Appraising Funding Options For New Oil, Gas Projects In Nigeria

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Local oil companies (LOCs) are currently experiencing funding challenges as access to loans is becoming increasingly difficult. CHIKA IZUORA examines various options available to them.
Experts at the Guarantee Trust Bank (GTB) recently disclosed in their 2017 Economy Outlook entitled: “Macroeconomic and Banking Sector Themes for 2017,” said that the ratio of non-performing loans in the banking industry has doubled the threshold at 11.7 per cent.
The Bank’s Outlook
They said the banking industry has been plagued by declining asset quality in the wake of the decline in crude oil prices, devaluation of the naira and foreign exchange, FX, scarcity, with ratio of non-performing loans rising to 11.7 percent from 5.3 percent in December 2015.
The bank worked out two scenarios that will determine the recovery or otherwise of the economy in the 2017.  “For the purpose of this publication, we consider two scenarios: First, oil prices remain circa $57 per barrel levels and the successful resolution of the militancy attack on oil facilities in the delta region (best case).
In the second scenario oil prices crash below $40 per barrel and the attacks on oil facilities continues following the inability of government to resolve issues with the militants (worst case).”
The analysts at the banks said the oil and gas loans alone account for about 30 per cent of total industry exposure .
“An improvement in oil sector receipts as detailed in scenario one will provide relief for banks, enhance repayment of obligations and improve asset performance.
“Forex scarcity and epileptic economic activities are further constraining earnings. With the first scenario successfully achieved, the system liquidity will improve and banks will witness better asset performance as customers will be able to meet the repayment of maturing loan obligations which raise earnings.
“Conversely, scenario 2 will see system illiquidity situation linger further into the year and asset quality deterioration will impact the industry. This current situation of Nigerian banks therefore challenges oil companies seeking new investments in the sector to seek other means of raising required capitals for projects .
Dolapo Oni, who heads Ecobank energy research desk observed that Nigeria output has been stagnant since 1980 and that Nigeria’s gas output has grown faster than its oil output. Oni in his titled:titled “Attracting Investments into Nigeria’s Oil and Gas Sector,” delivered at a media retreat organised by ExxonMobil in Lagos noted  that despite huge demand of the country’s oil oil field development was highly jaundiced and there were  no new investments in sight.
Looking at supply dynamics, the expert said within the context of local demand, local refineries, petrochemical plants, fertilizers, power sector require much of the oil. On the export demand, the country’s oil is highly preferred by international refiners in Asia and America and its regional demand is equally growing.
According to him, Over 60 per cent of crude grades out of the WAF region were light and sweet.
“ By volumes, it is actually higher; it is near 75 per cent, condensates constituting a rising amount at 15 per cent due to countries such as Equatorial Guinea, Cameroon and Nigeria,” he said,  while adding that Nigeria’s Industry financing need exploration and appraisals and new projects are needed to ramp production.
The country he also said needs  to produce from divested fields and another licensing rounds required to attract fresh investment. In addition, government should provide the needed industry infrastructure for a sector which needs an annual budget of about $30 billion.

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