Financing Nigeria’s energy industry

Nigeria’s energy industry is in a state of flux of sorts. Long the dominant player in Africa, as the largest oil and NLNG producer, the industry is has found itself having to wave off competition from Angola (oil) and Mozambique and Tanzania (gas).

Adding to the problems for the sector is the long delay in passing the Petroleum Industry Bill (PIB), as well as issues of opaqueness (some say corruption) in Nigeria’s government owned oil company (NNPC) and oil theft and criminality in the oil producing areas that have deterred investments.

This somewhat dour view of things is counter balanced by the huge opportunities that abound in the sector, especially with recent International Oil Company (IOC) divestments from marginal oil fields, and the successful privatisation of defunct PHCNs powers assets.

Key takeaways

• The oil and gas sector still makes up a huge chunk of Nigeria’s economic output, at around 20 percent of GDP, and around 65 percent of consolidated government revenues for 2013.

• Nigerian companies such as Afren, Seplat, NLNG and Seven Energy are leading the charge in terms of exploiting the opportunities available in the sector.

• In 2013, $6.5 billion was realized by shell, Total, and Agip from divestments in marginal fields, which were scooped up mostly by Nigerian independent exploration and production (E/P) companies.

• It is estimated that the oil and gas industry needs financing of $20 billion per annum to move the needle on stagnant Nigerian reserves estimated at 35 billion barrels of oil, while the power sector would need financing to the tune of $3.5 billion a year for the next 10 years in capex to meet the 40,000MW target.

• Nigerian banks are eager to finance these transactions; however their ability is crimped by obligor limits to particular sectors, as well as already stretched balance sheets.

• For example there was $13 billion worth of syndicated bank loans in Nigeria in 2013, according to Bloomberg data.

• We believe that for the industry to grow innovative means of financing must become an option, which makes the Seplat deal to list on the NSE and LSE -giving them access to both naira and FX equity financing- very exciting.

• In the medium term we also think Nigerian banks would need to raise more offshore capital to meet growing dollar financing needs for the sector.

• Finally the Government must gradually eliminate its current practice of fixing prices for domestic gas which has severally crimped the sectors growth.

• Free enterprise and the absence of Governments meddling in its shale gas industry is the example to be learnt by Nigeria from the USA which has become one of the largest oil and gas producers in the world today.

 

PATRICK ATUANYA & BALA AUGIE