Three years after three national oil companies – Saudi Aramco, Abu Dhabi National Oil Company (ADNOC), and the Nigerian National Petroleum Corporation (NNPC) began plans to raise cash by listing their shares, only the NNPC has failed to do so, missing out on opportunities for growth.
These national oil companies have leveraged the opportunities provided by listing on the stock market to raise quick cash to prop up their national economies, fund their budgets, attract investments and deal with lower oil prices brought on by the Coronavirus pandemic.
Saudi Arabia recently hired Moelis & Co. a top-notch investment bank in a bid to raise around $10 million to plug budget gaps by having its state-run oil giant, Saudi Aramco, sell some stakes in its subsidiaries according to a Bloomberg report.
Financial experts say this is a quicker way of generating cash than Aramco’s initial public offering in December 2019, which raised almost $30 billion for the Kingdom but took around two years to complete.
Nigeria would be wishing it was in Saudi Arabia’s shoes after the country’s national budget deficit reached a massive N3.72 trillion as oil prices took a hit in the first half of the year. But Nigeria cannot summon the NNPC to achieve similar relief.
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Saudi Arabia holds a 98 percent stake in Saudi Aramco therefore the company’s financial well-being directly impacts its economy. So the Kingdom provides it a benchmark for success and its operation follows international best practices.
Saudi Aramco has lined up banks including JP Morgan Chase & Co. to help with the sale of its stake in the pipeline business. It reshuffled its senior management in August and created a division focused on “portfolio optimisation” as it adjusted to weaker energy prices.
Similarly, Abu Dhabi, is embarking on cash-raising activity as it, too, looks to bring in billions of dollars to prop itself up during what has become a major recession due to the lower oil prices as a result of the pandemic.
Aramco’s perusal of pipeline deals to raise cash serves as a grim warning to petrol dollar economies like Nigeria, whose fate is tied to surviving pandemic-induced low oil demand, a fact that remains outside of both Saudi Arabia’s and OPEC+’s control.
“Nigerian officials should simply take inspiration from Aramco and push forward while remaining cautious and aware of the expectations and requirements from the market,” Kurt Davis, an investment banker focused on Europe, Middle East, Africa, and Turkey said.
The NNPC is hobbled by undue interference from government officials, and due to political considerations, has failed to double down on successful subsidiaries and close failing business ventures.
Joe Nwakwue, chairman of the Society of Petroleum Engineers (SPE) said Nigeria needs to think in terms of decentralisation to move forward.
“The government must focus on setting up the right regulations and allow private sector to drive the oil and gas sector,” Nwakwue said.
Crude oil prices crashed in the first half of the year due to a supply glut that led to a decline in crude oil revenue which accounts for more than 90 percent of Nigeria’s foreign exchange earnings which resulted in around three technical currency devaluations so far this year.
Naira which traded against the dollar in the official market at N305 to $1 was first marked down to N360 to $1, then $380 to $1, and now trades around $390 to $1 in the official FX trading market.
Analysts say enormous work will be involved to list the NNPC or its subsidiaries on the stock exchange. For one, an Initial Public Offering (IPO) would put the NNPC on a bigger international stage, especially if the valuation is high.
Also, an IPO would raise significant capital for the state of Nigeria, which can both strengthen the state’s finances and be used to diversify the Nigerian economy. Third, but probably less discussed, the privatization would theoretically shift the burden away from the sole responsibility of the Nigerian state of financing and managing an oil giant through more complicated times.
“The privatisation of the NNPC is an international discussion. But there are many factors to the process that are local, such as the passing of the Petroleum Industry Bill (PIB) and reducing major losses incurred by the refineries,” Davis said.
Meanwhile, Saudi Aramco and ADNOC continue to reap huge benefits from listing on the stock market. Raising funds on the stock market has helped both companies to cushion the effect of fallen oil prices and they are now reforming their oil sector to attract foreign investment.
Saudi Aramco and ADNOC are modeling their operations after International Oil Companies by expanding downstream, trading and petrochemicals, and deepening gas investments.
For NNPC to compete in the evolving oil and gas market, it would need to reform its operations to become more transparent and commercially oriented to attract the attention of foreign investors and become profitable.
