The Nigerian National Petroleum Corporation (NNPC) has threatened to cancel some of its expensive Joint Venture (JV) contracts.
Its Group Managing Director (GMD), Mallam Mele Kyari, hinted of the plan yesterday during the fourth edition of the Nigerian Association of Petroleum Explorationists(NAPE) webinar seminar series titled: ‘The Impact of COVID-19 on the Nigerian Oil and Gas Industry-The Way Forward.
He equally warned contractors, suppliers and companies against inlated, over bloated and unrealistic contract figures.
Kyari, who was the guest speaker, frowned at the activities of some of its partners, especially indigenous oil companies, that are producing oil at a very high cost of about $93 per barrel while some others are producing same at a relatively cheaper cost.
‘‘The era of some of our partners producing at a very high cost will no longer be acceptable to us anymore. It is either they become more efficient at what they are doing by cutting cost or be ready to be shown the way out.
‘‘If they are not ready to be cost effective, then we may have no other option than to cancel those contracts and give them to those that can manage and produce at a relatively cheaper cost. This is business and we cannot afford to run same like a charity organisation’’.
The NNPC boss lamented that the high cost of production in the industry was unacceptable and was as a result of a number of factors, some of which included; structural inefficiencies that exist in the system and processes, environmental factors which every contractor factors in while doing business; be it risk as it relates to human resources and materials.
He noted that every cost on the list of business has a premium that is related to our operating environment, insisting that those premiums are much exaggerated and not reflective of the realities on ground because suppliers, contractors and companies were only taking advantage of such to hike contract cost.
Kyari, while specifically calling out indigenous companies in this unwholesome act, said the NNPC in its several dealings with them have observed a list of governance structure and processes that are not significant and is now whipping on International Oil Companies (IOCs), eventually resulting into producing oil above its actual cost.
The NNPC GMD said the current vision is to achieve a $10 per barrel industry cost, adding that for these to happen companies must do so many things to arrive at that cost.
According to him, part of what should be done to achieve that target is for stakeholders to be more cost conscious, plan better, more realistic, and prudent and the appropriate leadership to drive the focus.
He assured that the attainment of a $10 per barrel by 2021 was possible; adding that such would enable the country to meet its three million barrels per day (bpd) and 40 billion oil reserve targets in a seamless manner.
He regretted that it was while discussions was ongoing among stakeholders to see how the cost of oil production could be reduced that the coronavirus pandemic hit the global stage, forcing oil price to an oil time low of about less than $10 per barrel.
He said the coronavirus pandemic has clearly proven to oil producers that the commodity could actually sell for less than $10 per barrel, adding that the country cannot continue to produce if something was not done about the cost.
He said the emotions should be shoved aside because oil producer that is not ready to produce at around $10 per barrel was not in tune with current market realities and must be ready to quit the stage for those that are ready for the challenges ahead.