Crude oil production is far less expensive in Iran, Saudi Arabia, and war-torn Iraq than it is in Nigeria, the continent’s largest oil producer.
Nigeria is the second most costly location to harvest black gold after the shale oil area in the United States.
The nation’s oil and gas industry, which for many years has contributed significantly to government revenue and foreign exchange gains, is in dire need of rescue and is on the verge of collapse.
The Federal Inland Revenue Service (FIRS) chairman, Zacch Adedeji, said lawmakers last week that the average cost of producing a barrel of crude oil in Nigeria was $48.71, as reported by oil companies operating in the country.
Adedeji informed the Senate Committee on Finance during his agency’s 2024 budget presentation to lawmakers on Tuesday, “As a tax man, I tax the difference between the selling price and the cost of production; what the oil companies will give me a tax man as cost of production is different from the cost of production NNPC will have.”
He said, “The oil companies gave us $48.71 as their cost of production because they know we tax the difference between the selling price and the cost of production.”
According to research, the majority of oil firms have allocated enormous sums of money for a variety of purposes, including asset security, resolving local conflicts, and double taxation.
According to Chinedu Onyeka, an energy sector expert with experience in upstream business, “while the impact of the security challenges in terms of oil production are being talked about at the highest levels, another part seldom discussed is the wave of impact on companies who are now required to spend more on the protection of workers and oil facilities.”
In October of last year, President Bola Tinubu extended the contract of Tantita Security Services, which is owned by Government Ekpemupolo, also known as Tompolo, the former leader of the Niger Delta militant group, to protect the Ondo State pipelines from vandalism. However, analysts are requesting additional security for the oil infrastructure because this will attract investments into the sector.
“The long-term competitiveness of Nigeria’s oil industry is declining. High production costs result in lower profit margins, which may inhibit investment and stifle sector growth,” Onyeka added.
The Nigerian National Petroleum Company (NNPC) Ltd.’s group CEO, Mele Kyari, attributed the high average cost of production per barrel to various problems, including insecurity.
“In the oil and gas industry, security is everything.” Operating in the oil and gas industry is not hindered by instability. They (oil companies) operate in Afghanistan and any other country where you know there are conflicts, but what it does is it raises the cost of production,” Kyari remarked as a guest lecturer at the Obafemi Awolowo University in Ile-Ife, at the faculty of science lecture in 2024.
“Businesses that come here from other countries know that if something costs $100 in one country, you probably want to add another $30 in this country,” he continued.
Nigeria is the biggest oil producer in Africa, but onshore operations have been hampered by regular instances of sabotage and oil theft.
Offshore, where production is more secure but requires a higher capital commitment, is the subject of many more recent initiatives.
