…Current global unrest may shift focus towards renewable financing as banks are reducing fund for fossil fuels.
-Felix Douglas
Funding has been a bottleneck for the oil and gas industry raising concerns for operators amid transition. Due to advanced technology which is synonymous to the industry, lack of fund will lead to looming issues that could cause set-back for struggling companies jostling to survive.
Notwithstanding The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has provided further clarification on ongoing licensing round for interested bidders in the 50 oil and gas blocks on offer.
At the recently held Energy Finance Forum (EFF-XIV) of Centre for Petroleum Information (CPI) on the Theme: Financing Energy in a Changing Landscape experts discussed more on the likely issues around funding of oil blocks.
Pedro Omontuemhen Partner C&M Lead of PWC averred that the world is changing but Nigeria, with millions of barrels not yet extracted cannot afford to ignore her God given resources.
As a country, Nigeria needs to use its crude oil as a means or a tool for transition. There’s a global push for net zero which it cannot ignore.
For instance, a few years ago, the belief is that coal was bad and the call for it to be abandoned. Suddenly, there’s was war between Russia and Ukraine.
While the thought was that coal was gone, European countries revived their coal facilities.
Omontuemhen believed that Nigeria should focus on transition; the country should continue to use its oil and gas until it is finished and able to get additional or new resources.
Globally, there’s movement away from fossil fuel to cleaner energy therefore that will affect financing and opportunity to fund projects.
The PWC Lead was of the view that at present, across the globe, there’s push towards global renewable financing and banks are reducing fund for fossil fuel. Banks in Europe and America are reducing it as well.
“How will projection around 8 or 2 million barrels a day be financed? Are you going to finance that source of revenue? This is a challenging situation and a global trend.”
According to Omontuemhen, notable financiers in the sector have stepped back because financing crude oil is no longer attractive.
“Venezuela has huge reserves. After the capture of Maduro, President Donald Trump wanted oil companies operating in the country to start production but they want guarantees before going back. Are we going to be refunded money lost in the past?”
Seeking for Finance
On the aspect of winning an oil block, Omontuemhen said it is one thing to win an oil block and seek for money to fund it. How does a prospective operator find money? There are financiers willing to bring in money but there has to be concession from the winner of the block.
When there is no finance to operate the oil block, it becomes redundant and the government takes it over.
“Once you got the initial winning of the block, be willing to sit down with advisors to give at least 10% of 1 billion which is better than 100% of zero.”
Parties involved should work out equitable options that will be beneficial to every stakeholder.
He advised operators to ensure dept is well structured without lopsidedness in order not to confuse auditors when they are looking at financial records of the company.
This will put banks in trouble if it is not well structured because some bankers in Nigeria do not understand how oil and gas operates except buying of shares and assets.
Landscape of Key Finance
Landscape view of key finance across the sector such as ADB Helios, NCDB which is assisting Africa Finance Corporation, Africa Energy Bank are all functional in the in the sector. They deal with the energy sector and could be approached by operators and investors.
During the emergence of Renaissance and how it was financed. Local commercial debt and equity were involved. In the funding structure, there was an upfront cash payment with contingent title market conditions.
Another example was Seplat ExxonMobil deal.
How was it funded? There was a revolving credit facility with an advance payment trading. This is the trading arm and the sale took take place.
Omontuemhen disclosed that Seplat generated cash involving millions of dollars even though it had project cost of 800 million. The possibility of transaction was actualized with a good accountant and a lawyer who sat down and crafts the structure.
If there is a transaction, thoroughly monitor the structure because projects are done in different shape.
There is possibility of financing a willing buyer and a willing seller. The way the finance is structured is doable.
The PWC Lead emphasized on Oando acquiring of Agip as another example. The way it was structured, all onshore E&P assets and power transferred to Oando while ENI retain 5% of SPDC JV in cash. The asset is financing itself.
Anything is possible, particularly for brownfield financing, transaction must be well structured.
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