NNPC Secures $5bn Funding from Afreximbank for Upstream Business, Others

todayJanuary 28, 2022

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*Continental bank to underwrite $1bn as part of transaction

Emmanuel Addeh in Abuja and Peter Uzoho in Lagos

The Nigerian National Petroleum Company Limited (NNPC) has secured a $5 billion corporate finance commitment from the African Export-Import Bank (Afreximbank) to fund major investments in Nigeria’s upstream sector.

The funding commitment was sequel to a meeting between Chairman of the Board of Directors and President of the Bank, Professor Benedict Oramah, and the NNPC team led by the Group Managing Director, Mallam Mele Kyari, on Wednesday in Cairo.
On the trip with Kyari were NNPC’s Chief Financial Officer, Umar Ajiya; Group Executive Director, Upstream, Adokiye Tombomieye; and Managing Director, NNPC Trading, Lawal Sade.

The Group General Manager, National Petroleum Investment Management Services (NAPIMS), Mr. Bala Wunti, also accompanied the NNPC helmsman to the event.

The funding arrangement, according to a statement yesterday, would be the first major deal by the national oil company since the enactment of the Petroleum Industry Act (PIA) and the incorporation of NNPC as a limited liability company under the Companies and Allied Matters Act (CAMA).

Under the contract, Afreximbank agreed to enter into a finance advisory and fundraising role to raise $5 billion to, “acquire, invest and operate energy producing assets in Nigeria as part of NNPC’s growth strategy following its incorporation as a limited liability company.”

Furthermore, the bank committed to underwrite $1 billion as part of forward sales based trade finance transaction.

The finance commitment would enable NNPC fund some of its major investments in the country’s upstream oil and gas sector.

Kyari said recently that NNPC’s operational leaning would henceforth be business-like, with a profit motive, since it was now a CAMA entity. He said under the new arrangement, the company would raise between $3.5 billion and $5 billion in corporate finance to fund major upstream investments under its funding strategy for selected upstream investments.

To achieve this objective, Kyari said NNPC planned to acquire pre-emptive rights in select Joint Venture (JV) operations in the industry as well as take over the ownership of some non-investing partnerships.

The NNPC strategy, Kyari said, also included investing in strategic assets to address integrity, bottlenecking, and growth issues in the oil industry, such as “rigless” activities and oil drilling campaigns. He said the company preferred to find lenders who could provide this funding in a ratio based on each lender’s capacity to help finance part of NNPC’s key investments, including acquisition of equity interests in quality upstream oil and gas producing assets.

According to him, this remains an integral part of NNPC’s corporate strategy to rebalance its oil and gas portfolio, by divesting from some toxic assets, to enable it acquire choice strategic assets that would help support its long-term strategic objectives.

Under the agreement signed by both parties, the repayment of the finance would be through a Forward Sale Arrangement (FSA), which would allow the funds provided to constitute the payment purchase of 90 to 120,000 barrels per day of crude oil to be delivered to the lender over a period.

The repayment of the fund is projected to be made within a four-year to eight-year period, with an objective to ensure major fiscal obligations and operating expenses were discharged appropriately.

If consummated, the move is a milestone achievement in the company’s bid to scale up investments in the oil and gas industry following the commencement of the implementation of the new law.

President Muhammadu Buhari signed the PIA into law on August 16, 2021.

Following the assent of the president, NNPC was incorporated by the Corporate Affairs Commission (CAC) on September 22, 2021 after it received application for its registration from the federal government.

The PIA has also raised stakeholders’ expectations on the company, even as it has given it a wide room to stimulate investments in the oil and gas industry.

The company’s preference is to source lenders that can provide the funding in a ratio based on the capacity of each of the lenders.

The meeting between the NNPC and Afreximbank teams also agreed to intensify efforts to deepen investment in Nigeria’s oil sector. NNPC and Afreximbank also explored the idea of establishing a pan-African Energy Transition Bank and agreed to collaborate towards achieving the objective.

The African bank has become important as international oil majors, including Shell Plc, are trying to find buyers for their remaining onshore and shallow water licences in Nigeria, Africa’s largest crude producer.

Nigeria has been struggling to keep up with the production quota allocated to it by the Organisation of Petroleum Exporting Countries (OPEC), but has not been able to pump more oil due to ageing upstream infrastructure, oil theft, and outright vandalism.

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