• Indigenous Oil Firms Bleed Over N4.9tn Debts

Nigerian oil and gas firms have taken a serious beating from the downturn in the industry amid a debt burden of N4.9tn that is weighing on many of them.

After becoming key players in the nation’s oil and gas industry in recent years, indigenous firms are now struggling to maintain the assets they acquired through the Federal Government’s marginal field programme and recent divestments by oil majors.

Over 130 blocks are in the control of indigenous operators, who were awarded some 50 marginal blocks through discretionary allocations in the 1990s, another 24 through marginal fields bidding round in 2003, and 60 more blocks through conventional bidding rounds in 2005 and 2007, according to the Oxford Business Group.

But total oil production from the local firms fell to 46.01 million barrels last year from 80.17 million barrels in 2015, bringing their share of national production down to 6.4 per cent from 10.3 per cent, the February report of the Nigerian National Petroleum Corporation showed.

The dip in global oil prices since mid-2014 coupled with the resurgence of militant attacks in the Niger Delta last year has significantly hammered the operators’ ability to earn revenues and repay debts owed to banks and others.

Prior to the fall in crude oil prices from a peak of $115 per barrel in 2014, banks gave loans to local oil and gas companies for the acquisition of assets, mostly being divested by the IOCs such as Royal Dutch Shell, Chevron and Total.

But several of the companies, including Seplat Petroleum Development Company Plc and Neconde Energy Limited, suffered severely from the shutdown of the Trans Forcados Pipeline, their main export route, for more than a year.

As of the end of December 2016, loans to the oil and gas sector constituted 30.02 per cent of the gross loan portfolio of the nation’s banking system as credit to that sector grew from N4.51tn to N4.89tn, according to latest Financial Stability Report of the Central Bank of Nigeria.

The report stated that during the second half of last year, credit risk trended higher as non-performing loans in the banking industry grew to N2.08tn at end-December 2016 from N1.68tn at end-June 2016.

Seven Energy International Limited, an integrated gas company in South-East Nigeria, has been grappling with severe liquidity challenge.

It announced in April that it had requested a standstill from its lenders under the $385m Accugas term facility dated June 23, 2015, and had not made payments of interest and principal due thereunder on March 31, 2017.

On April 11, the group failed to pay the interest due on the $300m, 10 ¼ per cent senior secured notes due 2021 and the $100m, 10 ½ per cent notes due 2021, and did not satisfy the conditions to pay payment-in-kind interest.

“The 30-day grace period for payment of interest under the SSNs and the 10 ½ per cent notes expired on May 11, 2017, which represents an event of default under the terms of the SSNs and the 10 ½ per cent notes,” the group said.

Seven Energy said on May 15 that it was being advised by Ernst & Young and continued in constructive discussions with potential investors and lenders, with a view to achieving a comprehensive capital restructuring.

“The group is in parallel discussions with all of its financial creditors, including an ad hoc group of holders of the SSNs, with a view to obtaining agreements to standstill on debt service obligations and waive any defaults arising under the various finance agreements,” it added.

It said its liquidity was severely affected by a range of external factors, including loss of material cash flow from its Strategic Alliance Agreement since February 2016 because of recurrent militant activity that resulted in the closure of Forcados export terminal, and a significant backlog of unpaid invoices relating to the supply of gas to federal and state-owned power stations.

Last month, the Chairman, Obijackson Group, Dr. Ernest Azudialu-Obiejesi, said the group had yet to repay the $558m loan from banks used to acquire 45 per cent interest in Oil Mining Lease 42 from Shell, Total and Agip Joint Venture in 2011, through which its upstream subsidiary, Neconde Energy, was created.

Following the shutdown of Trans Forcados Pipeline in February 2016, the company’s oil output fell to 15,000 barrels per day from about 52,000 bpd after six months of no production last year.

One of the major indigenous independent companies, Seplat Petroleum Development Company, which said its net debt stood at $516m as of December 2016, had to reduce its rig-based activity to comprise only the workover and re-completion of the Sapele-4 well as a water disposal well last year.

The company said it adopted a prudent approach and proactively engaged in discussions with its lenders in the $700m seven-year term loan to re-align near-term debt service obligations within the existing tenor.

Its three-year secured revolving credit facility of $175m at six per cent is scheduled to mature in December this year, according to its 2016 financial statements.

“The company is currently engaged with the lenders on the three-year corporate facility with a view to extending the tenor until the end of 2018 and re-profiling principal repayments, while it looks at optimising the capital structure,” Seplat said.

Another major indigenous player, Oando Plc, has had to sell some of its subsidiaries, including Oando Gas and Power, Oando Energy Services Limited and Alausa Power Limited, to reduce its debt, which stood at N355.4bn in the first quarter of last year.

With a debt of N225.9bn as of March 2017, the group said it secured the lenders’ consent last year for the sale of its non-operated interests in OMLs 125 and 134, but awaiting the final approval of the Minister of Petroleum Resources.

The Vice President/Head of Energy Research, Ecobank, Mr. Dolapo Oni, noted that most of the indigenous firms had been facing funding challenges in recent years, adding, “They are not getting funding from their banks for major projects, but their banks have restructured their loans to ensure that at least they can remain in operation.

He described the reduction in lending from banks as a major blow to the oil firms because “they need funding to be able develop their fields and increase production.”

“They need equity injection because they are all dependent on debts. As long as they are dependent on debts, they will be exposed and their cash flow will be affected when oil price fluctuates, like we have seen in the last three years,” Oni added.

The Chairman, PetroAfrique Oil & Gas Limited, Mr. Adams Okoene, said most of the companies had borrowed money from banks to carry out development on their fields.

The former Chief Executive Officer, Midwestern Oil & Gas Company Limited, noted that the Forcados terminal had only just come back into operation after a long time, adding, “All those who rely on that outlet to sell their crude have almost died because they had to be looking for alternatives.”