A new report by Ecobank has revealed that Nigerian banks financed over 80 per cent of the acquisition of oil and gas assets that were concluded in the past five years.
According to the report, the oil sector will see oil and gas assets divestments of over $10bn in 2015/2016.
Mr. Dolapo Oni, an Ecobank analyst said The Nigerian oil industry depends on both local and foreign currency funding from the local banks. The banks have financed over 80 per cent of the acquisitions that were concluded in the past five years.
“There’s clearly a structural funding deficiency in the oil sector as it currently depends on the balance sheet of the banking industry rather than equity funding provided by institutional investors.
According to the report, the upstream segment is represented by Seplat Plc and Oando Plc on the Nigerian Stock Exchange, but accounts for less than five per cent of total market capitalisation.
The report read “Yet there are over 30 indigenous companies involved in segment. This is also due to the preference of other operators such as Mart Resources, Lekoil and Eland Oil to maintain listings only on foreign stock exchanges due to several reasons.
“The foreign exchanges offer more depth, institutional investors comprise the bulk of the investors on these exchanges and are traditionally more patient with oil companies.
“Banks also depend largely on the foreign currency deposits of their oil and gas customers to grant dollar loans and may need to increase Eurobond issuances to meet up with foreign currency lending demands.
“Exploration and appraisal activity will require equity funding, at least equity-linked funding structures. Although equity valuations could be potentially low, combined appropriately with other funding instruments, they could offer the indigenous oil companies, a much needed lifeline to raise oil reserves and in the long run, their share of the oil industry.
“The country already faces considerable difficulties in selling its crude oil cargoes with a persistent overhang for its crude oil cargoes since December 2014.
“The NNPC has offered further discounts to push sales but increasingly faces lower price differentials. This is expected to redirect government attention to other revenue sources as it seeks to fill the gap in its revenue profile. Receipts from crude oil sales have traditionally provided over 67 per cent of government revenue.”