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00:00A data by the Nigerian Upstream Petroleum Regulatory Commission shows that the cost
00:05of producing crude oil in the country has risen to about $40 per barrel.
00:11The data also shows that a higher cost has impeded production and export.
00:15Meanwhile, the Diangoite refinery has exported two cargos of jet fuel to Saudi Aramco.
00:21Oyemi Okere, partner at EO2 Law, joins me to discuss these stories.
00:25Oyemi, thank you for joining us today.
00:28Thanks for having me, Esther.
00:29Good afternoon.
00:30Good afternoon.
00:31Let's get right to it.
00:33Production costs of up to $40 per barrel, that's quite steep, especially when one thinks
00:39about where oil prices are right now.
00:41Brent, somewhere around $74 per barrel.
00:45Help us understand why the costs are this high, especially also when we think about
00:49what it costs Saudi Arabia, for instance, to produce crude oil, a barrel, at around
00:55what, $10 per barrel?
00:59Yeah, so to give a bit of perspective, $40 per barrel is about half of the, or more than
01:05half of the price of oil as of today.
01:11What that means is that for one barrel that is being produced, half of it in Nigeria goes
01:22to cost.
01:23And the question is, what is really the driver of cost?
01:26I can summarize everything to say, I mean, to put it in one word, security, right?
01:32We have a huge security problem in Nigeria that is driving up the cost of production.
01:40Now, security issues starts from drilling up onto production to evacuation.
01:48Now, one of the challenges we've seen that is rampant for onshore and swamp terrains
01:55is that the pipelines for evacuation of crude are virtually nonexistent.
02:00Not that the infrastructure is not there, but the challenge is that there's a lot of
02:04security issues around pipeline vandalism that has cost significant abandonment of those
02:14assets with producers looking to do what we call alternative crude evacuation, which may
02:23be either by trucking or by pipeline, which no doubt is more the pipelines.
02:33Right, what we've also heard the NUPRC say is that some of the equipment, I guess a good
02:45number of the equipment are quite old and require regular maintenance more than they
02:52should actually.
02:53That includes storage facilities and also the pipelines.
02:58Talk to us about this.
02:59And I know that not too long ago, there was something in the news, the government did
03:02talk about wanting to replace some of the aging infrastructure in the sector.
03:07Pardon me, I didn't get your question, perhaps because of my internet, I would appreciate
03:14if you can-
03:15Right, I'll take that again.
03:16So I was saying that the NUPRC, the sector regulator, did also talk about aging infrastructure,
03:22pipelines, storage facilities, the body said they're quite old and they require regular
03:27maintenance more than they actually should require.
03:31And so my question is, I know that the federal government did mention not too long ago that
03:38there will be a replacement of some of this aging infrastructure, what can you tell us
03:42about that?
03:43Yes, well, we have aging infrastructure, pipelines that are as old as 40, 50 years.
03:52But beyond that, we also need to look critically at ensuring that we are able to guarantee
04:00security of the infrastructure.
04:02Because it goes beyond me saying I want to have some type of infrastructure, it goes
04:08on to will the infrastructure be fit for purpose when I want to use it, will it be
04:15able to serve over the long period for which our investment has been committed.
04:19And you see that producers sometimes are looking at saying, we want to build a pipeline infrastructure,
04:25but vandalism is a disincentive.
04:28So we need to look at what with regards to security.
04:31Another thing is that from the data coming from the Nigerian Offshore Petroleum Regulatory
04:37Commission, you would note that in the months of November and December last year were the
04:43peak production in terms of average production rates, hovering at about 1,690,000 barrels
04:54per day.
04:55So the question also is that the regulator needs to look and see what was done right
05:00during those months.
05:02In the months of November, December, and January last year were the months whereby
05:07we had high or peak production at about 1.6 million barrels.
05:12Other months were about 1.5 million barrels.
05:15So the question would also be, what were the things that were done right by the various
05:21producers in those months in order to also look at increasing production.
05:26Right.
05:27So for these production costs this high obviously has implications for investment, attracting
05:33investments into the sector if, like you said, half of the profit goes to just producing,
05:40refining the commodity itself.
05:42And obviously, Nigeria is quite keen on driving significant investments into this sector this
05:48year.
05:49So where does that leave plans to attract investors into the country this year?
05:54Well, I mean, we will still continue to see demand for oil for some time, irrespective
06:02of the push for alternative source of energy.
06:05I think what we need to do as a nation is just to ensure that our security infrastructure
06:10and architecture is conducive to be able to drive investment into the sector.
06:17I think one of the terrain that actually has significant challenges is the land and swamp
06:22areas.
06:24Perhaps because of the fact that you can easily get to those terrains on the deep water assets
06:32that are relatively quote-unquote immune from vandalism and things like that.
06:39So my belief is that if we're able to sort out the challenges around security of infrastructure
06:47such that vandalism is significantly reduced, and I believe with the right fiscal regime,
06:54we would see the most needed investments into the sector.
06:58Right.
06:59So before I let you go, I want you to quickly comment on the Dangute refinery exporting
07:04jet fuel to Saudi Arabia's state oil company, Saudi Aramco.
07:08What do you make of this headline?
07:14I think the first set of cargo that was shipped out of Nigeria was the sale to BP of jet fuel
07:24as well sometime last year.
07:27I think what I make of the news is that gradually Nigeria is becoming a net exporter of refined
07:35products, which I believe is good for looking at the legal framework with regards to repatriation
07:42of export proceeds.
07:44What it means is that our foreign earning capacity will be significantly improved by
07:51transactions such as this.
07:53And I think what can be done is for government to continue to encourage investments such as this.
08:00All right.
08:01Oyeyemi, thank you so much for speaking to us today.
08:03We appreciate your time on the show.
08:05Oyeyemi Okere, partner at AO2 Law.