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Why Nigeria’s Oil Company Is Considering An IPO

Africa’s oil and gas industry is facing a financial onslaught as a result of a combination of COVID-19,  activist shareholders and the so-called Greening of IOCs such as Shell, Total and BP. While the oil majors all seem to be preparing for an energy transition and peak oil demand, African countries are betting on a hydrocarbon future. As Shell, BP, and Total make headlines with their diversification away from oil, the largest Sub-Saharan oil and gas producer Nigeria is taking the opposite route. In a long-awaited revision of the Nigerian oil and gas sector, which has been rife with corruption, fraud, and mismanagement by former governments, a bill proposing a possible IPO of the national oil company Nigerian National Petroleum Corporation (NNPC) is now being discussed by parliament. In the new proposal, NNPC will be changed into a limited liability company, fully operating on a commercial basis. NNPC Ltd is to be managed by the Nigerian Ministry of Finance.  The biggest impact of this policy if passed is that there will no longer be government funding of NNPC operations. In the case of an IPO, NNPC shares will be offered at market value in an open, transparent, and competitive bidding process. To support a possible share-sale the bill states that an annual audit must be performed by an independent auditor. 

The current solution comes after 20 years of political infighting regarding the role and future of the NNPC. The main reasons for this aggressive change of stance seem to be the success of the Aramco IPO, the potential to bring in $200 billion, and the potential to value the NOC at $2 trillion. Another key reason is the increased international pressure on hydrocarbon financing around the world. To counter this pressure, African NOCs such as NNPC are now looking at restructuring their operations and opening up their books. NNPC’s potential IPO will not attract the same level of investors as Aramco, but African private investors and possibly other NOCs and their Sovereign Wealth Funds (SWF) will have their eyes on the Nigerian development. There are already indications that Arab, Russian, and Chinese investment funds are considering the investment. While Nigeria’s oil and gas sector has a rather dubious reputation, the country’s on and offshore reserves are vast and produce the right crude qualities. At the same time, NNPC’s reserves and projects are seen as an access point for investors looking to other emerging markets in Africa. The NNPC will also be of interest to local investors or operators such as Oando. The divestment and retraction of Shell, Total, and others from Sub-Sahara, especially from Nigerian offshore, has opened up new opportunities for incumbents or new investors, such as Aramco and ADNOC. 

Related: Natural Gas Prices Explode On Stronger Demand

In 2018, NNPC’s National Petroleum Investment Management Services division, the company’s biggest income generator, reported revenue of 5.04 trillion nairas ($13 billion), and a profit of 1.01 trillion nairas. These figures were published in June, for the first time in 43 years. At the same time, Nigerian President Buhari’s government has embarked on a more market-focused energy strategy. At present, Nigeria’s government budgets are deep in the red, with the country facing its worst economic contraction in a decade. Underlying economics have pushed the Buhari government to remove subsidies and consider restructuring entire sectors.  

Despite the move towards privatization, there are still some critics who believe the new plan does not go far enough. An earlier attempt at privatization back in 2012 aimed to do something similar but even more ambitious. At that time, full privatization was proposed with a fixed target date for the IPO and a set price range. This policy still needs to be fully approved by Nigeria’s government and parliament before a listing on the Nigerian Stock Exchange can take place. 

If Nigeria manages to reap the much-needed financial attention it desires from this move, we can expect to see more National Oil Companies to follow suit. The current financial crisis and the lack of access to financial markets mean that privatization and an opening up of new financial opportunities is a must for these companies. Nigeria, Angola, and other African oil and gas producers all need to monetize their own resources. These are assets that these nations and companies cannot afford to be stranded. 

By Cyril Widdershoven for Oilprice.com

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