…Preparation key to fund raising
…Gas potentials not yet harnessed
…Fossil fuel will last up to 50 years
…IPPs not proximate to gas
-By Victoria Opeyemi
AMNI International Petroleum Development Company Limited is one of the successful indigenous exploration and production company in Nigeria with a track record in the energy industry. The company is building asset in Nigeria’s exploration space.
AMNI has passed through some journeys of being a small producer of less than 2000 barrels per day (bpd) to producing 20000 bpd. In 2018, it raised almost $300 million.
The Chief Financial Officer (CFO) of AMNI, Mr. Uzoma Nwankwo explained in a panel session at the Energy Sustainability Conference on financing the energy sector that it has been a challenge trying to raise money because expectation of management and shareholders are high. He said, “People think you can just go out there and get the money because you got some resources that you think should be able to support what you are borrowing.” It is not always easy; it takes time with negotiations and thorough preparations.
The financial expert noted that a company may not have a second chance to give first impression, therefore, when a company seeks for loan, it has to put in details its statutory papers, ownership structures and other necessary documents must be sound devoid of infraction. “When you are talking to investors, they want to know your shareholders? Who are your principal shareholders? How will the company be known? Is the company making money? Are its policies exposed? Unfortunately, loan seekers don’t think about all these, he bemoaned.”
According to him, most international banks take the aforementioned points seriously before consideration of loan. Preparation is utmost in order to manage expectations of shareholders. Private equity is good and expensive but it can also be destructive. It is available and if a company has viable project, it can get it, but it is an expensive proposal.
The AMNI CFO stated further that one major issue in exploration is that it is difficult to get money and when a company is at development base, it takes time to get fund. In most cases, it might be up to 18 months to get loan from development banks. “If they don’t see the barrels coming out it is difficult for them to give money. They rather advise that a developing asset should be merged with an already producing one before money could be given.” A company that does not have this advantage has to struggle for survival. It is difficult for development project to be financed in the oil industry; it will also be charged like an equity.
He disclosed that AMNI was able to get over some of these strenuous issues because the banks were convinced that the exploration company has the potentials.
Completion guarantee is another challenge which banks demand in order to de-risk a project. “It is always difficult for you when you are doing development, we have been able to get some money to develop our next field after almost 18 to 24 months.” There has to be persistence to get support from banks for development.
Uzoma revealed that AMNI tried vendor financing, where vendors bring well heads platform and recover their money at the level of production. This is another method of finance.
Unfortunately, Uzoma pointed out that some assets had been for over ten years because of ownership tussle. Owners are willing to have 90% control of assets and they remain undeveloped. These undeveloped assets might be taken over by federal government since “owners have a complete different notion of their assets, some of them think that they will become millionaires.” Dimensioning of risk is significant to mitigate it. There should be mitigation plans because risk could be dimensioned, “for AMNI, it’s been a journey.” At present, it is a success story.
In terms of gas, it is believed that Nigeria has it in abundance. But how many of these Nigerian gasses have been developed? Gas commercialization is probably the most difficulty being experienced. It is an infrastructural development that can be acquired in a long term. For gas flaring, it is difficult to aggregate and collect gas, companies are not willing to flare gas but the capital cost is heavy.
Uzoma believed that funding energy either conventional or non-conventional renewables requires money. Starting point for renewables is quite expensive including maintenance cost.
He explained that investors borrowed money from banks to purchase Distribution Companies in Nigeria (DisCos) and they are indebted while some of the DisCos are insolvent. This has made banks to be scared, the experience they had with the energy sector is not making them to fund other sectors hence they withdrew from funding alternative power.
Indeed, it is a challenge for energy sector, the only way out is persistency, diligence with hard work.
THE FUTURE OF ENERGY SECTOR
Surprisingly, Uzoma asserted that to solve an equation, it begins from the known to the unknown, “fossil fuel is not going anywhere, it is going to be here for some time,” be it diesel to power trucks, petrol cars will migrate to Africa.
Although fossil fuel will gradually lose its relevance but it is exhaustible and not like renewable energy. There will be no reduction in availability of fossil fuel because Nigeria has it in abundance. If the country can provide energy using gas it will be the most accessible way to power.
Gas has not been exploited to the point where it could deliver power to the country up to 180,000 Megawatts (MW) given the Nigerian population but 25,000 MW is what the federal government is projecting. This means there is a lot of gaps and whether renewables are enough to fill this gap or overtake it, it is not yet known.
Uzoma stated further that speculations about renewables as alternative to fossil fuels, with local and international grants given out, “it is still a fact that fossil fuel is here to stay at least for the next 50 years or more.”
The power privatization has not succeeded due to issues bothering it. A power plant cannot be built without taking into consideration how they will be powered through gas. Many Independent Power Plants (IPPs) that were built, none of them has gas. The country does the right thing in the wrong way, Uzoma added.
To resolve some of these lingering issues in the energy sector, the government should get it acts together to do the right thing while people should hold them accountable in order to move the country forward.
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