To refinance equities divested by oil majors in Nigeria, analysts say syndication and partnership with foreign banks may be the preferred options for local lenders.
With a crude estimate of $1.5 billion per bloc, new investors will require at least $13.5 billion to refinance the acquisition of the divested equities.
Analysts are upbeat that collaboration with foreign banks and raising of part of the funds through the capital market are likely to be the viable avenues to refinance the oil blocs being divested by Shell and Chevron.
“I would imagine foreign banks would be involved, together with Nigerian banks, in funding Nigerian companies for the purchase of these oil blocs. Individual companies may tap capital markets for funding as well,” says Razia Khan, head of African Research at Standard Chartered Bank, London.
Friday Ameh, an energy expert, says the possibility of foreign banks hedging to see how the deals will initially go has made the local syndication an inevitable option. “Some of the foreign banks could express misgivings over the spate of the sale of assets by the oil majors, so the onus is on the local banks to ensure that the deals go through,” he says.
Under the financial syndication deals, Nigerian banks are expected to open discussions with prospective investors or buyers, and will also commence talks among themselves to pool the requisite funds.
Also, with the post-banking consolidation that has produced strong and healthy banks that can compete internationally, the local banks can now leverage on their technical partners or approach outright some of the world-class financial institutions for financing the deals.
Another analyst foresees likely club deals as, according to him, it is an opportunity for the banks or individuals to acquire and own the fields. “There is the possibility that three or four syndication groups could emerge among the local banks, while those that can’t make any group could go into club deals which ordinarily involve buyout or the assumption of controlling interest in the companies,” he says.
“Our banks should seize this moment as providing them opportunity to show the world that they are capable and can compete internationally to play and profit in the big ticket transactions which the oil bloc sales is offering for balance sheet growth.”
Claire Lawrie, head, Oil and Gas Advisory for Africa, Ernst&Young, says the assets being put up on offer by Shell and Chevron are mostly onshore oil blocs. “The major reasons for selling these onshore assets are worries over oil theft, relations with communities living around oil fields and uncertainty over the stalled Petroleum Industry Bill (PIB) to overhaul fiscal terms,” she says.
According to her, Nigeria has had a policy of encouraging local content in the oil and gas industry since 2010. This, she says, has led to more direct ownership of oil blocs and assets by Nigerians, either through the NPDC – the exploration and development subsidiary of Nigerian National Petroleum Corporation (NNPC) – or independent private firms.
On who would buy the assets, she says many of the indigenous Nigerian firms are backed or owned by businessmen who are able to buy these assets. For example, SEPLAT, which is partly owned by French oil explorer Maurel & Prom and Swiss-based commodity trader Mercuria, is likely to submit a bid, according to industry sources.
“There are also other independent companies that already manage marginal fields in the Niger Delta area including Brittania-U, Vertex, Sogenal and Seven Energy,” she says, explaining further that Nigerian banks have demonstrated the ability to raise the required financing for oil and gas assets through local and foreign collaborative arrangements.
Seye Fadahunsi, executive director, Pillar Oil, aligns with Lawrie, saying some Nigerian independents in alliance with foreign interests are poised to buy the oil blocs. According to him, local companies can enter into partnership with foreign interests or they can pool resources in JV with other independents.
As to whether Nigerian banks can raise the funds required to finance the assets, Fadahunsi says Nigerian banks have of late become more bullish and risk-averse and will want to show capacity by aggressively seeking funds from the international market to boost their capital base in order to fund the acquisition. “The driver is the high rate of return on investment in this sector,” he adds.
Shell and Chevron are putting up for sale nine onshore oil blocs. Shell’s blocs alone are estimated to be worth $6 billion.
Information from Business Day was used in this report.