The increasing level of Mergers and Acquisitions (M&A) in the Nigerian oil and gas sector has been described as an important driver for indigenous companies.
Renaissance Capital Limited (RenCap), in a report titled: “Nigerian M&A Market- Is it still hot down there?” forecasts strong opportunities for Nigerian oil and gas companies.
It described indigenisation as a long-term structural policy shift that has continued to favour local companies via extensive tax breaks and preferential access to new resources.
“Some general concern has been expressed in the market about the over-heated M&A market in Nigeria, which could crowd out some of the more conservative operators such as Seplat.
“However, we see Seplat as still very active as the company benefits from a strong balance sheet and technical track record,” it stated.
The report argued that M&A represents an important value driver for smaller producers such as Mart Resources, Lekoil and possibly Eland in the long term.
It added: “We see three types of potential opportunities for indigenous players to pursue: further divestments by international oil companies (IOCs), which are likely to continue in the medium term; farm-in opportunities, with several deals announced recently by Lekoil and Eland in particular.
“We think the government will be moving ahead with its marginal field licensing round scheduled for this year. A total of 31 fields have been included in the latest round, of which 16 are onshore fields. Moreover, we think it will be quite challenging to close the sale of four blocks that were sold by Shell this year and which we estimate would likely fetch about $5 billion in proceeds.”
Furthermore, it noted that since local banks appear to be busy with reserves-based lending to marginal field holders, the amount of capital that could be sourced from the banking system is only about half of the total deal value. It also estimated that about $2.5 billion would have to come from other sources, which may prove challenging and at the same time create potential opportunities for companies with excess liquidity, such as Seplat.
“Selling of Nigerian assets by IOCs may be seen as lack of confidence in the country’s oil sector especially on the back of widely discussed vandalism and oil bunkering.
“However, we see this process as mutually beneficial. IOCs are able to redeploy their capital in lower risk and potentially higher return areas, while indigenous players can create value from M&A via three main steps,” it explained.
It listed the steps to include more diligent work to restore production, which normally gets second priority in IOCs’ strategies where the focus is on giant fields; dealing with local communities and reducing the downtime of operations – local companies seem to be more successful in this area; and better fiscal terms.
“We view indigenisation as a long-term structural policy shift in many oil-producing nations, which favours local operators through extensive tax benefits and preferential access to resources,” it stated.
Renaissance Capital Limited (RenCap), in a report titled: “Nigerian M&A Market- Is it still hot down there?” forecasts strong opportunities for Nigerian oil and gas companies.
It described indigenisation as a long-term structural policy shift that has continued to favour local companies via extensive tax breaks and preferential access to new resources.
“Some general concern has been expressed in the market about the over-heated M&A market in Nigeria, which could crowd out some of the more conservative operators such as Seplat.
“However, we see Seplat as still very active as the company benefits from a strong balance sheet and technical track record,” it stated.
The report argued that M&A represents an important value driver for smaller producers such as Mart Resources, Lekoil and possibly Eland in the long term.
It added: “We see three types of potential opportunities for indigenous players to pursue: further divestments by international oil companies (IOCs), which are likely to continue in the medium term; farm-in opportunities, with several deals announced recently by Lekoil and Eland in particular.
“We think the government will be moving ahead with its marginal field licensing round scheduled for this year. A total of 31 fields have been included in the latest round, of which 16 are onshore fields. Moreover, we think it will be quite challenging to close the sale of four blocks that were sold by Shell this year and which we estimate would likely fetch about $5 billion in proceeds.”
Furthermore, it noted that since local banks appear to be busy with reserves-based lending to marginal field holders, the amount of capital that could be sourced from the banking system is only about half of the total deal value. It also estimated that about $2.5 billion would have to come from other sources, which may prove challenging and at the same time create potential opportunities for companies with excess liquidity, such as Seplat.
“Selling of Nigerian assets by IOCs may be seen as lack of confidence in the country’s oil sector especially on the back of widely discussed vandalism and oil bunkering.
“However, we see this process as mutually beneficial. IOCs are able to redeploy their capital in lower risk and potentially higher return areas, while indigenous players can create value from M&A via three main steps,” it explained.
It listed the steps to include more diligent work to restore production, which normally gets second priority in IOCs’ strategies where the focus is on giant fields; dealing with local communities and reducing the downtime of operations – local companies seem to be more successful in this area; and better fiscal terms.
“We view indigenisation as a long-term structural policy shift in many oil-producing nations, which favours local operators through extensive tax benefits and preferential access to resources,” it stated.
Culled from thisdaylive.com
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