Nigeria, Africa's largest oil producer, is the second most expensive place globally to extract crude oil, BusinessDay has reported.

The Nigerian outlet revealed that production costs in Nigeria average $48.71 per barrel, only trailing behind shale oil production in the United States.

Federal Inland Revenue Service (FIRS) chairman Zacch Adedeji told Nigerian lawmakers last week that oil companies operating in Nigeria gave that $48.71 figure as their average cost of producing crude oil in the West African country.

“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 the [Nigerian National Petroleum Corporation (NNPCL)] will have,” Adedeji is quoted as telling the Senate Committee on Finance during his agency’s 2024 budget presentation to lawmakers last week.

“The oil companies know we tax the difference between the selling price and the cost of production which is why they gave us $48.71 as their cost of production,” he added.

The high cost of extraction presents significant challenges to the country's oil and gas sector, which historically has contributed substantially to government revenue and foreign exchange earnings.

Production costs are high due to security concerns, community problems, and excessive taxes on oil companies. Security expenses, especially, significantly increase costs as firms spend large amounts on protecting assets and dealing with community unrest. Sabotage, oil theft, and kidnappings worsen these issues, reducing operational efficiency and investor trust.

Despite attempts to address challenges through actions like renewing security contracts and expanding offshore operations, Nigeria's oil industry still faces difficulties. Offshore assets offer better security but demand significant capital investments, creating a dilemma for operators. The recent divestments by major energy companies like Shell (UK) and Equinor (Norway) from onshore operations underscore concerns about the sector's viability and appeal to investors.