The country may discontinue exploration of crude oil if prices of the commodity in the international market fall below the cost of production, the Group Managing Director, Nigerian National Petroleum Corporation, Dr. Ibe Kachikwu, has said.
Kachikwu said the government would simply leave oil in the ground if the cost of production per barrel exceeded the price in the international market.
He said as crude prices continued to tumble, oil companies were doing everything possible to curb their overhead spending, and “we in Nigeria must also adjust to reflect current market realities.”
The NNPC GMD, who spoke at the 2015 pre-conference workshop of the Nigerian Association of Petroleum Explorationists in Lagos on Monday, said, “If the cost per unit barrel exceeds the price of oil, it will simply be left in the ground.”
He spoke on the topic: ‘Survival strategies for petroleum exploration in a challenging environment’.
The oil price collapse, he noted, had given rise to a high level of uncertainty, which was being reflected in the companies’ balance sheets.
“It is worth mentioning that many oil projects today are of such scale and global scope that their cancellation affects the economies, not only of the producing countries, but also those of many others that provide the goods, services, and expertise necessary to deliver those projects.
“Indeed, it is estimated that a $50 oil price placed $150bn of upstream investments at risk. Companies are exposed to these dynamics and the resulting changes in oil prices to different degrees.
“By optimising our financial position, reshaping our portfolios, renegotiating costs – both capital expenditure and operating expenditure – limiting costs, reducing risks, reengineering business models and addressing fiscal terms, companies can weather a lower-price environment and position themselves for even greater success when prices rebound.”
The target of the Federal Government is 40 billion barrels by the year 2020.
With limited funding of Joint Venture operations, which is still the largest upstream arrangement in the industry, he said the target would be a mirage.
He also added;
“We are witnessing Nigeria’s crude oil reserves fast depleting because funding has been languid and concerted efforts have not been made to encourage exploration to meet our reserves’ replacement goals.
“The level of exploration drilling in Nigeria and the reserves replacement ratio is extremely low right now; and stakeholders recognize the need to replace production in Nigeria but they seem helpless in the face of the numerous but surmountable challenges facing the industry.”