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Crude oil prices yesterday came a short crawl away from $70 per barrel fuelling optimism that abandoned oil assets may soon come on stream as financial institutions demonstrate renewed appetite to refinance loans and lend to the sector.
Shoreline Energy International, an indigenous oil producer is planning to double its crude output to 100,000 bpd and gas production to 500 million standard cubic feet a day from 100m scf, after agreeing terms for a N161.6 billion loan with Vitol Group and some banks including Ecobank Transnational Inc., Fidelity Bank Plc, Union Bank Plc and FCMB Group Plc.
“The funds will be used to refinance existing debt and provide us with working capital to expand production,” Kola Karim, Shoreline CEO told Bloomberg.
“As part of the funding arrangements, Shoreline will work with Vitol to market the crude, and in the development of its export logistics capabilities,” he said in Lagos, Nigeria’s commercial hub.
Shoreline, which holds an estimated 1 billion barrels in crude reserves, acquired the fields after a Shell divestment but could not produce in 2016 following the closure of the Forcados terminal in February 2016.
In September last year, the company signed an agreement to explore opportunities to buy, market, distribute and sell natural gas to consumers and companies in the Victoria Island, Ikoyi, Lekki, and Epe areas of Lagos.
Biodun Adesanya, former president of National Association Petroleum Explorationists (NAPE) said the deal provides money for shoreline and for Vitol, an off taker, a secured source of supply.
Similarly, Lekoil Limited, an indigenous oil and gas exploration, development and production company has begun preparations for the second phase of the 10,000 bpd capacity Otakikpo field which could double its output.
Buoyed by new financing deals, the company also plans to acquire 197 square kilometres of 3D seismic data at the Otakikpo Marginal Field in Oil Mining Lease (OML) 11, onshore and offshore in the south-eastern part of the Niger Delta, to update the existing 2D coverage. The new data will guide a fresh campaign of drilling.
“The company expects the Phase Two development to be fully funded by industry players, which the company is already in discussions with,” said Lekan Akinyanmi, Lekoil chief executive in a release.
As an indication that Nigerian banks too are demonstrating keener appetite to lend the sector, U.K Eke, the group managing director of FBN Holdings told BusinessDay in an interview said the fortunes of the sector is linked with recovery of crude oil prices.
“The good thing is that oil prices have rebounded to within $70 and growing so naturally those assets will begin to show improvement, delinquent assets will be reworked and we have extended tenure and gotten obligors to inject equity,” said Eke.
This is a significant turn because in 2016 loans to the oil sector constituted about 40 percent of bank loans, many of which morphed into non-performing loans (NPLs).
Industry operators tell BusinessDay that as oil prices rallies, these loans may be refinanced as greater confidence comes to the sector due to NNPC’s cash call settlement arrangement with IOCs.
However it is not yet uhuru for the sector. Oil slipped towards $69 a barrel on Thursday, on the back of a reported rise in U.S. fuel stocks and expectations that OPEC-led efforts to boost prices by cutting output will increase supply from the United States and other rivals.
Meanwhile, oil exploration activities are set to increase in 2018, but market uncertainty and the need to manage debt levels will remain key constraints to investment analysts say. For Nigeria, however, the key issue remain militancy which constitutes the greatest threat to oil production.
BMI analysts say that despite increasing confidence, however, E&P companies will continue seeking a balance between increasing spending on new projects, reducing leverage and increasing shareholder distributions.
OLUSOLA BELLO & ISAAC ANYAOGU
