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Dissecting Nigeria’s controversial oil production cost

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The gulf between the Ministry of Petroleum Pesources and the Nigerian National Petroleum Corporation (NNPC) has widened over the actual cost of crude oil production in Nigeria. ADEOLA YUSUF reports

The Nigerian Extractive Industry Transparency Initiative (NEITI), it was, which first alleged that Nigeria does not know the actual volumes of crude barrels it produces daily. Stating that this awkward situation started and had remained right from over 58 years of crude exploitation by the Africa’s biggest crude exporter, NEITI alleged in its 2008 audit that the country does not have an independent verification for figures of production slammed on it by the International Oil Companies (IOCs). And since figures remains sacrosanct elsewhere, they seem not to be Africa’s biggest economy, which depends largely on crude proceeds to service over 85 per cent of its budget.

Barely 24 hours after the Nigerian National Petroleum Corporation (NNPC) declared that it had crashed the cost of crude oil production in Nigeria to $23 per barrel, Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, told a gathering of major stakeholders in the country’s industry last Thursday that the country’s cost of “production of oil remains at about $32 per barrel.”

To show that the figure announced by the minister at the annual conference organized by the National Association of Energy Correspondents (NAEC) was not a typographic error, he added that the government was determined to cut the cost to $15 per barrel unlike the $19 per barrel said by NNPC. It said that the “foreign direct investment flows into the country are at high cost.”

The NNPC’s stand point

On Wednesday, August 16, 2018, the NNPC claimed that it had crashed crude oil production cost to $23 per barrel, a $55 per barrel cut off, representing 70.5 per cent reduction on production for the country’s biggest revenue earner.

The production cost for crude in Nigeria, which is one of the highest among members of the Organisation of Petroleum Exporting Countries (OPEC), stood, according to the corporation in charge of crude production for the country, at $78 dollars per barrel as at August 2015.

It had, however, been crashed to $23 per barrel, Group General Manager of National Petroleum Investment Management Services (NAPIMS), a unit of NNPC, Dafe Sejebor, an engineer, disclosed this during the inauguration of the anti-corruption committee of the unit. He said the Corporation had saved a minimum of $3 billion per annum.

Figures verification

The NNPC appeared ready to defend its figure and it took adequate advantage of this in a statement issued by Group General Manager, Group Public Affairs Division, Ndu Ughamadu, in which it noted that NAPIMS arrived at the figure after looking at the difference between the $78 and $23, which represents the old and new cost of production in relation to the present daily average production in the country.

“If you knock down your cost of production from $78 per barrel to $23, take the difference and multiply by the average daily production, you will discover that we are saving a minimum of $3 billion in the upstream for both production sharing contracts (PSCs) and joint ventures (JVs),” he said.
The GGM informed that the target was to bring the cost of production to between $17 and $19 for onshore and offshore production respectively.
Commendation to FG on policy.

Ughamadu commended the Federal Government for its support to the NNPC management in tackling the challenges in the petroleum industry, especially the cash call exit agreement signed in 2016 and the reduction of contracting circle from three years to six months.
On the new petroleum policy, Sejebor said it was necessitated by the increasing difficulty in operating the petroleum industry within the framework of the old Petroleum Act in the face of the delayed passage of the Petroleum Industry Bill (PIB).

He said the policy would restore investors’ confidence in the industry pending the full passage of the entire PIB by the National Assembly.
On the NAPIMS Anti- Corruption Committee, Sajebor urged the management and staff to let the principles of accountability, integrity, honesty and transparency be their watchword. He charged them to generate positive ideas to help tackle the challenges facing the industry and help reverse its fortunes.

Sajebor admonished staff to key into NNPC management’s zero tolerance for corruption. It would be recalled that the Group Managing Director of NNPC, Dr. Maikanti Baru, while inaugurating the anti-corruption unit at the corporate headquarters recently, had directed all the Strategic Business Units (SBUs) and Corporate Service Units (CSUs) to establish their own anti-corruption committees.
NAPIMS was the first to comply with the directive.

Kachikwu’s figure
Dr. Kachikwu however, contradicted the NNPC on the cost of crude oil production, which had earlier said that the country had reduced cost of oil production to $23 per barrel.

The country’s cost of “production of oil is about $32 per barrel,” the minister insisted in a speech he presented to local and foreign delegates at the NAEC conference in Lagos.
He added however, that Initiatives “to reduce the cost of crude oil production to $15 per barrel are on-going; initial consultations with stakeholders have held and cost drivers have been identified. The outcome of this initiative would be a win-win for investors and the nation.”

