Gas deals

Corporate oil, gas deals in Nigeria fall to lowest in 5yrs

The scale of corporate deals between privately held businesses and their investors in Nigeria’s oil and gas sector is at the lowest ebb in five years, as transactions hit a low of $123 billion in 2020, a sharp decline compared to a record high of $301 billion recorded in 2018.

READ ALSO: Why investors flock to Ikoyi, V.I despite challenges…

This is troubling because oil and gas sector deals such as mergers, acquisitions, asset sales, debt financing, among others, drive investments, improve infrastructure, technical expertise, and grow the economy, thus improving living standards.

According to data from IHS Markit, a London–based energy information resource, Nigeria recorded 82 oil and gas deals last year worth $123 billion, a 69 percent decrease compared to 138 deals valued at $208 billion in 2019.

The data also show that 2018 was Nigeria’s best performing year in the last six years with a total deal volume of 183 deals valued at $301 billion. This is lower when compared to $182 billion, $201 billion, and $196 billion recorded in 2017, 2016, and 2015, respectively.

A further breakdown of 2020 data reveals that the upstream sector accounted for about 45 percent of all deals recorded followed by the midstream sector with 26 percent, while the downstream sector and oil field service accounted for 24 percent and 5 percent, respectively.

Although investors in Nigeria’s energy sector are not immune to the economic effect of coronavirus and the impact of lower oil prices, which made acquisition financing much harder last year compared to previous years, however, experts say their fortunes are made worse by a regressive fiscal regime and increasing risk profile.

“Price volatility, tough fiscal regime, rough business environment, and lack of capacity are some of the biggest challenges facing Nigeria’s oil and gas deals in 2020,” Joe Nwakwue, chairman, Society of Petroleum Engineers (SPE) said.

In 2019 deals, IHS Markit showed the upstream sector was also responsible for the lion share of about 52 percent of total deals followed closely by the midstream sector accounting for about 40 percent, while oil field service and downstream sector account for the remaining share of 4 percent each.

“Nigeria needs to put the right fiscal regime that will make projects more valuable in the midstream and downstream sector which would attract the right kind investment,” Nwakwue said.

Elias & Co, a business law firm with specialty in mergers and acquisitions, said transactions in the energy sector had been less busy lately compared to six years ago.

“It is far from being inactive,” analysts at Elias & Co said in a note.

Mergers and acquisitions in Nigeria’s oil and gas sector have slowed in recent years after an initial surge two years ago when some indigenous players, buoyed by the Federal Government’s initiatives, took advantage of some divestment opportunities by international oil companies operating in the country.


Gas Tanks

How a gas company raised $650m facility…

The feat would have been remarkable on any given day. But amidst the threat of a raging virus that has shuttered national economies, it was even more remarkable.

READ ALSO: World Bank: Nigeria’s road to economic recovery

How a new company, ANOH Gas Processing Company (AGPC), secured financing during a pandemic – by sufficiently derisking the project through a solid governance structure and smart strategy – provides lessons for how to acquire debt.

In November 2020, Seplat, Nigeria’s leading indigenous oil company, announced that it secured financing for the construction of the $700m ANOH gas plant facility sited at Asaa, Ohaji/Egbema in Imo State.

READ ALSO: Nigeria’s local gas opens investment opportunities

ANOH Gas Processing Company (AGPC) is an incorporated joint venture owned 50:50 by Seplat Petroleum Development Company and the Nigerian Gas Company, a wholly-owned subsidiary of Nigerian National Petroleum Corporation (NNPC).

This facility was obtained primarily from Nigerian commercial banks who ruing their decision to lend to the oil sector.

“This means that there’s a lot of hope for financing gas and gas-related activities,” said Mele Kyari, NNPC GMD.

We distill lessons from this transaction for investors who are embarking on similar projects.

Clarify your strategy

From the very beginning the company articulated a clear funding strategy. This usually entails developing a practical, working plan that specifies how you are going to raise money and the resources that it would deploy.

But it should not be just in your head. Seplat began communicating this plan over four years hinting the market that it would raise money through debt and equity.

“By the time they went to the lenders, they were well aware that this was coming and were prepared to meet with them This made the process smooth,” said Yetunde Taiwo, GM for new energy at Seplat during a presentation at the Nigerian Gas Association (NGA) virtual multilogues last week.

Have a great governance structure

One reason for the Nigeria LNG’s success is that it is an incorporated joint venture, unlike the traditional unincorporated joint ventures in the upstream oil and gas sector.

The incorporated joint venture is both the company and the business, unlike the traditional joint ventures where the companies are different from the joint venture.

This model gives the company a license to fund itself. It goes out to the financial and capital markets to raise funds for its operations, unlike the traditional joint ventures where equity contributions fund the business.

It is this model that was replicated by the APGC. It is the first domestic gas IJV with a simple equal shareholding structure, which gave the lenders some comfort and made the due diligence go smoothly, Taiwo said.

Investors are wary when they have to deal with governments in developing countries like Nigeria because of regulatory uncertainty. A study conducted by KPMG some years ago found that regulatory and political risks were the most pressing concern for investors.

