Upstream debt financing

The upstream debt financing market in Nigeria has seen significant changes in recent years, with renewed appetite from lenders looking to provide financing to oil producers despite the challenges faced in the industry. Laolu Kassim, Vice President of Energy, Infrastructure, and Finance at Stanbic IBTC Capital, shared insights on the key trends and considerations shaping the sector. Looking back at the events that have impacted upstream debt financing in Nigeria, Kassim highlighted the importance of multiple evacuation routes for assets, particularly in light of past disruptions such as the Focados terminal attacks. These events have underscored the need for diversified transportation options to mitigate risks and ensure operational continuity. Additionally, Kassim noted a shift towards supporting indigenous players in addition to International Oil Companies (IOCs) in the financing landscape. He emphasized the importance of price hedging in the current volatile oil price environment, noting that while commodity hedging remains relevant, it comes at a cost. The balance between hedging costs and benefits is crucial for sponsors and lenders alike as they navigate market uncertainties. Amidst the focus on debt financing for expansion, Kassim pointed to the potential for increased oil production in Nigeria, with expectations of transactions aimed at driving incremental production from existing fields. The recent cash call agreement between IOCs and the federal government further supports this growth trajectory, with anticipated transactions in the coming year to boost production levels. Looking ahead, Kassim expressed optimism about the prospects for increased production activity in 2022, buoyed by a more stable oil price environment and a sense of improving market conditions. The recent stability in the Niger Delta region has provided a conducive environment for production growth, contingent upon securing necessary funding. Lenders are keen to support bankable projects, emphasizing the importance of strong sponsor capabilities and management track records. Regulatory drive towards achieving production targets further reinforces the potential for growth in the sector, with a focus on reaching production levels of around 3 million barrels per day by 2019. Overall, the outlook for upstream debt financing in Nigeria reflects a cautious optimism, with stakeholders poised to seize opportunities for expansion and bolstering production capacity in the evolving energy landscape.