BY GODWIN OBI
Nigeria spends not less than N1.57tn on crude oil production monthly, translating to about N18tn annually, a development which industry operators described as too high, The PUNCH reports.
Data collected from different sources, including the Nigerian Upstream Petroleum Regulatory Commission, indicated that the minimum any oil producer spends in extracting a barrel of crude oil in Nigeria is about $25.
The country’s average crude production stands at 1.4 million barrels per day, which means about $35m is spent daily to produce crude oil.
This is also an indication that $1.05bn would have gone into the production of the black gold in a month if $35m is multiplied by 30 days.
At an average exchange rate of N1,500 to a dollar, the amount would translate to N1.575tn.
In a year, the country would have spent at least N18.9tn on crude production should it maintain the average oil production of 1.4mbpd. This will impact its gains from crude sales significantly.
It was gathered that the cost of crude production ranges between $25 and $40 in Nigeria, an amount considered too high when compared with other oil-producing nations like Saudi Arabia where the cost is around $10 per barrel.
If the cost was $40 per barrel, the country would expend N2.52tn on crude production monthly.
In 2024, the Chairman of the House of Representatives Committee on Finance, James Faleke, lamented Nigeria’s $48 per barrel crude production cost, describing it as the highest in the world.
Faleke put the cost of producing crude oil per barrel at $9 in Saudi Arabia, $21 in Norway, and $24 in the United States of America.
He added that the rise in production costs was hurting the nation’s revenue.
According to him, if crude oil was sold for about $80 on the international market, only $32 would be available to the government to share with oil companies.
Faleke spoke in March at a meeting between the House Committee on Finance and the management of the Nigeria National Petroleum Company Limited on the cost of crude oil production in the country and its impact on government revenue.
“It is important that Nigerians understand the impact of production costs on the available revenue accruable to the Federal Government to execute its programmes in the national budget. The higher the cost of extracting a barrel of crude oil from the ground, the less funds available to the government and Nigerians
“The committee has been given a total cost figure of $48.71 per barrel by the Federal Inland Revenue Service for calculation of Petroleum Profits Tax and Hydrocarbon Tax and this will also be used for profit calculations.
“Over the years, Nigeria’s cost of oil production (both capital costs and overhead costs) has continued to increase reaching new unprecedented highs of over $48 per barrel,” he said last year.
Frontline reports that Nigeria’s crude oil revenue rose to about N50.88tn in 2024 as data obtained from the NUPRC confirmed that Nigeria produced a total of 408,680,457 barrels of crude oil in 2024.
If the production cost was truly $48 per barrel in 2024, it would mean that about N29tn was spent on the 408,680,457 barrels.
The Group Chief Executive Officer of NNPC, Mele Kyari, had blamed the high average cost of production per barrel on insecurity and other sundry issues.
“Security means everything to the oil and gas sector. Insecurity doesn’t stop the oil and gas industry from operating. They (oil companies) operate in Afghanistan, but what it does is that it adds a premium to the cost of production,” Kyari said as a guest speaker during the 2024 faculty of science lecture at the Obafemi Awolowo University, Ile-Ife.
He added, “In our country today, when businesses come here from other countries, they know what would cost $100 in one country, you probably want to add another $30 in this country.”
The NUPRC disclosed that one of its action plans in 2025 is to reduce the production cost to $20 a barrel.
“Efforts to reduce the cost of asset acquisition to help lower overall production costs have also been in motion. One of the primary targets is to reduce Nigeria’s average unit production cost from the current range of $25-$40 per barrel to below $20 per barrel, in a bid to make the oil sector more competitive and attractive globally,” the NUPRC said.
According to a 2017 report, the Wall Street Journal said the United Kingdom, Brazil, and Nigeria were the nations with the highest cost of oil production in the world with $44.33, $34.99, and $28.99 production costs respectively at the time.
The countries with the lowest cost of oil production were Saudi Arabia with $8.98, Iran, and Iraq, with $9.08 and $10.57 respectively within the same period.
It stated that the breakdown of the production cost in Nigeria as reflected in the National Petroleum Policy in 2017 showed that $8.81 was for production costs, $13.19 for capital spending, $4.11 for gross taxes, and $2.95 for administration/transport per barrel.
In a recent publication, the NUPRC said the rising production costs, coupled with volatile global oil prices, have made it increasingly difficult for Nigeria to remain competitive on the global stage.
“At an average of $25 and $40 production costs per barrel, the nation’s upstream oil production costs are among the highest in the world.
“This range is significantly higher than production costs in top oil-producing countries like Saudi Arabia, where efficient operations allow for costs as low as $10 per barrel,” the NUPRC said in the publication.
The commission worried that this discrepancy affects Nigeria’s ability to attract good investment and compete on a global scale, as high production costs can limit profitability for investors, particularly when global oil prices are low.
Our correspondent reports that if crude sells for an average of $75 per barrel, it means a producer might have spent more than half of the price on production.
The regulator noted that the country is not unaware of where the challenges lie.
“For a long time, it has identified many factors contributing to the high production costs. Many facilities, pipelines, and storage systems are outdated, leading to frequent maintenance needs and operational inefficiencies. Modernising infrastructure to cut down on repair costs, extend asset life and bolster productivity is therefore crucial.
“Oil theft and pipeline vandalism are another setback that impacts operational cost in the sector. Nigeria understands it must develop urgent solutions to curb these menaces and continue to show its determination to address them. The enactment of the Petroleum Industry Act in 2021 marked a pivotal point in this regard,” the commission said.
The NUPRC reiterated the efforts being made to reduce the production cost to $20.
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