Mass sack looms as oil firms review HR cost which constitutes 50% of spending

Many oil workers in Nigeria may struggle to retain their jobs in a low oil price environment as companies seek to manage cost by cutting human resources expense which represents 50 percent of oil companies’ expenditure.

Buffeted by the travails of the coronavirus pandemic and a fall in oil prices, managing costs have emerged the biggest issue in Nigeria’s oil and gas sector as many producers are drilling at costs higher than the price of in the international market.

“Companies spend more than 50 percent to pay for human resources, this is not sustainable and anyone that cannot be efficient will be irrelevant,” said Mele Kyari, group managing director of the Nigerian National Petroleum Corporation (NNPC) in a webinar organised by Future Energy Leaders, World Energy Council held on Thursday.

Kyari quickly added that firing workers is not the objective of cost management measures oil companies would take to be competitive, an acknowledgement of the crises a mass retrenchment of oil workers can stir in a country with powerful oil unions.

Rather the NNPC boss said oil companies including the NNPC will need to evolve a realistic HR process, better adoption of technology as well as reducing logistics costs.

But this could easily devolve into mass retrenchment especially of low-skilled workers and freezing pay rise for this class of workers while management keep hurling home their earnings, so Kyari said this was not the objective of the call.

Elaborating on what constitutes the personnel costs the NNPC boss wants reviewed, Kyari said that many companies were piling on staff costs beyond basic allowance to include huge disengagements cost, bonuses, regular raises among others that drives personnel cost above 36 percent of cashflow rather than the industry average of 11 percent.

Besides personnel, the next huge costs is logistics the sector operators say. According to Kyari logistics costs within Nigeria is about $7 a barrel while to China attracts as little as $2. a development that increases production costs.

But some operators direct the blame to environmental factors including security and multiple, conflicting regulations which raises cost for operators.

“I agree we must focus on staff costs and need to reduce inefficiencies, but we should also focus on environmental issues including insecurity that attract costs,” says Ademola Adeyemi-Bero, founder and CEO / Managing Director of First Exploration & Petroleum Development Company Limited, a Nigerian indigenous firm.

Bayo Ojulari, managing director of Shell Nigeria Exploration and Production Company in his presentation said only an open book and honest examination of costs will remove inefficiencies insisting that all parties play a role in the process.

The operators agreed that the pandemic is here to stay with over 7 million infections across the world and the critical role the energy sector plays in driving growth, it has become important for operators to devise means to adjust to the new normal.

“Businesses must swim to remain afloat or simply drown.” said Sarki Auwalu, director/CEO, Department of Petroleum Resources, (DPR) in his presentation at the webinar.

Source: Business Day

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