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How Indigenous Oil, Gas Companies Can Access Funding For Projects

How Indigenous Oil, Gas Companies Can Access Funding For Projects

The inability of indigenous oil and gas companies to access cheap funds to execute oil and gas contracts has been a source of concern to operators in the industry, especially the International Oil Companies (IOCs), who have several projects to execute.

Beyond the challenge of capacity, access to funds by indigenous companies has been an issue which has dominated discourse at most local and international conferences.

The development has led to many stranded projects while some others have been revoked due to lack of access to finance, thereby limiting the growth of local companies.

In was in the light of this unfortunate trend, that the Nigerian Content Development and Monitoring Board (NCDMB) in 2010 set up the Nigerian Content Intervention Fund(NCIF) to address the persistent shortfall in financing for local operators.

The intervention of NCDMB has equally received the support of some IOCs who have equally floated contractor finance fund to bridge funding gap.

Recently, Shell Petroleum Development Corporation (SPDC) increased its contractor support fund with $200 million bringing the fund size to $2.4 billion.

Similarly, ExxonMobil has in place a contractor finance initiative aimed at boosting indigenous capacity in the oil and gas sector.

In February 2014, Exx-onMobil Nigeria and 12 local banks, including Zenith, First Bank, Guarantee Trust, Citi, UBA, and Union Bank, among others, sealed pact on a financing scheme that is aimed at giving con- tractors of the American oil major access to funds at “affordable” rates.

At the launch of the programme tagged Exxon- Mobil Contractor Finance Scheme in Lagos, the then Chairman/Managing Di- rector, ExxonMobil Up- stream affiliates in Nigeria, Mr. Mark Ward, said the ExxonMobil Nigeria Con- tractor Finance Scheme (EMNCFS) is an initiative that seeks to support Nigeria’s national content aspirations by providing Exx-onMobil contractors better funding options to fulfil contracts awarded.

“Partnering with 12 leading Nigerian banks, it is our expectation that with the $8.6 billion avail- able under the scheme. ExxonMobil contractors nationwide would be able to access better and quick- er funding options to en- able them execute their contracts speedily. The co- operation of the banks has proved invaluable to the successful rollout of this scheme.”

According to him, the scheme was introduced in November 2013, adding that at least, 24 contractors have been able to access funds under the scheme. He said the company will continue to encourage more contractors to em- brace the programme.

“They are ensured easier access to competitive funding as well as reduced loan processing time which would enhance speedier completion of their con- tracts while building their capacity,” he added.

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But by 2017, three years after the launch, former Managing Director of Exx-onMobil Nigeria Unlimited, Mr Paul McGrath, had stated that indigenous con- tractors have accessed $113 million to support Nigerian contractors.

Shell, UBA sign $200m contractor support fund

Two weeks ago, Shell Petroleum Development Company of Nigeria Limited (SPDC) increased its contractor support fund with $200 million in an ef- fort to boost the financial strength of indigenous vendors and suppliers in the oil and gas industry

The latest financial intervention by SPDC brings the fund size to $2.4 bil- lion.

SPDC’s Director and General Manager, Government and Business Relations, Bashir Bello who signed the $200 million Memorandum of Under- standing (MoU) with the United Bank for Africa (UBA) in Abuja described the initiative as a product of the continuous effort by SPDC and its joint venture partners – NNPC, Total and Agip – to enhance Nigerian content and local participation in the nation’s oil and gas value chain.

The fund provides sup- port for contractors to finance projects executed for Shell companies in Nigeria in line with the aspirations of the Nigerian Content Act. To access the fund, the contractors must have a valid purchase order and meet the bank’s risk assessment criteria.

“Findings indicate that lack of access to capital hinders many Nigerian companies from competing for and executing contracts effectively” said Bello who signed the deal on behalf of SPDC. This funding will enable us to achieve our community content ambition of increasing participation of host communities in the SPDC value chain.”

The General Manager, Energy Bank of UBA, Ebele Ogbue, said the bank was committed to providing support to Nigerian companies through its partner- ship with SPDC JV.

Ogbue, who signed the MoU for UBA, commended the Nigeria and community content efforts of Shell companies in Nigeria, not- ing that UBA was ready to provide the needed financial backing that would em- power Nigerian companies to play more active role in the country’s energy sector and beyond.

The Shell Contractor Funding Scheme started in 2011 with the Shell Kobo

Fund, which gave rise to the Shell Contractor Sup- port Fund in 2012. The scheme has been rede- signed to address the cur- rent economic exigencies and to align it with stake- holder needs by merging the two initial initiatives.

In 2016, Shell signed a $2.2 billion MoU with seven Nigerian banks that have since then disbursed around $1.5 billion loans to about 372 small- and medium-sized Nigerian suppliers and vendors in the oil and gas industry.

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The NCDMB intervention

Before now, indigenous operators and oil servicing companies represented by the Petroleum Technology Association of Nigeria (PETAN) and the Independent Petroleum Producers Group (IPPG) often lamented the cumbersome nature and difficulty associated with accessing the NCI Fund.

The lack of funding sup- port for local operators was responsible for the paltry five percent Nigerian con- tent in the oil and gas industry prior to 2010. This abysmal contribution by indigenous oil companies to the national crude oil bas- ket had also paved way for the establishment of the Nigerian Content Development Fund (NCDF), which is now known as NCI Fund under the Nigerian Oil and Gas Industry Content Development (NOGICD) Act 2010.

NCI Fund is a Nigerian Content Development and Monitoring Board (NCD- MB) fund managed by Bank of Industry Limited (BOI).

The fund is designed to achieve the following strategic objectives; increase indigenous participation in the oil and gas industry, build local capacity and competencies, promote the growth and development of Nigerian Content in activities connected with sectors of the Nigerian oil and gas Industry.

Other objectives included, deepening the creation of linkages to other sectors of the national economy and boost industry contributions to the growth of Nigeria’s National Gross Domestic Product (GDP), address persistent funding challenges that have hindered capacity and growth of local service providers in oil and gas, facilitate the growth of community based companies in the up- stream oil and gas sector, spur productivity and job creation in the oil and gas Industry and attract investment capital into the sector to boost contribution of the sector to Nigeria’s economic growth.

The NCI Fund represents the sum of 1 per cent from every contract award- ed to any operator, contractor, subcontractor, alliance partner or any other entity involved in any project, operation, activity or transaction in the upstream sector. The money is to be deduct- ed at source by contract awarding entities and paid into designated accounts kept with custodial banks under the programme.

At a recent stakeholders’ forum convened in Lagos to address the major challenges applicants contend with in processing their loan applications, the two agencies agreed that BOl may henceforth consider the inclusion of Insurance Bonds as collateral for accessing the Fund, provided the bonds are issued by competent and major insurance companies certified by the bank.

Source: The Sun

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