Modalities for cost adjustment

The Federal Government, the minister said, set a new target of 10 years to attain 40 per cent divestments of its shares in the NNPC, maintaining that the Petroleum Industry Governance Bill (PIGB) is central to the achievements of this target.

Stating that the PIG bill, which has been passed by the Senate, stipulates that all oil assets previously held by the Bureau of Public Enterprises (BPE) would be managed by the National Petroleum Company (NPC) to be formed from the NNPC, the minister in a speech read by Deputy Director, Engineering Standard Division of Department of Petroleum Resources (DPR), Dr. Olumide Adeleke, stated, “divestments of shares by the government to the private sector will gradually increase from 10 per cent to 30 per cent within five years and 40 per cent in 10 years.
“With ownership spread to individuals and institutions and accountability would be given top priority and this would enhance performance because stakeholders will seek to protect their investments.”

This ownership concept, he said, “is also being introduced in the modular refinery initiative under the BigWin 4 (refineries and local production capacity) and is set to improve refining capacity in-country and faster peace in the Niger Delta.”

Role of PIB

Taking delegates and stakeholders at the conference down the memory lane, the minister said; “Recall that for the past ten years, the passage of the Petroleum Industry Bill has been an issue. However, this administration has succeeded where previous administrations have not given the passage of the PIGB in the upper House.”

The Ministry of Petroleum Resources, according to him, is currently working arduously with the lower house to provide an adequate pathway for passage of the PIGB and the Fiscals Bill at the lower House.

“The PIGB, which has been on the news headlines since its passage at the Upper house, is indeed in line with the Transparency and Efficiency key focus area of the 7BIGWINs initiatives- a roadmap of short and medium term priorities aimed at developing a stable and enabling oil and gas investment landscape, which was launched by His Excellency, President Muhammadu Buhari in October 2016.

“It portrays plans to create the governing institutions with clear and spate roles and establish frameworks for creation of commercially viable petroleum entities, that will eliminate bureaucratic bottlenecks, which discourage investors, hinder our growth, and prevent us from attaining the summit of performances.

“In other countries where oil revenues have been of humongous benefits, a single regular exists. This single regulator regulates the upstream, midstream and downstream aspects of its petroleum resources. A single regulator provides a one-stop shop for investors; it removes duplicate procedures and its associated costs and therefore attracts foreign direct investments in the nation’s oil and gas sector.” In Nigeria today, the situation, according to Kachikwu, is such that foreign direct investment flows into the country are at high cost. An example is the high cost of production of oil at about $32 per barrel.

“Initiatives to reduce the cost of crude oil production to $15 per barrel are on-going; initial consultations with stakeholders have held and cost drivers have been identified. The outcome of this initiative would be a win-win for investors and the nation.”

The link

Meanwhile, the Group Managing Director of the NNPC, Dr, Maikanti Baru, who also gave an insight into the oil industry post-PIGB, maintained that the Minister of Petroleum Resources shall be responsible for policy formulation and coordinating the affairs of the petroleum industry n behalf of the Federal Government.

“However, the bill proposes the removal of the discretionary powers provided under the Petroleum Act for Minister’s grant, aimed, revoke and extend oil prospecting licenses and oil mining leases to applicants that satisfy statutorily prescribed conditions. The Nigerian Regulatory Commission (NPRC) will now assume this role.”

Last line

The ministry of petroleum resources and the NNPC should hamonise their figures before going to press to avoid further embarrassment that their data disparities usually cause Nigeria.

Even though $32 and $23 look alike, there is a difference in physical appearances of $15 and $19. While the government should work hard by empowering the Department of Petroleum Resources (DPR) to get independent data verification, fact checking should also be seen as being sacrosanct by speech writers for both the minister and the NNPC.

