Nigerian oil companies are counting on alternative funding schemes including contractor financing, insurance funds, private equity, pension funds among others to get cash for new projects in an industry where lenders have become weary.
In exchange for some of the funds, operators say they have been offering equity participation, profit sharing and various crude for payment schemes supported by the Nigerian National Petroleum Corporation (NNPC) which provides guarantees that gives the lenders confidence.
“The contracting financing model we had with Schlumberger has a win-win element to it, but this would not have been possible without the support our joint venture partner, the NNPC gave us. Without this confidence to the contractor it would never have been possible,” Ademola Adeyemi-Bero, CEO, managing director First Exploration & Petroleum Development Company Ltd said at the Society of Petroleum Engineers Conference (NAICE 2018) held in Lagos yesterday.
Nigeria needs over $20bn in new financing to ramp crude oil production to 2.5million barrels per day (bpd) but with local banks exhibiting low appetite for lending to the sector due to high non-performing loans estimated last year to constitute about 40 percent banks NPLs , local players say they are being forced to task their brains for new solutions.
In June, Nigerian National Petroleum Corporation (NNPC), FIRST Exploration & Production (First E&P) and Schlumberger signed a tripartite agreement for development of the Anyala and Madu fields under OML 83 and OML 85, offshore Nigeria at the cost over $700m.
Under the agreement, Schlumberger will contribute the required services in kind and capital for the project development until first oil. The joint project team will leverage the technical expertise of Schlumberger and the extensive local knowledge of the partners.
Anibor Kragha Chief Operating Officer Refineries and Petrochemicals, who stood in for the NNPC boss, said that aside alternative arrangements players are tapping into including pension funds and private equity, the insurance industry can represent a pool of funds that serve this industry very well.
“Their horizon is aligned with this industry in terms of what obligations they have, the returns they are looking for matches ours, we should add them to the pool of funds.”
Kragha, further said, “As for the NNPC we are moving our JVs into incorporated JVs by the end of next year, As for the Nigerian Petroleum Development Company, we are going to utlise alternative funding to spur their growth and we are targeting half a million barrels from NPDC in the not too distant future.”
Globally the oil and gas industry is evolving with talks about more prolific technologies that will displace hydraulic fracking, the impact of electric cars, move to low sulphur content which will render all of NNPC’s refineries obsolete, but poor policy, weak fiscal terms and corruption continues to destroy value from the sector in Africa’s largest crude oil producer.
“Our industry cannot go on without having liquidity in country to finance our business, we cannot always go outside to the international banks, during the last three four years, there have a lack of equity in this market, to even raise $5m in our local market has become very difficult, but we have to find the solutions,” Adeyemi-Bero said.
Local oil companies have found it difficult to place debt structures which are dollar denominated on entities which have found it difficult to pay back in foreign exchange.
The industry is bereft of liquidity and it is beset with all kinds of challenges including absence of sanctity of contracts, vandalisation of assets, infrastructural gaps and difficulty raising working capital.
“We cannot all be financing production, we have to finance exploration, appraisal and gas which has a long gestation, and we still don’t have a solution for that type of financing,” Adeyemi-Bero said.
It was a gathering where industry professionals told themselves some truth.
Demola Sogunle, CEO of Stanbic IBTC Plc said the discussions over alternative funding the industry is having now should have been had since 2005 and progress in the sector has been very slow.
While other nations have moved forward with progressive ideas, Nigeria lags and continues to consider how to list the NNPC and whether it should convert joint ventures into production sharing contracts.
Olusola Bello, Frank Uzuegbunam, Isaac Anyaogu & Stephen Onyekwele
