Cost of Services in Nigeria’s Oil and Gas Industry Cheapest in Africa, Says PETAN President

Peter UzohoIn a bizarre turn of events, subsidy has crept into Nigeria’s oil and gas production activity, caused by the Local Content policy implementation, plunging the cost of providing technical services in the industry to the cheapest in Africa and most uncompetitive in the world.The Chairman of Petroleum Technology Association of Nigeria (PETAN), the umbrella body of technical service companies in the industry, Mr. Wole Ogunsanya, disclosed this during the Townhall Session at the just-concluded 14th Practical Nigerian Content (PNC) forum in Yenagoa.

Ogunsanya provided a detailed analysis of project costs across Africa and elsewhere.Ogunsanya insisted that a distinction must be made between the capital expenditures (CAPEX) of the oil industry and operating expenditures (OPEX), stressing that Nigeria’s Capex rates were arguably the lowest in Africa.

He attributed what some industry observers refer to as Nigeria’s uncompetitive costs of production to challenges of evacuation, security costs and the activities of portfolio companies that habitually manipulate their clientele.  According to him, PETAN, the umbrella body of reputable indigenous technical oilfield service companies, has been analysing production costs in different countries over time, using CAPEX and OPEX, and, in the case of Nigeria, carefully identifying cost elements at successive stages of oil and gas production.

“The number one cost driver in Nigeria’s oil and gas industry operations is evacuation of crude oil and gas. Our pipelines are vandalised, and some companies use vessels, barges to move crude oil, at a cost of US$12 per barrel. Costs include payments to security agents as guards or escorts”, Ogunsanya said.

The PETAN boss, who is also Chairman/Chief Executive Officer of Geoplex Drillteq Limited, said whereas contracting a land rig in India costs as much as $60,000 per day, the same services in Nigeria cost as low as $30,000 for the same duration.He noted that part of the explanation for the relatively lower costs in Nigeria was that “Local content policy and practice in the industry here subsidizes oil and gas production” in ways that might not be very apparent to some analysts.”He lamented that some portfolio companies in Nigeria (companies without the requisite operational assets) often constitute another grievous dimension in the escalation of costs.PETAN, he revealed, is “aware of portfolio companies that had previously obtained the Nigerian Content Equipment Certificate (NCEC), became registered on Nigerian Petroleum Exchange (NIPEX) and had services, projects awarded to them.”The Presidential Directive on Local Content Compliance Requirements introduced in March 24, 2024, had mandated that such portfolio companies be barred from participating in the Nigerian oil and industry, while companies bidding on projects must demonstrate genuine, tangible capacity to perform the work independently.Ogunsanya called on the Nigerian Content Development and Monitoring Board (NCDMB) to allow specialists in PETAN to provide guidance on equipment required for different industry operations.He also urged the federal government and the Nigerian National Petroleum Company Limited (NNPCL) to facilitate efforts of PETAN to establish the cost of projects in other markets, to enable the Association advise the authorities on trends globally.According to him, that is to ensure that “when any of the international oil companies (IOCs) or even indigenous companies say we are doing a US$5 billion project to produce 100,000 barrels, we have a basis for comparison.”  Other issues deliberated upon at the Townhall Session, moderated by the General Manager, Corporate Communications Division (CCD) of the NCDMB, Dr. Obinna Ezeobi, included key requirements for NCEC, whether the $400 million Nigerian Content Intervention Fund (NCDF) of the NCDMB could be accessed by startup companies or for Research and Development (R&D).On NCEC requirements, the Director of Capacity Building at NCDMB, Mr. Abayomi Bamidele disclosed that the Board has developed “Guidance Notes,” showing documents that are mandatory and others that are specific to assist companies or individuals seeking the certificate.He advised companies applying for the NCEC to choose one or two of the eight categories of NCEC in which they possess the requisite equipment and assets and not attempt to register for all.Bamidele and Ezeobi made a promise to industry players that a platform would be opened by the NCDMB for complaints relating to NCEC.On the Nigerian Content Intervention Fund (NCI Fund), the Director of Finance and Personnel in the NCDMB, Mr. Uchendu Ossaowa, clarified that Research and Development (R&D) operations were not eligible to borrow from the NCI Fund scheme because the fund was specifically for contributors and firms that have running contracts with oil and gas operating firms.However, Director, Corporate Services at NCDMB, Dr. Abdulmalik Halilu, also clarified that companies engaged in R&D could access the $50 million Nigerian Content Research and Development Fund, instituted by the Board.He also pointed out that there were hackathons – innovation contests sponsored by the NCDMB, where R&D focused firms can benefit from the Board’s support.