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Business

BEDC pledges improved service delivery to Edo, others

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The management of the Benin Electricity Distribution PLC (BEDC) has promised improved service delivery to its customers in Edo, Delta, Ondo and Ekiti states.
Managing Director/CEO of the company, Funke Osibodu, made this pledge at the graduation ceremony of the third set of BEDC graduate trainees and second set of technician trainees, held in Benin City a fortnight ago.
In her opening remarks, she said the company was committed to continuously render better service to its customers.
In a statement, she said the employment and training of the employees was aimed at engaging the young unemployed graduates and technicians into the Discos’ business to assist with continuous improvement service to BEDC customers whilst creating employment.
Describing the graduates as the future leaders, she said: “We have so far engaged over 700 graduates and technicians and we intend to engage about 1000 in the first phase. We give them intensive two months classroom training and after that 10 months of practical field training on the understanding of the electricity business. We are grooming them to sustain the good things we are doing,” the BEDC boss said.
“The whole purpose is about the customers, how to serve them better. There are many areas to work on but we are improving and as we grow, we will bring more trainees.”
Speaker of Edo state house of Assembly, Hon Kabiru Adjoto, who was present at the occasion, commended the initiative.
The representative of the Speaker, Chris Okaeben, who is the House committee chairman on Energy and Water Resources, whilst also commending BEDC on it’s job creation initiatives, advised the grandaunts to see themselves as being privileged to be employed.
He said that they should ensure that they hold high service standards in doing their jobs without compromise.
He said that a bill was under review on power theft because of incessant theft of power and the concern for the safety of Edo citizens as well as the need to ensure that more power was available to the people of Edo State.
In his remarks, Vice Chancellor, Elizade University, Professor

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Business

NIPCO reiterates commitment to staff

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Managing Director of NIPCO Plc, Mr Sanjay Teotia has declared that the workforce of the downstream company remained its major asset since its inception in 2004.

Teotia said this when he was reflecting on the performance of the integrated downstream operator at the company’s long service awards in Lagos.

According to a statement from the company made available to News Telegraph, he said that the efforts of the workforce have made the organization remained a benchmark in the hydrocarbon industry.

“Your efforts over the years have made the organization remain a benchmark for operators in the downstream sector of the nation’s oil and gas industry,” the statement quoted him to have said.

The MD, who was flanked by the company’s Chief Retail Officer, Harjeet Tuteja and Chief Operating Officer, Suresh Kumar, also pointed out that the organization’s growing recognition and pedigree in the hydrocarbon industry could be linked to the latter’s dedication as a crop of well-trained and motivated workforce.

Mr. Sanjay, who expressed delight on his maiden interface with staff of the company upon his assumption of office as managing director, said the event is a component of the organization employees’ recognition process and an opportunity to recognize the awardees for their longevity and service to the company.

‘’Management is oblivious of awardees meritorious contributions, hence the pomp and pageantry that is associated with the event, with a view to positively boost their morale and raise their self worth before all of us today ‘’ he asserted.

According to him, the forum is also a veritable avenue for the management of the company to show gratitude for the role employees have played since inauguration in 2004.

He restated the resolve of management to continue to improve on workers welfare but informed that the sector is becoming more competitive with inflows of more entrepreneurs.

He said that more support and understanding is required to achieve the needed growth. Mr Sanjay urged the awardees to reciprocate managements’ kind gesture by rededicating themselves to their duties to further enhance the company’s progress.

Responding on behalf of the awardees, Obi Stanley applauded the management for the befitting reception for them, noting that he is proud to be one of the recipients having garnered lots of experience in the organization.

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Energy

Jagal Group Appoints Tam-George as Corporate Affairs Director

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Jagal, a leading Nigerian conglomerate that operates energy businesses and manages a diverse portfolio of investments has appointed Dr. Austin Tam-George as its new Group Corporate Affairs Director.

 

Dr. Tam-George’s experience in communication and corporate strategy spans a period of over 23 years and covers different sectors including, education, oil and energy, as well as media relations.

 

He is a communication and Industrial Relations expert with a Ph.D from the University of the Witwatersrand, South Africa. He was also Andrew W. Mellon Postdoctoral Fellow at the University of Cape Town, and an alumnus of the IESE Business School, University of Navarra, Spain, where he studied communication and institutional leadership.

 

Dr. Tam-George has taught in different universities including the University of Cape Town and the Pan African University, Lagos. He was also the Executive Director of the Institute of Communication and Corporate Studies, (ICCS), Lagos.

 

Over the years, Dr Tam-George’s training series on communication strategy, community relations and stakeholder management had drawn managers from Chevron Nigeria, Shell Petroleum, Exxon Mobil, Pan Ocean, Nigeria Liquified Natural Gas (NLNG, Niger Delta Development Commission, Halliburton, and many other organizations in Nigeria.

 

As the Group Corporate Affairs Director, Dr. Tam-George will lead all internal and external communications and represent Jagal’s reputation for excellence in all its business practices.

 

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