Nigeria’s offshore: the new frontier for indigenous companies

Nigeria

H.R.M. Eberechukwu Oji, managing director of Nestar Energies, talks to The Energy Year about Nigeria’s E&P landscape, the federal government’s policies to promote upstream activities and the reasons for the founding of the company. Nestar Energies is an African independent, integrated upstream, midstream, downstream and new energies business.

How would you assess the current domestic E&P landscape?
The upstream sector is in a thriving moment, as shown by several transactions that have happened lately that are allowing Nigerian E&P companies to take ownership of the assets that were previously held by IOCs.
These include Chappal Energies acquiring Equinor’s assets and 10% interest from TotalEnergies’ share in the SPDC [Shell Petroleum Development Corporation] joint venture, Oando’s acquisition of NAOC’s [Nigerian Agip Oil Company] assets, Seplat Energy’s deal with MPNU [Mobil Producing Nigeria Unlimited] and the still ongoing Shell-Renaissance consortium transaction, which the government is working to resolve soon.
Consequently, we expect a ramp up of activities in exploration and production, from seismic, to asset integrity, to well interventions and drilling activities, which will lead to additional investments that are needed to drive crude output higher and take those assets to the next level, in line with the FG’s [federal government] plans and ambitions.
Moreover, the 2024 bidding round launched by NUPRC [Nigerian Upstream Petroleum Regulatory Commission] in May, which is actually combined with the previous one in 2022-2023, represents another great opportunity, as many assets will be handled by indigenous companies.
If the government sticks to what it put forward in the guidelines and really delivers companies these assets, what we expect is that most operators will be able to bring them into production. We are looking at 30 potential new assets that could be put on the map.
Having said that, I believe that, to hit the 2.5-million-bopd target the FG has set, a lot more has to happen, particularly with IOCs and the development of offshore projects. I am talking about Bonga North and Bonga Southwest from Shell, Bosi from ExxonMobil, Zabazaba in OML 245 from ENI.
While the development of onshore assets will make up for the natural decline in some fields, the bulk of production is expected to come from offshore. The main aim now for the FG is to reinvigorate all these projects since most of them are mature and just waiting for financing.

How would you evaluate the federal government’s efforts to trigger more upstream activities in a competitive and sustainable way?
The executive orders of President Tinubu are a welcome step forward, but as I have said to officials, it is not enough to respond to what is happening today; you need to anticipate the future reality. By the time the orders are implemented, the market will have moved further ahead.
There are exciting prospects in oil and gas, from Guyana to Namibia, and it is crucial to look at who is going to attract investments in E&P worldwide, as well as how they are going to do it. Then, you need to position yourself so the market and investors see Nigeria as a preferred destination, without merely copying other countries’ approach. We need to bring something new to the table, something special, in order to trigger and incentivise more business in the country.
The bottom line here is that we should try to be more proactive rather than reactive. We should try to anticipate where the market is going and promote fiscal terms accordingly so that we are better positioned to attract investments. However, although I think it will still take some time, the moment is definitely favourable, and I am optimistic about more investment coming into the country.

How is Nestar Energies planning to position itself given this positive momentum in the oil and gas sector, and what were the key drivers behind the company’s founding?
I founded Nestar Energy due to a very specific opportunity and to fill a gap. If you look at the majority of the Nigerian companies, they are mostly focused onshore, where there is really nothing new to do. The main challenge that is increasingly evident is to have credible local operators working in the shallow and deep offshore space. So far, there is only one company, First E&P, which is doing great things, as they are already operating one FPSO and have another one coming.
I believe the offshore is the new frontier for indigenous companies, and we envision Nestar Energies being a key player within this segment in the years to come. Despite being a new company, Nestar can count on people with more than 30 years of experience in the industry who have worked with a global network of partners. We strongly believe that we can really make a difference from technical, economic and operational points of view to develop the prospects for some of these projects.
We are building up the company not just with Nigeria but also with Africa in mind. We will explore opportunities in all these markets and talk with all players that are looking to increase their capabilities, as they often lack experience, which can prevent them from accessing the financing that will allow their projects to move ahead.
We are working to partner in some of these undertakings. In some cases, we take equity; in others, we bring technical expertise via technical service agreements that help the project developers structure and finance their project to ultimately get them off the ground. For example, we have projects in Ghana, Senegal and Mozambique and some good prospects in South Africa as well. All these are either in shallow water or deep offshore.

