Ahead of the planned oil marginal fields bid rounds billed for next year, local investors in Nigeria are sourcing credit to participate in the exercise, BusinessDay has gathered.
In a note sent to BusinessDay yesterday, Ecobank energy research analysts said that many operators are likely to involve more foreign financial partners than local banks in seeking credit for these marginal fields bid round but these partners would require cooperation from local banks to finance these deals.
“More importantly, local banks would also require a higher pure equity participation from the participants in the bid rounds. This would limit individuals without access to pure equity from being able to access the financial support required to participate in the bidding rounds,” said the bank.
Corroborating this view, Emmanuel Afimia, a former analyst at PCG Consulting, who now runs his own firm, Afimia Consulting services, involved in one of such arrangements, told BusinessDay by phone, that this third party financing deal is gaining a foothold in the sector as many local investors are considering the option.
According to Afimia, the third party is an overseas oil servicing firm which has no equity share and will fund the development of the asset, different from loan finance. The third party could also provide exclusive oil field service for the development of the asset and will recover its cost within a spicified number of years.
“The structure of the financing and tenor are quite favourable,” said Afimia, “the internal rate of returns is attractive with competitive rates and their long term nature, makes them a preferred option.”
Nigeria’s banking sector with about 37 percent of their impaired loans in the oil and gas sector, according to a report by analysts at Agusto & Co, seen by ThisDay, have very low appetite for investments in the oil sector.
According to the report, the oil and gas sector loan disbursement showed that the top five banks: Zenith Bank Plc, Guaranty Trust Bank Plc, First Bank Nigeria Limited, United Bank for Africa Plc, and Access Bank, accounted for over 66 per cent of the banking industry’s total exposure to the upstream; 64 per cent of total exposure to the midstream and 73 per cent of the total loans granted to the downstream.
Ecobank analysts say this may lead to consolidation of successful past bidders. “In our opinion, the industry has evolved since the first fields were initially awarded. We expect current operators who have stronger cash flows to emerge as the main candidates, since they are better positioned to win these assets.
“This marginal field rounds provide them with an opportunity to build up their reserves replacement ratios, which are significantly lower than the expected ratio of about 100%,” said Ecobank.
Nigeria is planning to conduct bid rounds for its marginal fields – undeveloped discoveries in the last 10 years, located in oil blocks held by oil majors operating in the country – to raise $300m, asking investors to pay $300,000 as signature bonus. The country also plan to build up reserves replacement ratios, which are significantly lower than the expected ratio of about 100%.
A total of 30 Marginal Field Licenses have been awarded since the policy was introduced in Nigeria in the year 2001 and only around 30% of the fields awarded have reached commercial production. While a bid round was proposed for 2013, it never held and the 2013 guidelines did not take effect.
Marginal field production only made up 3.05% of crude oil output between 2015 and 2016, say analysts at Bloomfield law firm on the company’s blog.
ISAAC ANYAOGU