“Any relationship that you have with the government that is perceived to be cordial, it gives the lenders a level of comfort that the partnership is solid and there isn’t the fear of interference coming from the side of government,” Taiwo said.

The Nigerian government is notorious for disrespecting contract terms but the odds are definitely stacked against you if certain elements in government express disapproval, and loudly against a deal where the government is a partner. Having the Federal Government support, on the other hand, is euphoric.

It is possible you may not incorporate a joint venture with the NNPC, but having a good corporate governance system assures investors of the sustainability of the business.


Gas Investments

Nigeria’s local gas opens investment opportunities

The Federal Government of Nigeria is stepping up funding for important gas projects to promote the use of local commodities, opening up investment opportunities for pipeline construction, new industrial gas corridors and electricity projects. I am.

With increasing production from natural gas producers in a nearly bearish global market, the global reality of driving energy shifts to cleaner fuels could unleash Nigeria’s potential for gas for domestic use. It has become indispensable. In Nigeria, only 9 percent of the natural gas produced is used.

READ ALSO: e-Commerce: Call to rescue SMEs’ Data Genocide

“We need a revolution in our energy system,” said Timipre Silva, Minister of Petroleum Resources, in a speech at the Nigerian Gas Association’s (NGA) multi-logue, which was virtually organized on February 25 and 26. I believe. “

“And in that context, an important decision and new impact we can make now is to continue to expand the role and opportunities of natural gas for economic recovery,” Silva said.

According to Silva, the government’s perception that gas will continue to play an important role in economic development has led to the creation of a program to “grow the gas economy through the development of industrial and transport gas markets in a gas-to-electric juxtaposition.” It was. Initiative. “

As a result, the government has mandated the Nigerian National Petroleum Authority (NNPC) to increase its domestic gas usage from approximately 3 billion cubic feet (BCF) to 4.5 BCF, and has identified several projects to drive this result. ..

Mele Kyari, Group Managing Director of NNPC, said in a presentation at the event that the major projects to unlock 4.5 BCF gas for local use were the OB-3 pipeline (AKK pipeline) and Assa North. (Brass petrochemicals), stated through a representative. Especially ELP.

The $ 3.2 billion 40-inch x 614 km Ajaokuta-Kaduna-Kano (AKK) gas pipeline project, which is part of the Trans-Nigeria Gas Pipeline (TNGP), will move 2.2 billion cubic feet of gas per day from Kogi when completed. And you can cross Abuja. , Nigeria, Kaduna, Kano.

They are few, but the industry along this corridor has enough gas to drive growth. However, because the pipeline traverses a large, ungoverned region of Nigeria’s unstable northern region, there is an increased risk of pipeline instability.

The Obiafu-Obrikom-Oben gas pipeline, also known as the OB3 pipeline or East-West pipeline, is a natural gas pipeline that extends from the Obiafu-Obrikom gas plant in Delta to the Oben node in Edo.

The 48-inch, 127 km gas pipeline presents challenges, the latest being the original construction contractor, and Nestoil is technically unable to run the pipeline across the Niger River. The Chinese company China Petroleum Pipeline Engineering Corporation handles this and expects a completion date for the first quarter.

It is planned to supply gas projects in Asa North-Ohaji South, ANOH, one of the largest greenfield gas condensate development projects billed to produce 600 million standard cubic feet of gas per day. ..

If the project is successful, we will provide an alternative link to southwestern Nigeria whenever the critical Esclavos Lagos pipeline system fails.

Brass Fertilizer and Petrochemical Company Limited (BFPCL) is another high priority project. There are two trains producing 5,000 tonnes / day (MTPD) of methanol and 500 million standard cubic feet / day (MMscf / d) gas treatment to extract condensate from natural gas before supplying the remaining lean gas. Includes plant. Methanol plant.

It also includes gas manifolds and pipelines to connect gas processing plants to gas fields and export facilities.

“We are aiming to set up two gas hubs, one in Oven and the other in Brass,” said the NNPC boss.

The NNPC boss further said the gas hub “will make an announcement about gas prices, creating a situation where the industry will begin to mention gas prices in Nigeria.”

Other projects, such as Shell-led AssaNorth and the AssaNorthGas processing company that approved $ 650 million in funding, are also important projects.

“All projections show that 60-70% of the gas that forms the basis of 4.5 BCF comes from electricity. Therefore, broken power lines so that you can make money from your investment in gas. It needs to be repaired and improved downstream collection, “said NNPC.

To this end, the state-owned oil company is considering establishing an additional 5,000 mw of electricity in its network and is currently working with stakeholders to resolve the issue so that the investment can be realized. Said.

However, operators say gas pricing remains controversial. “Our investment has affordable gas prices. We need a price that works,” said Roger Brown, CEO of indigenous oil company Seplat.

Osagie Okunbor, managing director of SPDC and country chair of Nigeria’s Shell Companies (SCiN), said Nigeria’s regulatory approach to gas should not focus too much on renting like oil. He warned that a spurring financial and regulatory environment should be created. Investing in gas projects has a beneficial effect on the economy.