Expert: New Oil Cost Policies Insufficient to Resolve Sector Challenges

Nigeria’s latest executive measures to curb upstream oil production costs may offer limited relief for offshore operations but fall short of addressing entrenched inefficiencies in onshore fields, according to energy expert Kelvin Emmanuel.

Speaking on Arise TV’s Business Week, Emmanuel explained that the government’s newly introduced Cost Efficiency Incentive (CEI) primarily benefits offshore production-sharing contract (PSC) zones, where expenses are more manageable.

In contrast, high operational costs and outdated frameworks continue to plague onshore activities.“The CEI rewards producers by calculating cost savings and linking them to annual crude sales, which works in offshore regions where the per-barrel production cost ranges from $20 to $40,” Emmanuel noted. “However, the onshore segment is a different story—costs are higher, and structural inefficiencies remain unaddressed.”He argued that the Nigerian National Petroleum Company (NNPC) must evolve into a commercially-driven beneficial owner before it can attract private investment or list publicly.

He estimated this transformation could take at least two years, requiring asset evaluation, regulatory audits, and pricing assessments.

Although the directives signal progress, Emmanuel emphasized that investors base decisions on post-tax internal rates of return (IRR). For Nigeria, the IRR must exceed 10% to justify the country’s risk profile, a threshold many projects currently fail to meet.

He also highlighted that Nigeria’s combined hydrocarbon and corporate tax regime amounts to approximately 67%—significantly higher than in emerging markets like Guyana (55%) or Senegal (64%), and just behind Norway (93%), which operates under far more stable conditions.

To boost investor confidence and promote joint accountability, Emmanuel recommended revising Section 65 of the Petroleum Industry Act (PIA) to permit the creation of Incorporated Joint Venture Companies (IJVCs).

This, he said, would allow public and private partners to share investment decisions and streamline joint venture operations.