Sopuruchi Onwuka

Players in the upstream petroleum industry who seek initial funding must advance propositions that demonstrate institutional readiness and commercial bankability in order to secure immediate cash, short-term equity investments and long-term capital support from the stock market.

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Managing Director of Renaissance Africa Energy Company (RAEC) Limited, Engr Tony Attah, declared in an online lecture on Thursday that the transformation in the upstream petroleum industry which saw transfer of huge assets from international oil companies (IOCs) to mainly indigenous independent companies also came with funding responsibility.

Engr Tony Attah was the Guest Lecturer at the second edition of the second series of the Nigerian Content Academy hosted by the Nigerian Content Development and Monitoring Board (NCDMB). His lecture centered on Finding Funds for Effective and Efficient Local Content Initiatives: the IPPG Perspective.

Engr Attah’s company, RAEC Limited, is a leading member of the Independent Petroleum Producers Group (IPPG) which, according to him, produces over 60 percent of Nigeria’s crude oil, natural gas and natural gas liquids.

Oracle Intelligence reports that unlike the international oil companies which are well capitalized, listed across global stock markets and incubated in decades of global operating experience, the IPPG group are mainly indigenous, young, struggling with funding and exposed to debt market vulnerabilities.

The dilemma of the independents, Engr Attah pointed out, has been compounded by misconceptions about energy transition which, according to him, have led to thinning international funding windows as multilateral lenders shut out fossil fuel projects.

The fledgling Africa Energy Bank (AEB), he also noted, is currently too weak and fragile to carry the huge financing weight of upstream petroleum industry projects.

He pointed out that whereas the AEB currently has total capitalization of about $20 billion, short term project commitments by Shell and ExxonMobil in Nigeria are already calling for over $30 billion in financing.

The situation calls for diversified funding options for industry projects, he said, advising independent companies to diversify their sources of project funding across debt, debenture investments, institutional funding, reserves-based lending and stock markets.

He however made it clear that Africa, Nigeria and industry players must be ready, strategic and creative in exploring diverse funding options; but only when they have built strong structures and advanced compelling commercial propositions that lure commercial funding.

In dwelling on commercial propositions that address lenders’ risk alerts, Engr Attah noted the need for credible low operating cost schemes that indicate high commercial profitability. He added that businesses already in operation must approach lenders with realistic balance sheets and other indicators of personal debt capacity.

According to him, transparent corporate governance structure, stable production profile, operating track record, profitability indices and credible business structures all form indicators of project bankability.

Engr Attah stated that presentations to lenders must also include solid value propositions and solutions that are in high demand. He also advocated full value chain optimization, citing the examples of WaterSmith Limited and Aradel Plc which, he disclosed, make more money and deliver more value by running integrated extraction and processing of hydrocarbon resources.

He explained that integrated petroleum industry operations go beyond individual company finances to also boost the local economy through gas valorization, crude oil refining, industrial catalyzation, environmental responsibility, public health, agribusiness and job creation.

He stated that gleaning additional value and income from crude oil confers additional revenue advantage and shores up profitability profile of operations while keeping cost minimal.

He also called for pooling capacity through mergers to acquisition to consolidate numerous producers and service companies into super independents. He made it clear that diversified credit opportunities call for multiple channels of operations financing.

Engr Attah stated that Nigeria must seize the prevailing high value opportunity in the marketplace to transform the petroleum sector from extractive industry to resource utilization industry as in other gas nations like Qatar, the United States and Australia.

He advised players to take the rare advantage offered by the NCDMB to build in-country capacity to assume greater operating responsibility in the domestic petroleum industry, adding that even the NCDMB’s financing facilities are solidly structured and risk averse.