Finding Finance for Nigeria Oil and Gas Project amid Western IOC Transition Ambivalence

…To cure energy deficiency, there has to be fund for the oil and gas industry

-Olufunke Afolami

Funding has been a bottleneck for the oil and gas industry raising concern for operators amid transition hence with the gradual phasing out of fossil fuels giving room for other forms of energy, it might be difficult to get fund. Due to advanced technology which is synonymous to the industry, lack of fund will lead to looming issues that could cause set-back for a struggling industry jostling to survive.

The Centre for Petroleum Information (CPI) recently had its Energy Finance Forum (EFF-XII), which was an hybrid event both in person and through webinar 0n the Theme: Beyond Acquisitions: Financing Fossils under Energy Transition.

Moderating a panel session at the event, Victor Eromosele, CEO, M E Consulting Limited, made a remark which was credited to Darren Woods, CEO of ExxonMobil, He said, “We work by purpose; we want to continue to produce fuels needed for today’s energy system, and at the same time, work to develop technologies and grow businesses that reduce emissions.”

According to Eromosele, there is ambivalence in that statement, continue to produce versus work to develop. Meanwhile, there are demands and for more energy produced and delivered in new ways which fuel emissions.

Asking the panel a question, he said, given that International Oil Companies (IOCs) are equivocating on their energy decision process, yet harvesting from the Niger Delta, what is the implication for financing of the country’s oil project?

Responding, Eberechukwu Oji, Managing Director, ND Western, pointed out that the reality the IOCs are divesting in Nigeria is established. The challenge that Nigeria will continue to fund development of conventional oil and gas in the country is an imperative that must be embraced. This is because Nigeria has energy poverty and crisis with a significant percentage of the population not having access to clean cooking fuel with liquefied petroleum gas (LPG). On the aspect of power, significant numbers of Nigerians are not connected to the national grid and lack access to electricity especially in major cities across the country.

These challenges should not be at the forefront of transition since every nation needs to transit at its own pace.

The option for funding is extensive and there is need to approach the oil and gas space with confidence. Find the money in the right way to inspire the confidence of investors.

Speaking in the same vein, Austin Avuru, Executive Chairman AA Holdings was of the opinion that the oil and gas companies have been consistent. “When this transition started with the Paris Agreement, they were quiet because the center stage was taken essentially by Non Governmental Organisations (NGOs), who were screaming about greener environments.”

According to Avuru, by COP 26, the NGOs began to find their voice to tell the world there is certain quantum of energy that 8 billion people on earth need to even survive whether that energy was blue, white, green or dirty; the world has to find it.

“By the last COP that we just finished, we’re no longer emphasizing abandoned fossil fuels. The emphasis is “We need to provide the energy that the world needs. In doing so, let us do it differently and minimize emissions.”

Therefore, every nation has to develop its own transition agenda bearing in mind that the key is energy security. “You cannot be talking about abandoning fossil fuel in a country with such deficiencies in energy.”

The former Seplat Energy boss said, with so much of resources in the ground, Nigeria needs them not only to cure energy deficiency, but also to provide fund and resources it needs to transits. Nigeria’s timetable must recognize this. First, it must fully utilized and monetised its resources and cure energy poverty before joining the bandwagon.

“Our transition timetable and programme cannot be dictated to us.”

Continuing, Avuru added that the peak production of oil is about 3 million barrels a day before the natural decline and gas with about 12 Billion Cubic Feet (BCF) a day both internal and export in Nigeria.

However, funding is changing and what comes from Europe and North America is for fossil fuels which is a reality. Therefore, indigenous companies need to struggle to fund for acquisitions.

“Once you manage to successfully acquire these assets, you need to look inwards, designing development and production strategy and generate cash to fund expansion.”

For instance in Seplat, “if the ExxonMobil’s deal is finally approved, it will do $1.3 billion transaction with only a borrowing of $350 million. The company is not getting equity because it didn’t go to the market to raise money.”

The company only borrowed $350 million to supplement the internally generated cash transaction. After handling the transaction, in three years, Seplat Energy will be in a position where it will have access to fund for expansion.

In fact, going forward, Seplat, Renaissance and others companies will have financial capacity for further acquisitions which will eventually be the outcome. Companies will be forced to look inwards. “If your operations are not efficient enough to be cash generated, you will run around in circles like some people who acquire assets 13 years ago and are still in that death trap.” “You must get out of the death trap and have free cash and be ready for further business.”

Progressively, in five years, Renaissance may be borrowing those companies money that are seeking for cash outside the shores of the country and will not find.

Multilaterals and DFIs have advantage of providing relatively longer term financing. How does this unique capacity helps to finance energy industry?

Wale Shonibare, Director, Energy, African Development Bank (AfDB) was of the view that the focus of AfDB is infrastructure for industries. Typically the bank does not fund upstream sector because it attracted huge fund.

However, it’s important that long term financing is available for infrastructure in electricity where there is a dire need.

“My struggle with Nigeria is that I don’t think the country will be given dollar loan for 15 to 20 years for a sector where it generating its income in local currency.”

A lot of emphasis to encourage long term financing in naira, which is why the bank supported the country’s infrastructure debt fund. The pension fund has been encouraged for a long term horizon.

The capital market is a home for financing long term infrastructure. It helps to finance long term energy power infrastructure particularly in local currency. Although some long term projects LNG can still be finance in dollars since it involves foreign exchange.
Shonibare said the macroeconomic situation should be put in its right place in order to reduce inflation and interest rates to finance infrastructure in naira. Macroeconomic environment that allows lending in single digit naira must be set right.

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