NSE Forum: Stakeholders Urge Oil and Gas Companies To Leverage Capital Market

Oil & Gas
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Tuesday, October 27, 2020 / 2:00PM / Nifemi Taiyese for Proshare WebTV / Header Image Credit: NSE


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Stakeholders have called on Oil and Gas Companies in Nigeria, to leverage the capital market and explore innovativeness and adaptability to navigate the challenging times in the industry.

 

This was part of the key takeaways from the recent Nigeria Stock Exchange 2020 Oil and Gas Webinar which discussed "Perspectives of Operators and Industry Experts Post COVID-19".

 

Mr. Oscar Onyema the CEO of the NSE in his opening remarks stressed that there are immense opportunities with a deep pool of capital inherent in the Nigerian Capital market, that the Oil and Gas sector could take advantage of.

 

Speaking further, Onyema said he had no doubt that the Exchange was well-positioned to attract the rightsized international and domestic capital required to drive the country's much-needed economic reforms and growth.

 

The NSE CEO commended the Federal Government for the efforts made towards energy diversification and the recent policy reforms within the sector.

 

This covered the following;

  • The N250 billion intervention facility by the Central Bank of Nigeria for the
  • National Gas Expansion Program targeted at increasing domestic utilization of
  • Compressed Natural Gas (CNG) and Liquified Petroleum Gas (LPG).
  • The push towards local energy sufficiency with the construction of modular refineries in different parts of the country through private-public partnerships.

 

Onyema said the Exchange was aware of the shifts within the Oil and Gas sector and emphasized the global demand for green energy and green finance highlighting that the market for green bonds is one of the fastest-growing in the world with an increase of 51% observed in 2018 to $257bn globally issued green bonds in 2019.

 

He was of the opinion that the Exchange could provide a platform to access a global pool of capital to aid asset acquisition, business expansion, debt refinancing, and other objectives of government and corporates. In recent years, issuers operating in the Oil and Gas sector have raised over N400bn across several asset classes on the Exchange.

 

Delivering the keynote address Mr.Timipre Sylva, Minister of State for Petroleum Resources,  said it is no longer news that the energy industry is currently faced with critical challenges to eliminate carbon emissions in the global space, achieve cost efficiency operationally, grapple with competitiveness in a market environment and overcome the effect of the COVID-19 scourge.

 

He noted that the energy industry has been historically renowned for its resilience and ability to navigate through tough times like the Great Depression of the 1930s. The Minister identified the following developments as important:

  • Crude Oil production and price wars between Saudi Arabia and Russia
  • Trade war between China and the United States of America
  • Supply gluts which weakened global crude oil demand
  • Global transition from fossil fuels to renewable energy following new discoveries

 

Sylva said the COVID-19 changed the dynamics of the global energy situation and as a result brought about multi-pronged assaults on the Nigerian economy accumulating in loss of revenue, deferred investments, and the slowdown of growth and development.

 

He called for innovative adaptability in the industry as it has now become inevitable for the survival of industry players in these unusual times as the global relevance of crude oil increasingly diminishes.

 

To achieve innovation the Minister spoke on the need for the fiscal regime to be urgently tweaked under a peaceful socio-political environment.

 

To key into the vision of quick recovery and economic sustenance, he highlighted the following points in the quest for the desired recovery:

  1. Cost reduction to enable adequate return on investments
  2. Accelerated passage of the Petroleum Industry Bill to unleash stable investments
  3. Support for the full deregulation of the petroleum downstream sector to guarantee industry stability and sustenance
  4. Encourage in-country refining capacities through private investment
  5. The Nigerian Gas Expansion Program which has been designed to stimulate the promotion of gas as an alternative fuel for auto and domestic use will save the nation from over-dependence on white products and also de-forestation while creating jobs that will take millions of Nigeria out of poverty.

 

The facilitator of the virtual event Rolake Akinkugbe-Filani, an industry expert, commended the Nigeria Stock Exchange for leading the charge to ensure that the Oil and Gas sector remains at the forefront of financial and capital market conversations in Nigeria.

 

"The global industry is not a stranger to volatility she said, geo-political instability, price wars between countries, other aspects of risks including COVID-19 which at its height wiped away nearly 30% of world energy demand," she said.

 

 Akinkugbe-Filani said in Q1, 2020 there was free-falling of crude oil prices, stranded crude cargos of some of the most sought-after crude grades, negative prices for crude futures, and a global economic shutdown.

 

 She however stated that Nigeria as a country has always been known for its resilience and its Oil and Gas sector still thrives albeit cautiously.

 

The facilitator emphasized that there have been a variety of responses from industry operators and policymakers with diverse non-performing assets.

 

She also mentioned the attempt by operators to deleverage and focus on shareholder returns and explore innovative financing structures.

 

Prior to COVID-19, the Oil and Gas underperformance on global capital markets was already a major challenge, and Akinkugbe-Filani attributed it to low returns on invested capital which made investors focus on emerging dynamics that could alter the industry structure such as:

  • A focus on environmental and governance issues
  • The focus on decarbonization

 

She alluded to the fact that capital markets have been seen as providing an avenue to access long term liquidity and financing, stating that the series of pandemic related sell-offs did not just happen globally but regionally and locally which will enable all speakers/stakeholders at the webinar provide ideas on how to re-strategize and ensure that institutions like the NSE and local capital markets play a central role in re-igniting investor appetite, helping operators build sustainable business models, accessing the capital they need to ensure the sectors continued contribution to sustainable economic development and a secure future for the young people and society at large.

 

The webinar witnessed diverse perspectives from both the public and private sector, and the inclusion of business views from the upstream, downstream oil services space and from policymakers, financial advisers, and regulators.

Representing the Guest speaker GMD, NNPC Mele Kolo Kyari, DGM for Finance NNPC Rose N. Eshiett giving a background said over the last eight months, global crude oil prices have seen one of the sharpest drops in history (69%+) from a peak of $60.94/bbl in December 2019 to $18.84/bbl in April 2020.

 

According to her, the global economy is projected to contract by 3% in 2020 and the impact of the twin shocks is intense in Nigeria as the N2.64 trillion oil revenue target declined by about 40%. Eshiett outlined the following as the challenges posed by COVID-19: Drop-in Oil and Gas prices, depressed revenue, an oversupply of crude oil, inventory problems, and a prolonged recovery period. Addressing the emerging opportunities in the Oil and Gas industry, the DGM, Finance NNPC opined that the passage of the Petroleum Industry Bill will remove uncertainties and create investment opportunities in the sector. Also, she said to reposition the sector for sustainability post COVID that there must be collaboration across different dimensions; government, industry players, and particularly with the host community.

 

She encouraged stakeholders to prepare for recovery despite the slowdown as she believes that opportunities abound in the Oil and Gas sector. The webinar featured several panel sessions, the 1st-panel session featured the topic "Impact of COVID-19 and Oil Volatility on Operations, Key Challenges & Forward Strategies for the Industry, Funding Dynamics and Capital Raise - Upstream", It had as panelists Mr. Olivier Mussat CIO, Global Energy, IFC; Mr. Emeka Onwuka, Seplat; Dr. Layi Fatona, CEO, NDEP; Mr. Chuka Eseka CEO, Vetiva Group; Mr. Olumide Ogunfowora Co-Founder/MD, Argentil Capital Partners. 

 

The 2nd-panel session covered “Deregulation and Industry outlook, Challenges, Opportunities, and funding dynamics and capital raise for long term growth - Downstream.


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