According to analysts at Lagos-based CSL Stockbrokers Limited, the recent report that Shell Petroleum Development Company (SPDC) has started testing the Trans-Forcados crude export pipeline for a potential restart after months of repair is expected to have positive effects on banks’ earnings, ThisDay reports.

The analysts noted that the resumption of production may result in a reclassification of some bank loans that had been previously classified as non-performing loans (NPLs) and could consequently result in a reduction in the NPL ratio of the affected banks. Based on available data, FBN Holdings and Sterling Bank have a significant proportion of their non-performing loan portfolio from the upstream oil and gas sector, the report revealed.

Trans Forcados is owned by the Nigerian Petroleum Development Company (NPDC) and operated by SPDC. The pipeline links a number of oil fields and oil mining leases (OMLs) in the western Niger Delta with the Forcados terminal on the coast and is also associated with a number of Nigerian bank’s loans to the indigenous upstream oil & gas sector.

Many of these OMLs were once owned by Shell Nigeria but were sold to indigenous Nigerian upstream companies, in many cases financed by Nigerian banks. There is therefore a high concentration of Nigerian upstream oil and gas banks’ risk in the basin served by the Trans Forcados pipeline.