What do you identify as the key elements for becoming a successful upstream operator, as well as the main barriers?
The first element to address when doing a big project is corporate governance. If you do not have the right corporate governance, you are not going to attract a lot of money. In the conversations I have had throughout more than 30 years speaking with leading financiers, the answer to the question “What would it take for you to put money in Nigeria’s deep offshore projects?” was clear: corporate governance.
The second key element is to have a robust ESG footprint and capacity in the sense that you need to structure a company so that it meets parameters regarding bankability, social impact, environmental consciousness and responsibility. Nowadays, these are crucial aspects for making projects take off and represent core elements of ours.
Regarding the barriers in the upstream, I can tell you that market entry requires experience and most importantly trust. The question is, do the governments in certain emerging or newly consolidated countries trust the project promoter?
You have project promoters who have political connections, and that helps in being awarded with assets, but then they go to the international market to raise funds, and they fail due diligence from day one, undermining the viability of a potentially good project. So, in short, credibility is paramount and needs to be well managed.

What solutions does Nestar Energies bring to the table?
In June 2024, we attained a licence and started the Africa Energy Fund to tackle what I spoke about above regarding credibility.
The Fund is a high-level intermediation platform and is already up and running and registered in the British Virgin Islands. It has been conceived of as a bridge between the investors, international bodies, governments and private players and is built to work in partnership with major funding institutions to ensure due diligence and make sure that everything is in the right place before funds come into a project.
The way to think about the Africa Energy Fund is as an institution that lends its credibility – which is built upon contacts and the track record I have been piling up over more than 30 years – to project promoters to help their projects see the light of day since no one is going to give them money the way they are currently structured.
You can have the most viable and potentially high-performing asset, but if you do not know how to structure the project to make it operational, particularly from a financial perspective, it is all in vain.
We know how to operate, how to remove all the main challenges that, from a corporate governance point of view, will not allow a project to fly and how to financially structure deals. The African Energy Fund will receive the money and then finance the projects within a disciplined and credible structure, with people from the private sector helping to navigate the setbacks and potential barriers that might lead to one not receiving these funds.
Nigeria is already a mature market, and usually people find ways to access funds, but the African Energy Fund has been conceived of mostly for still immature markets where the need is the greatest. We are going to create a very strong synergy with the Africa Energy Bank, for which Nigeria won the hosting right for the establishment of its HQ in July 2024.

Could you explain how the African Energy Fund can deliver value to companies operating in the oil and gas value chain and guide us through Nestar Energies expected journey in the coming years?
If you look at the blocks that NUPRC has launched for bidding, IOCs will not be bidding for them. This is not because they are not interested but because they already hold blocks in Nigeria that they have not developed. Indigenous companies will bid for these blocks, and the awardees will be going to the market to look for large investments to start developing them.
Now, I have been in the industry for a long time, and I can assure you that there is no chance that new companies, even those with operational capabilities, will get the hundreds of millions of dollars needed to make a project take off. So, the risk, for both the awardees and the country itself is that those assets remain undeveloped or underdeveloped because companies do not have the financial means.
This is the space where both Nestar Energies and the Africa Energy Fund come into the picture. We bring the credibility, the trust and the access to the people to make these projects work. Then, we are working to build a number of frameworks that can meet the needs of projects and their developers.
Some of the investors we will bring will be interested in partial equity. Others will come with a debt structure, in which case the blocks, upon being brought into production to recover the initial investment, will then be transferred to the asset owner, but the aim is always the same, and that is to make the assets produce profitably.
More practically, as we speak, Nestar Energies is building a top-tier network of partners for running deep and shallow offshore seismic and subsurface studies. Our aim in the short term is to build a network of partners, assure them that we have everything under very tight control and do a demo project so that everybody sees that it is not only talk.
We are confident that, before the end of the decade, Nestar will be the foremost developer of oil and gas undertakings in Nigeria, and the company’s imprint on multiple shallow and deep offshore projects will be coming to life in West Africa and across the continent.

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