Banks Have Low Expertise in Oil & Gas Business

Nigerian banks have limited k n o w l e d g e and understanding of oil and gas business, thus making it difficult for financial institutions in the country to tailor the right financing model for operators in that sector of the economy.

That was a crucial point from the Nigeria Oil & Gas (NOG) 2015 communiqué issued over the weekend According to the communiqué, the restricted lending capacity of indigenous banks and rate disadvantage cannot compare to various money lenders elsewhere while poor credit rating also affect money lenders’ ability to support indigenous companies operating in oil and gas business.

Other pertinent issues raised in the communiqué include:
• Short term contracts appear to be a constraint to accessing sustainable financing
• Industry operators to revise their funding mechanisms for projects to match the current situation.
• Nigeria remains a country of opportunities and potential with a lot of successes to be achieved but requires co-operation, collaboration and hardwork.
• Independents to focus on building reliable governance structures in order to attract appropriate funding and ratings.
• Strategic switch towards capital discipline, cash conservation, appropriate hedging and cash flow based project funding required under challenging market conditions.
• Indigenous companies need to explore equity funding and mezzanine financing options.

To achieve this, owners and shareholders of indigenous oil companies must show more willingness to relinquish control. Banks have called on independents to hedge production in order to ensure stability.
• Local banks to support local companies for organic growth in the industry
• CBN needs to revisit project financing obstacle for viable Nigerian Content.
• There is need for a co-ordinated effort at national level to protect oil and gas assets and address the issue of corruption.
• The burning question remains, how can Nigeria use its oil and gas resources more efficiently and equitably? The management of the revenue that comes from these resources requires discipline and prudence.
• Low oil prices present an opportunity to look inward and change many things quickly. Nigeria, like other oil exporting nations, now targets Asian countries in search of new markets for its crude oil. The current over supply of crude oil resulting in low oil prices has negatively affected revenue.
• The country needs to diversify its economy and gas domestication is one option. A strategy for export markets must also be put in place to make sure we optimise our share of the market.
• To further unlock the industry’s potential, the Gas Master Plan must be fully implemented. The policy is designed to connect the entire gas value chain and consequently encourage the exploration for new gas resources to increase reserves.
• There is a high domestic demand for gas in Nigeria, therefore domestication of gas should be pursued and policy development must be thorough. The indigenous companies dominating the service sector must act as the main engine of the industry in order to drive this transformation if the best impact outcomes are to be achieved.
• There is a need for regulation which will encourage the service sector to localise technologies within Nigeria. This will ensure an increase in indigenous technology capacity so as to be able to drive down cost.
Technology resident in service is not exclusive to oil and gas hence the need for backward integration.
• Nigeria must move from policy formulation to implementation actions and all policies adopted must ensure that there is a fair amount of profit for operating companies and rent for Government i.e. a balance between incentives and Government tax.
• Energy switching and development of fuel efficient products is on the rise and this has reduced the cost of energy as well as lowered demand. Nigeria, as an energy supplier, needs to increase its flexibility by diversifying its market to be able to insulate itself from undesirable market forces.

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