Nigeria’s indigenous oil and gas industry is set to continue
its rapid growth as International Oil Company (IOC) divestments spur mergers
and acquisitions.
The growth of domestic oil companies is also being catalysed
by the recent Local Content Act passed by the Nigerian government, say
analysts.
“We see indigenisation as a long-term structural policy
shift favouring local companies via extensive tax breaks and preferential
access to new resources,” said Renaissance Capital (Rencap) energy analysts,
led by Temilade Esho, in a note released on October 20.
“M&A growth is consequently an important driver for
indigenous companies and we see strong opportunities for them here.”
There are three types of potential opportunities for
indigenous players to pursue, according to Rencap.
These include further divestments by IOCs which are likely
to continue in the medium term; farm-in opportunities, with several deals
announced recently, such as by Lekoil and Eland, and government’s move to
proceed with its marginal field licensing round scheduled for this year.
A total of 31 fields have been included in the latest round,
of which 16 are onshore fields.
Energy firms that are active in the oil and gas sector are
seen approaching the Nigerian capital markets to raise equity to help with asset
purchases.
“Many energy companies will seek equity funding to moderate
debt that asset buyers have on their balance sheets,” said Austin Avuru, CEO,
Seplat plc, at the Capital Markets Solicitors Association (CMSA) annual
business event held in Lagos last month.
“In the past five years, $15 billion in asset acquisition
deals have occurred in Nigeria’s oil and gas and power sector, and 80 percent
of them were done by debt,” said Avuru, whose Seplat was the first major
Nigerian energy company to have a dual listing in Lagos and London.
The Seplat IPO raised $535 million, part of which was used
to pay down debts.
Rencap notes that given that local Nigerian banks are busy
with reserves-based lending to marginal field holders, the amount of capital
that can be sourced from the banking system is only about half of the total
expected deal value in the case of four blocks that were sold by Shell whose
proceeds are expected to reach $5 billion.
“We estimate that $2.5 billion would have to come from other
sources, which may prove challenging and at the same time create potential
opportunities for companies with excess liquidity, such as Seplat,” said Esho.
Since 2010, IOCs have been selling onshore assets to focus
on the more complex offshore assets. Shell recently concluded deals with Seplat
for OMLs 4, 38 and 41 and with FHN/Afren for OML 26.
Shell also sold OMLs 30, 34, 40 and 42 to other indigenous
firms. Other IOCs such as Total, ConocoPhillips and Petrobras have divested
assets.
With more divestments in the pipeline, Diezani
Allison-Madueke, minister of Petroleum Resources, has said the value of
divested assets by the IOCs from onshore, shallow water and offshore terrains
will reach about $11.5 billion by the end of 2014.
“We believe local banks cannot fund this total amount and we
see these firms sourcing foreign debt or raising capital though the public,”
said Esho.
Seplat’s 2014 IPO helped to show the way for Nigerian energy
firms looking to raise equity capital domestically, with $230 million or 48
percent of the total funds raised coming from Nigeria.
“The liquidity is here,” said Oscar Onyema, CEO of the
Nigerian Stock Exchange (NSE). “Sixty-five percent of Seplat’s trading is done
in Nigeria. Now other marginal oil firms are looking at us seriously.”
The NSE has a total market capitalisation of $134 billion,
made up of $82 billion of equity, $32 billion of fixed income and $20 billion
in Exchange Traded Funds (ETFs), equivalent to 26 percent of GDP.
The daily trading value increased by 4.75 percent and 58
percent in 2012 and 2013 to $17.5 million and $26 million, respectively.
In 2014, trading values have averaged $27.6 million daily,
according to Onyema.
Source-Businessday
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