8 January 2013

Nigeria: NNPC Rolls Out Cost-Reduction Initiatives in 2013

Photo: Africa Undisguised
Oil rig in Nigeria

Apparently worried over the cost of oil and gas projects in Nigeria, which is described as the highest in the world, the Nigerian National Petroleum Corporation (NNPC) has introduced initiatives in 2013 to address the high cost of operations in the oil and gas sector.

A document obtained by THISDAY from NNPC's Exploration and Production (E & P) directorate indicated that the new measures, which are being introduced in 2013, would ensure that the cost of projects in Nigeria are in line with international best practices.

Under the seven-point plan of actions contained in the document, there would be an industry-wide standardisation of processes and evaluation mechanism for estimation of drilling and drilling services costs, using a common template across the International Oil Companies (IOCs).

The document also showed that personnel and common cost would also be standardised, while the NNPC would also benchmark the costs of major projects in line with international best practices. The new guidelines also provide that oil and gas projects would henceforth be ranked, while proposals for selection would be in accordance with well-established project selection principles.

According to the new measures, the major focus would be on the life cycle costs and Unit Technical Cost (UTC) benchmark in line with global trend. The NNPC will also develop synergy among operators by pooling common services and resources to avoid duplication of costs often associated with stand alone projects - rig share programmes, vessels and pipeline.

"NNPC is working with the security agencies to address security issues identified to be major factors responsible for high cost of operations, especially in Nigerian waters. There should be a management of costs induced by lengthy contracting duration, through reduction of cycle time in our tender process by effective utilisation of the Nigerian Petroleum Exchange (Nipex) system," according to the new guidelines.

To actualise these aspirations, a monthly performance monitoring of tender process will be a Key Performance Index (KPI). NNPC will also ensure improved alignment with the Nigerian Content Development and Monitoring Board (NCDMB) as part of tender cycle reduction initiative.

Both local and foreign operators have complained that the cost of doing oil and gas business in Nigeria's Niger Delta is the highest compared to other oil-producing regions such as the United States' Gulf of Mexico, United Kingdom's North Sea, and the Persian Gulf.

Nigeria is in the oil-producing Gulf of Guinea, together with Angola but the cost of projects in Nigeria is also higher than in Angola. The situation was worsened by the long contracting cycle of oil and gas projects, which hovers around 24 months, compared to average of six months obtained in Angola.

High cost of projects in Nigeria had propelled some of the operators to relocate their investment to the neighbouring countries, especially at the peak of the Niger Delta crisis.

Meanwhile, the new fiscal structure proposed in the new draft Petroleum Industry Bill (PIB) currently before the national assembly will take effect immediately the bill is signed into law.

Group Executive Director (GED) in charge of Exploration and Production at the NNPC, Mr. Abiye Membere, confirmed this in an interactive session with journalists at the weekend. He explained that the unbundling of the NNPC and setting up of the various agencies and parastatals would be implemented within 36 months.

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