl and US Non Shale: $20.99/bbl.
What it does, however, is that it breaks down the cost structure for Nigeria as follows: Gross taxes: $4.11, Capital Spending: $13.10; Production costs: $8.81 and Admin/transport costs: $2.97.
This statement on cost by the Petroleum Policy Team at the Ministry of Petroleum contradicts the Minister of State’s January 2016 statement that Nigeria would still make profit if crude oil prices averaged $20/bbl.
Mr. IbeKachikwu caused a stir around the oil industry in the country when, at a meeting a year ago in Davos Switzerland, he declared that cost of producing a barrel of crude oil onshore Nigeria was less than $13.
“The deep off-shore projects, obviously we are putting on hold, given the fact that the returns on those, would not match the prices today,” Kachikwu said at the World Economic Forum. “Everybody is sort of coming back on land so this is time to put a lot of investments on ground, put a lot of incentives on ground, make everybody return on ground, where in fact our average cost of production is about $13 per barrel. So we need more on that, bringing those numbers down from $13 to somewhere $10. Obviously we won’t get the Saudi figures of about $6 or $7, but we can get it much lower,” he said.
His remarks made industry analysts scramble for their fiscal modeling templates, and not a few shook their heads in horror. Now Mr. Kachikwu’s ministry is passing round a document which declares that the average cost of extraction in the country is $29/bbl.