Questions are being raised about the plan by Nigeria’s state oil firm for a five billion dollars financing deal with Afreximbank in which the latter will underwrite one billion dollars and act as an adviser for other loans.
The funds will be used for upstream exploration by NNPC.
According to analysts at the Economist Intelligence Unit, EIU, “the deal is huge for the corporation, which aims to meet the government’s goal of raising Nigeria’s oil reserves to 40bn barrels by 2025, from a little less than 37bn today. However, low interest in developing onshore assets will raise complications.
“The loan’s size means that NNPC has the resources to carry out considerable exploration work and deliver new opportunities to oil majors and indigenous oil companies in Nigeria. However, NNPC has a patchy track record of co-managing assets and questionable autonomy from politics.”
In a note Friday, the EIU explained that “the state oil company will encounter little competition and few eager foreign partners for many onshore basins, as global oil majors look to divest from high-emission onshore oil and gas assets in Nigeria and elsewhere, owing to an industry move towards green energy.
“Even before the strategic shift, global oil majors in joint ventures (JVs) with NNPC went unpaid for years, having been paid only about US$3.5bn in JV debt outstanding since 2016. About US$1.1bn is still due.
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“Moreover, domestic interest in new finds can be uncertain. Some of the winners of the 2020 marginal oilfields bidding round failed to honour their commitments, forcing the regulator to invite reserve bidders in late January 2022. Afreximbank’s readiness to finance the oil sector will probably not translate to wider global creditor interest either. “
The EIU said that apart from “the question of whether NNPC can find willing JV partners, there are also risks around how commercial some of its exploration plans are. Some appear to have a political angle. Part of the Petroleum Industry Act (a major piece of legislation passed in September 2021) includes a provision for 30% of NNPC’s revenue to be committed to exploration in “frontier basins”, widely seen as code for northern Nigeria. The balance of probabilities tilts away from these having commercial value.
“There has been no private-sector interest in the region’s potential. NNPC does not report its spending on frontier exploration activities but is currently exploring in at least three states of northern Nigeria and the Lake Chad basin. A supposed 1bn-barrel oil find in north-east Nigeria remains shrouded in opacity.”
