Stakeholders advocate new financing structure to bridge $40b gap in oil industry
Stakeholders in the nation’s oil and gas industry have urged the Federal Government to explore new financing structure that would help the industry attract needed funding for the development of assets holding over four billion reserves of crude.
Speaking yesterday at the 45th anniversary lecture of the Nigeria Association of Petroleum Explorationists (NAPE), in commemoration of the first Akomeno Oteri Annual Lecture themed: Long-term funding for E&P business in Nigeria: Strategies and Sustainability, the keynote speaker and Chief Executive Officer of Amni, Tunde Afolabi, said despite exploration and growth in crude oil reserves, production has remained very low in Nigeria’s oil industry, noting that capital spend would reduce in the years to come, due partly to the impact of COVID-19.
To hedge this impact, he advocated the need for government to encourage licensing a purely oil and gas bank with significant government subscription to the bank’s shares.
He said: “Presently, there are 13 independent oil firms in the country, with reserves of almost four billion barrels, producing at least 0.5mbpd. If these reserves were to be developed at an average cost of $5 per barrel, the companies would require between $20 to $40b. The top 10 Nigerian banks only gave about $5.5b in loans to the sector and marketers.”
Besides, the Nigeria National Petroleum Corporation (NNPC) has said it has been able to reduce its JVC cash call debt from $5b in 2015 to over $3b in five years.
This, NNPC attributed to the efficient business plan put in place by the corporation.
In its May report, NNPC said crude oil export sales contributed $120.50m (68.94 per cent) of its dollar transactions, compared to $148.86m contribution in the previous month.
“Export gas sales amounted to $54.29m in the month. May 2019 to May 2020 crude oil and gas transactions indicated that crude oil and gas worth $4.47b was exported.
“As for dollar payments to JV cost recovery and FAAC, the total export receipts of $133.16m were recorded in May 2020, as against $193.05m in April 2020,” the corporation said.
According to Afolabi, the traditional source for oil and gas funding in the country has been the financial institutions, which has been dropping since 2014, as the apex bank mandated the sector to reduce over-exposure to a single sector.
“Recovery to high prices might take longer or never, as the industry also competes with climate change. Nigeria’s independent producers account for 25 per cent of oil produced. We need to support the survival of independent players,” he added.
The Group Managing Director, NNPC, Mele Kyari, said NAPE should be forward looking and proactive, bearing in mind that the significance of oil and gas in the next 40 to 50 years is being challenged.
He stated that oil was being discovered in many locations that were hitherto not considered, hence the need to immediately monetise assets that are being discovered.
“This means that we need to do more exploration to attract investments, as the pandemic has further affected ability to attract new investments in the oil and gas sector,” he stated.
He urged NAPE to ensure that it remains relevant in coming years. The NNPC boss said there was need to monetise resources from the oil and gas sector, as well as boost domestic market for petroleum products.
Also, the Group General Manager, Corporate Planning and Strategy, NNPC, Meyiwa Eyesan, said the corporation was not in dire need to sell its equities in oil companies that are in partnership with NNPC.
Eyesan was responding to the suggestion that NNPC should shed its financial burdens in JVC commitments. She said NNPC has gained traction to efficiently partner other oil companies in the country. “This is the wrong time to sell our equity to any trusted partners,” she noted.
She pointed out that NNPC is presently upbeat with the current plan to open the $2.3b domestic gas market and rehabilitate the nation’s refineries. She said NNPC had decided not go it alone, but to go into partnership with private investors.
“What we have done in the upstream sector is what we are going to replicate in the downstream, by going into partnership with private investors,” she said.
She explained that this would be seen in the rehabilitation of the old pipelines and refineries. “The pipelines and the refineries are open to partnership on Build Operate and Transfer (BOT) bases,” she said.
Other panelists that participated on the online lecture advocated Energy Bank, as a means to properly fund the oil and gas sector.
Given the paucity of fund post-COVID-19, due to fall in oil price, they proposed that the one per cent of their turnover, being contributed to the National Content Development Monitoring Board (NCDMB), should be the take-off fund for the Energy Bank.
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