A Review of the Nigerian Energy Industry

Operating costs in Nigeria not too high – Shell

6 December 2011, Sweetcrude, Doha, Qatar — Anglo Dutch Shell says operating costs in Nigeria are not as high as being touted, but are rather tied to prevailing circumstances.

The Country Chair, Shell Companies in Nigeria, Mr. Mutiu Sunmonu, who spoke, Monday, on the sidelines of the ongoing World Petroleum Congress (WPC) in Doha, Qatar, also put part of the blame of high costs on rising oil prices and contractors’ fees.

According to him, “you can’t have very low costs with the current oil prices at the international markets. Also, when contractors charge you for services, they charge you based on the oil prices as they too want to benefit from it.”

The Federal Government of Nigeria has often complained of escalating operating costs and charged the National Petroleum Investment Management Services (NAPIMS) – the investment arm of the Nigerian National Petroleum Corporation (NNPC) – to scrutinise oil companies’ budgets diligently before approving their projects.

Costs impact negatively on government’s take from oil revenues, as companies recover 100 per cent of their costs before revenues are shared.

Revenue watch groups often cricitise that since the oil companies are usually the operators of the projects, it is very difficult to monitor costs, thereby denying government additional revenues from oil projects.

With regard to Nigeria, which runs a mono oil economy, government’s take from the revenues are not usually as high as one would expect for the benefit of Nigerians.

However, Sunmonu argued: “Part of our social responsibility is to ensure that government’s take from oil revenues are very high, but in a situation where we cannot dictate to the contractors, there is hardly anything one can do.”

Besides, he noted: “Our costs are really not as high as feared. For the Shell Joint Venture, our cost is below $10 per barrel. It is, in fact, about $7 per barrel, which is among the cheapest you can find.”

With regard to the high cost of Shell assets, which are currently being disposed under the portfolio management and divestment programme, the Shell boss insisted that his company did not place any price tag on the assets.

He said: “What we have done in all of the seven oil blocks we have divested from is to simply put them on the table, the bidders then decide the price at which they want to take it. There was never a time we said this is how much we want to sell a particular oil block.”

He equally denied that bidders were promised the right for operatorship as part of the reason for the high asset costs, saying: “If we had promised any company operatorship for any of the blocks, by now, companies would have taken us to court. We have challenged bidders to produce proof of promise of operatorship.”

Meanwhile, the President, World Petroleum Council, Mr. Randy Gossen, has charged oil companies to deliver energy in a more renewable and socially responsible manner.

The WPC boss who spoke at the opening of the 20th WPC on Sunday night, noted that although the petroleum environment had become more challenging, it equally offered greater opportunities.

As such, he urged industry operators to “make renewed efforts to find, develop and deliver energy in a more renewable manner that is also socially responsible.”

He, however, admitted that overcoming current challenges called for “cooperation, innovation and greater investments, as energy solution will be based on these key drivers.”

The Qatari Energy Minister, Al Sada, thanked member countries for their support for his country to host the Congress, as this has made history for the Middle East.

“It has taken 74 years for the largest petroleum congress in the world to come to the largest oil and gas producing region in the world – the Middle East.”

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