• Friday, March 29, 2024
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Partnering foreign firms offers financing option for marginal field operators

Partnering foreign firms offers financing option for marginal field operators

Investors struggling to raise financing for signature bonuses and develop the assets they won in the last marginal field bid round could partner with smaller oil firms abroad to raise capital to fund their investment.

The minister of state for petroleum resources, Timipre Sylva, has said about 50 percent of the companies that bid for the marginal fields have paid their signature bonuses.

The Department of Petroleum Resources (DPR) had put 57 marginal oilfields up for bids and announced that 161 winners had emerged, with many merging for a single field.

However, previous rounds have been unsuccessful. The 2003 licensing rounds took almost a year to complete with 24 fields offered but only 13 of the allocated licences are producing after several years of squabble in search of funding, representing a 54-percent success rate.

The DPR has issued a 45-day deadline for bidders to pay their signature bonus, which could run out by early May, but many firms are struggling to raise financing to pay the signature bonus of $5 million and raise over $100 million required to develop the field.

“Raising funding to pay signature bonus has been tough for my partners and me,” an operator that won a bid told BusinessDay.

This is why some analysts are calling for creative funding solutions to raise capital.

“Collaboration strategies for marginal field development, whether they are for capital deployment or technical service provision, are important,” noted Chijioke Mama, founder, and managing director at MeiraCopp Nigeria Limited.

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Mama told BusinessDay in an interview that such collaboration could be the Joint Ventures and partnerships commonly used by E&P companies.

Iyior Abumere, director of London-based oil firm Carent Oil and Gas Limited, said the best bet for most companies was to partner foreign small to medium-sized oil companies already operating outside Nigeria and with established funds they can draw to develop the Nigerian fields.

According to Abumere, getting these international oil companies to buy out majority equity through their local partners in the Special Purpose Vehicle (SPV) containing forced partners will ensure that they have control of their funds, they can support the operatorship, transfer knowledge to the local companies, and funds can easily by raised for the capital-intensive developments.

The DPR in a bid to ensure that all the fields are developed decided to merge bidders with some up to five on a field. However, the fusion of several bidders with different operational plans, financial resources, and development plans could result in a fractious relationship that may yet derail the plans.

Raising capital to finance the fields is an uphill task in a world where funding for oil projects is drying up and major funds are exiting fossil fuel projects.

This energy transition climate in a race to meet the 2050 net-zero target has led to reduced investment in the global upstream sector and will cause a vacuum in the industry over the next decade, as oil production continues to decline.

Nigerian banks have little appetite to lend to the sector as many are still feeling a hangover from previous experience. Loans to the energy sector still constitute a significant chunk of non-performing loans of some banks.

The relationship can easily go sour as seen in the recent $85.8 million dispute between Access Bank and Cardinal Drilling Services in connection of purchase of rigs that alleged benefited Seplat.

International oil companies, who relinquished these fields, are looking to divest from troubled Nigerian assets and rather see renewables as a more viable investment.

Many private equity funds have lost appetite for the African upstream market, even producing companies like Lekoil have struggled to raise funding from lending partners.

The Federal Government is seeking to raise about $500 million in signature bonuses from the successful companies in the bid rounds that began on June 1, 2020.