Nigeria launches oil cost optimisation scheme

The Nigerian National Petroleum Corporation has launched the Nigerian Upstream Cost Optimisation Programme (NUCOP) in a bid to bring per-barrel production costs in the country down to USD 10.

“It is in our informed interest to optimise our cost of production,” NNPC group managing director Mallam Mele Kyari said at the launch event. “The realities of energy transition and investor choices are very much clear to us. There is nowhere in this world where a less cost-efficient operator can survive today.”

Players in the oil and gas industry can look at transparency, collaboration, efficiency and shared services to drive down cost, he said.

For its part, NNPC is pursuing initiatives such as a reducing the contracting cycle to six months or less, which will in turn reduce production costs.

Industry voices

The Energy Year is speaking to Nigerian energy industry executives about cost-cutting measures as we produce our coming report The Energy Year Nigeria 2021. Here is what some of them had to say:

“Nigeria has one of the highest oil production costs in the world, with security being one of the reasons for this. In fact, Nigerian companies spend a significant part of their opex on security. Moreover, these expenses refer to both what firms pay to secure their assets and also what they lose when they are targeted. Indigenous companies do not have the power to guarantee the production of a barrel at one place and its delivery at the other end of the pipeline.” –Ladi Bada, managing director and CEO of Shoreline Natural Resources

“NNPC is a major participant in the industry, particularly with respect to joint-venture financing. Given the situation, both the quantity and the price of crude have been reduced, which has also meant that the capital available for funding joint ventures has been impacted. The strategy the government and companies have adopted is that of cost cutting, which has been reflected in NNPC’s directive to reduce production costs by 30-40%, reaching USD 10 per barrel by the end of 2021.” –Pedro Omontuemhen, partner at PwC Nigeria

“A major push to produce oil cheaper, partly as a consequence of the low oil price environment, appears to be a formidable force for change. Companies are working more efficiently, adapting newer and better ways, and are using technology to produce oil with less cost to the international market. The target currently championed by NNPC is a USD 10-per-barrel cost of production. Companies are continuously looking at their operations and adopting cost-saving methods in production processes.” –Ese Avanoma, managing director of BRADE Group

“In Nigeria, the cost of logistics in the total price of a product is around 25%. We are looking at alternatives to reduce this cost. To this end, we are trying to create a system that is disruptive to the traditional model, one that is able to deliver more services with less space as it is all about optimising the space you have.” –Seni Edu, CEO of Eko Support Services

“We believe the government should continue to drive increased production at lower cost. … Strengthening existing business relationships and partnering for greater cost efficiencies is a major area of focus for us in the coming year. ” –Michael Dumbi Amaeshike, managing director of West African Ventures