By Sebastine Obasi

Salient reasons have been adduced as to the inability of indigenous oil and gas companies to attract equity in the fledging industry, which accounts for 90 percent of the Nigeria’s revenue. Energy Analyst and Head, Energy Research, Ecobank Nigeria Limited, Mr. Dolapo Oni, said that Nigeria has not been able to ramp up production from the 2 million barrels per day, due to lack of funding.

Speaking on the sidelines of the Nigerian Producers Forum, held in Lagos, Oni said that despite all the various steps taken, production had stagnated at 2 million barrels daily where it was about 10 years ago. He explained that investors are particular about corporate governance, transparency and ownership structure of the company, factors that are yet to be fully imbibed by indigenous companies.

He said: “Corporate governance is key. Some of the things that investors will like to see include transparency in decision making, procedures, ownership of the company, how funds are allocated, and clarity that oil and gas companies are hesitant to provide. The fact is, there is a limit to debts you can raise locally; you have to go abroad.

“Interestingly, foreign markets want corporate governance. They want to see equity as well. In Canada’s oil and gas industry, the average debt to equity ratio is $1 of debt per equity.  In the US, the average is 97 cents of debt per dollar of equity. But in Nigeria, it is slightly above $2 of debt per equity. This makes the banking industry vulnerable to the oil and gas industry.

Last year alone, the oil and gas industry constituted 25.7 percent of the loans to the private sector. That is why the fall in oil prices has affected the banking industry. In Norway, a country with a spectrum of how the industry should be run, the oil and gas industry constitute eight percent of bank loans. However, they have a far bigger industry and they actually form a lot more assets than we do share in Nigeria.”

Oni also said that indigenous oil companies at some point have to play the exploration game. However, it has to be financed through debts. According to him, some banks had exposures of up to 40 percent to the oil and gas industry last year, which is not really safe, as it makes them vulnerable to events in the industry.

“In 2014, banks had about N2 trillion lent out to the oil and gas industry, going by the exchange rate of last year that translates to about $20 billion. That is just debt. How much equity was raised? Only about $900 million equity was raised. Seplat raised $500, while Oando raised $300 million. Lekoil raised about $38 million, while another company raised $20 million. We are looking at an industry that is dependent on debts.

“Currently, the industry requires between $25 billion to $30 billion investment annually. A lot of things need to be financed. The IOCs will still divest more of their assets.

“We are shifting our production base. We produce most of oil from shallow waters to deep water and onshore. The ratio is in the region of 74:26; 26 percent onshore, 74 percent offshore. Even that offshore is changing. It is going further deep water and ultra-deepwater. Between now and 2019, there will be about 12 oil fields coming on stream that will add about 880,000 barrels per day to Nigeria’s production, if those projects go ahead.

Those fields are lying between water depth of about 1,000 and 2,000. This is a different segment of the industry hitherto dominated by the IOCs,” he added. Oni also listed the three major criteria for IOCs’ divestments, which include onshore fields, troubled blocks and assets that lie close to Nigerian independents.

According to him, “There are three major criteria for IOCs divestments. One is onshore fields. Two, It has to be a block that is troubled. It is not about reserves. If it were about reserves the IOCs would not have divested OML 30 that has about 1.2 billion BOE of reserves or OML 29 that has almost 1 billion BOE of oil and gas reserves.

Also, there are assets that lie close to some particular Nigerian independents that they feel they can handover the assets to. These assets need to be financed. The infrastructure still needs to be financed, such as gas pipeline,” he added.