Finance and Nigeria’s upstream

Nigeria

Tolu Osinibi, managing director of FSDH Capital, talks to The Energy Year about financial challenges in the upstream sector and opportunities in Nigeria’s Decade of Gas. A member of the FSDH Group, FSDH Capital provides financial advisory, debt and equity capital markets, structured finance and syndication, and stockbroking services.

What are FSDH Capital’s activities?
We are part of a financial services holding company. We provide financial advisory, debt and equity capital markets, structured finance and syndication, and stockbroking services. Our upstream oil and gas activity is focused on advisory and capital raising. For example, FSDH is currently a financier to FIRST E&P. We are also currently arranging financing for a coastal terminal for LPG storage, as well as an LNG plant.

What role can financial firms such as FSDH Capital play in marginal field bid rounds?
FSDH Capital can assist with raising asset development financing for the fields. To a lesser extent, we can provide advisory services to support bid winners in finding strategic partners to fund the signature bonus. We can only start playing a significant role after companies have paid the signature bonus and are working on their field development plans.
As most of the first year following the bid win will be focused on pre-development work, debt financing shouldn’t be needed until early- to mid-2023. We have given indicative financial commitments to some bidders that we would like to fund. These are companies that meet our base criteria regarding governance, execution and management capabilities, and quality of assets.

From a financial perspective, what challenges do you see for the upstream sector?
We are not seeing anywhere near the amount of investment needed to maintain production and reserves, not to talk of growth. Another critical and growing challenge is the ongoing divestment by IOCs from land and shallow-water assets. While the indigenous operators mostly rely on external financing, the IOCs are typically able to allocate internal capital to fund development and production activities.
The global energy transition agenda that is pressuring both traditional lenders to scale back on financing fossil fuel production and companies to engage in portfolio divestment for certain high-emissions activities is already having adverse consequences for Nigeria’s upstream sector – the capital pool has shrunk significantly. Domestic financiers do not have the capacity to cover the funding gap. Consequently, alternative solutions and non-traditional financiers must be developed.

What opportunities do you see emerging in Nigeria’s Decade of Gas?
Conversations on gas projects are becoming more mainstream. The market is starting to invest, especially indigenous companies. We’re also seeing smaller to mid-sized projects in storage and processing for LNG and LPG, tapping gas that would have been flared. Regardless of the energy transition, the oil and gas sector will remain a key component of Nigeria’s story for the foreseeable future, and as a financier, one cannot ignore that space.
We believe this market will be exciting, especially once big indigenous companies begin to take on gas projects at a significant scale. That said, gas at scale requires a long-term commitment, which is a strategy that not everyone can sustain. It requires a long cycle of planning, preparing and building. Anyone undertaking it will need to be sure of what they are doing because it will be an all-consuming venture.
At FSDH Capital, we think a lot about our positioning and what difference we can bring. We are a mid-sized company with highly capable people. Our client relationship strategy is to always ask ourselves how to become important to our clients, going the extra mile to provide a uniquely valuable service. It takes dedication and effort, but once it is done, the result is invaluable.

Read our latest insights on:

• Nigeria