Nigerian National Petroleum Corporation (NNPC) Group Managing Director (GMD), Malam Mele Kyari, has said that since operations cost takes 46 per cent of its income from crude oil, it was necessary to cut down production.
This implies that the industry has to reduce its activities, which is tantamount to downsizing the workforce, Daily Times gathered.
In his address at the 6th Triennial National Delegates’ Conference of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) in Abuja, with the theme; “The Future of Work Post and Energy Transition.” Kyari said the only solution to avoid job loss was reduce workers salaries.
The NNPC boss who took the conference on a journey to of how far the oil market has nosedived, said since oil production costs $35 and now sells for $45 per barrel, it means that the industry actually earns $10 per barrel.
In the melee, he said it is still certain that Nigeria cannot raise production to avoid price crash so, to reduce its activities has become a necessary evil that would require a fewer hand to handle.
“At a point, you can take a barrel of the Canadian MB and been given a cheque of a dollar. That means take it free and I will give you a dollar.
And we also sold below $10 at the end of March and early April. “So, when you sell oil at less than $10 and when your HR cost, just one element of it, it will cost you $7 to a barrel, you know you are in trouble.
So, there is no way you will continue to meet your HR customers and continue to meet your operations.
“Even as we speak today, we are selling oil $45 /barrel. That is not any company’s expectation. Most economics analysis or forecast by industry players, are anywhere above $45 per barrel.
“So, today, the average cost of production is about $35/barrel across all aspects. So, when it costs you $35 to produce an average, and you are selling at $45, it means you only have $10 to pay taxes, pay royalties.
So, we won’t survive in this situation. So, what do we do? “We will engage our partners. We must do something.
When you have this kind of situation you have to reduce your cost and increase your revenue. Increasing your production has its own consequences. “We there is oversupply in the market the price goes down.
So, you cannot even maintain the $45. So we all agreed that in the OPEC+ engagement that we will cut supply.
“That means that from the high level of 2.9 we were maintaining when in April we had to come down to 1.7million barrel to meet with the conforming situation. That means we had cut close to 600 barrel to survive. Hence it will be like selling water which is like selling it for free.
It is better selling $1.7million at $45 than to produce 10million barrel and sell at $10. That is the very logical decision we have to make.
That comes with issues. The issue is this: you are not going to add more production because you can’t sell it.
You are going to cut down the activities. “And many of activities you have to cut is then you are going to need fewer people to get the work done.
That is the reality. But it is unavoidable. It is either you pay less and keep them and not work or you cut down the number so that you can maintain the optimum number in this situation.
“That is why the engagement is required with the president of PENGASSAN. It is between the chicken and the egg and that is why the engagement must take place as far as this economic imbalance subsists.”