Senate raises concern over high cost of crude oil production in Nigeria

The Senate on Monday expressed concern over the high cost of crude oil production by the Nigeria National Petroleum Corporation.

It said despite the high cost of producing crude oil, Nigeria was not getting much in return on its investment in crude oil production.

Solomon Adeola, Chairman, Senate Committee on Finance, made the observation at an interactive session on Medium Term Expenditure Framework and Fiscal Strategy Papers with officers of Ministry of Finance, Budget and National Planning.

Other agencies of government in attendance at the meeting inlcuded revenue generating agencies such as NNPC, Nigeria Customs Service and Federal Inland Revenue Services.

Adeola said: “I want you to take us through why Nigeria’s cost of production per barrel of crude oil is the most expensive in the world.

“Give us the breakdown of what constitutes those costs into variables and the technical cost.

“We want to know what you are doing as an agency of government to bring down this cost.”

He said the committee was interested in ascertaining other costs of crude production in terms of administrative cost.

Adeola said: “Who determines this cost, with the benchmark of $25 as proposed, Nigeria is going to have just $3 as its own return on investment.

“The oil revenue and the mineral revenue as proposed in the MTEF has dropped from almost N8.86 trillion to N3.33 trillion.

“Are you saying that it is worthwhile investment for us as a nation?

“How do you ensure that Nigeria is being charged the right cost on each barrel of oil?

“In Saudi Arabia, it is $4 per barrel cost of production.

“In Russia, it is about $3 per barrel.

“Nigeria is $21.

“We are beginning to be afraid as to why we are channeling all our efforts to this oil and gas if the return on investment is nothing to write home about.”

Senator James Manager (PDP Delta) said the reason adduced by NNPC for the cost of production was not tenable.

Manager said: “Because wherever oil is produced, they have their own security challenge.

“Even Saudi Arabia, Iran Russia, they have their own unique security issues.

“How is our own so peculiar that our cost of production is up to $21 per barrel.

“You also mentioned administrative issue.

“Which are those administrative issues?

“Why are we different from the rest of the world”

“These are issues that the National Assembly is supposed to take up.”

Senator Jibril Isah (APC Kogi) said: “I am disturbed because I expected the NNPC to dwell more on fixed costs, but surprisingly, you are talking about administrative cost, security.

“These are variables.

“Even the fixed cost on the long run are also variables which you can also work on.”

The Group Managing Director of NNPC, Mele Kyari, said the NNPC was working hard to bring down the fixed cost of crude oil production.

Kyari, represented by the Chief Operating Officer of NNPC, Upstream, Yemi Adetunji, said further: “We know that these costs are high.

“That is why we have decided to go from even the initial approved $25 to $21 per barrel.

“We believe that once we have the new framework in place going forward, we shall even see lower cost of production from T1 and T2.

“There are things we are targeting; security challenges are peculiar to Nigeria.

“In other climes,  pipelines are on the surface.

“You hardly see them being  tampered with, but in Nigeria even when they are buried two meters to three meters deep, they are still being vandalised.

“In some cases, we are trying to take them to deeper levels, but those ones will add to cost of production like going 10 meters to 15 meters deep.

“This adds to the cost about three or four times the cost of production as against putting the pipelines on the surface.”

He said NNPC was working with security agencies to ensure that security hitches responsible for high cost were brought down to the minimum.


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