Expect oil sector divestments to restart in 2017 – Ecobank

Analysts at Ecobank have said that while there were no major efforts to divest new assets in 2016, following the disruptions by militants in the Niger Delta, divestment efforts are likely to restart in 2017.

The bank energy research team stated this in the 2017 Middle Africa Insight Series on Energy released on January 16 and obtained by BusinessDay.

Three key reasons for this forecast according to the bank’s analysts is that some oil companies already have divestments plans, some fields are already due for license renewal and the government’s plan to hold a licensing round for new acreages in 2017.

“There were a number of assets that were already in the 2014/2015 divestment pipeline which was suspended following the sharp decline in oil prices, which continued into 2015,” the report states

It further said, “Secondly, there are a number of fields and blocks that are due for license renewals in 2018/2019, which are mostly onshore/shallow water blocks that are no longer attractive to the IOCs due to insecurity onshore and drop in reserves.

“More importantly, the government of Nigeria is looking to conduct a licensing round for new blocks and a roadshow to drive interest in the licensing round.”

Nigeria held series of road shows last year in China, India and Japan in to promote investments opportunities in the oil and gas sector and this year, Ibe Kachikwu minister of state for Petroleum Resources says it will be continued with visits to the United Kingdom, United States and Central America.

“We are going to be singing to attract investments and complete all the memorandum of Understandings MoUs, both the one in China, and that of India and we will towards a possible road show in the United Kingdom, as well as the United States,” Kachikwu said in a post on his twitter handle entitled the Nigerian Petroleum Sector 2017 Outlook.

Ecobank analysts say that while these fields and blocks may be available for divestments, the likelihood of many such transactions being concluded will hinge on the level of funding available from the banks or the ability of the acquirers to attract foreign funding from private equity or other financiers.

“In our opinion, the level of acquisition activity could also hinge on the successful conclusion of a deal with the Niger Delta militants. A truce with the militants in the Niger Delta could ease fears of disruption to operations, while the hopes of $50 or more oil prices could raise the viability of some acquisitions,” said the report.

Chuks Nwani, energy law and vice president Powerhouse International Limited said that divestment appears an attractive proposition based on their reality of fall in crude oil prices.

“Some of the people who acquired oil and gas assets have a projection of their revenue based on oil prices and some bided so high to acquire these blocks only for reality of oil price crash to set in and their banks are on their neck to pay back those loans.

Nwani said that instead of going into liquidation, some oil companies will be open to more divestments in 2017.