NNPC secures $5bn commitment from Afreximbank to fund Nigeria’s upstream sector

The Nigerian National Petroleum Company (NNPC) Limited has secured a $5 billion funding commitment from the African Export-Import Bank (Afreximbank) to fund major investments in Nigeria’s upstream sector. 

In a statement obtained by TheCable, the deal was an offshoot of the meeting between Benedict Oramah, chairman of the board of directors and president of the African Export-Import Bank (Afreximbank) and the NNPC team led by Mele Kyari, group managing director, in Cairo, Egypt, on Wednesday.

In November 2021, Afreximbank had signed a $1.04 billion deal with the NNPC limited at the Intra-African Trade Fair (IATF) in Durban, South Africa.

It said this move marks a major achievement in the corporation’s quest to scale up investments in the oil and gas industry following the commencement of the implementation of the Petroleum Industry Act.

The Petroleum Industry Bill, on August 16th, 2021, was signed into law by President Muhammadu Buhari. 

Following the assent, NNPC was incorporated by the corporate affairs commission (CAC) after an application for its registration from the federal government.

The new legislation provides room for business opportunities that would enable the NNPC to earn more revenue and attract foreign direct investment into the Nigerian energy sector. 

The PIA also raised stakeholders expectations of the company, even as it provided opportunities to bolster investments in the oil and gas industry.

The meeting facilitated an agreement between the NNPC and Afreximbank to intensify efforts at deepening investment in Nigeria’s oil sector and collaboration between the parties.

The bank agreed to enter into a financial advisory and fundraising role to raise $5 billion towards the “acquire, invest and operate energy-producing assets in Nigeria as part of NNPC’s growth strategy following its incorporation as a limited liability company.”

As part of the landmark transaction, Afreximbank would also underwrite $1 billion as part of the forward sales base trade finance transaction.

The NNPC and Afreximbank also explored the innovative idea of establishing a pan-African Energy Transition Bank and agreed to join forces to achieve this objective. 

Kyari was accompanied by Umar Ajiya, the chief financial officer, NNPC; Adokiye Tombomieye, group executive director, upstream; Bala Wunti, the group general manager, NAPIMS; Lawal Sade, the managing director, NNPC trading, among others.

Under the NNPC funding strategy, it would be raising between $3.5 billion and $5 billion as corporate finance to fund major upstream investments.

To achieve this objective, the NNPC plans to take over ownership from non-investing partners through the acquisition of pre-emption rights in the sample Joint Venture. 

The NNPC would prioritise sourcing lenders that can provide this funding in a ratio based on the capacity of each of the lenders.

The NNPC would also strategically invest in assets to address integrity, bottlenecking and growth issues, including rig-less activities and drilling campaigns in the oil industry.

The acquisition is an integral part of the NNPC’s corporate strategy to rebalance its portfolio, shedding off some of its toxic assets to acquire choice strategic assets that will help support its long term strategic objectives.

The repayment of the funding would be done through a forward sale arrangement (FSA) whereby the funds provided will constitute the payment purchase of 30-60kpd of crude to be delivered to the lender over a period.

The repayment of the fund is projected to be made within a four to eight-year period to ensure fiscal obligations and operating expenses are discharged appropriately.