Privatization: NNPC In Talks With JP Morgan, Standard Chartered, Deutsche Bank
Nigeria's state-owned National Petroleum Corporation (NNPC) has initiated talks with investment banks including Standard Chartered, JP Morgan, and Deutsche Bank to explore financing options as it changes into a fully privatized commercial company.
NNPC, which is hampered by a government funding shortfall of up to $6bn (£3.95bn) a year for its upstream operations with joint venture partners, is determined to "transform or liquidate," Mohammed Barkindo, Group Managing Director of NNPC, told bankers in London.
"There is no plan B. The government has taken the decision at the highest level for NNPC to reform and we are at an advanced stage in the legislative process," he said.
NNPC holds different joint ventures with international majors Royal Dutch Shell, ExxonMobil, Chevron, Agip, and Total covering onshore and offshore developments.
Onshore oil and gas fields account for around two thirds of Nigeria's production capacity, which stands at 3.6 million barrels a day, according to Mr. Barkindo.
Shell's oil facilities in the Niger Delta have suffered from a number of criminal and militant attacks, leading Peter Voser, chief executive officer, to declare that the country is no longer a key area for growth.
However, Ann Pickard, the outgoing regional executive vice-president of Shell Exploration and Production, Africa, said: "Take it from me, Shell has no plans to pull out of Nigeria."
Deepwater fields will drive the next phase of Nigeria's production and $45bn has been spent so far due to the high operating costs and technological developments.
The NNPC is "cash negative" and had "only been sustained by sovereign guarantees provided by the federal government", Mr. Barkindo said.
Bankers have suggested a suite of options, including project finance, bond issuance, pre-export finance, commodity-linked financing, the creation of a holding company to offer financial flexibility and also an initial public offering. They anticipate that demand for NNPC bonds will be high and it could issue $500m to $1bn.
Any IPO is unlikely to happen for the next five years, senior NNPC officials told The Sunday Telegraph.
"Our concern is to stabilize and to cut costs – so far we have saved 27bn naira (£120m) and we want to do a similar amount over the next five months," the source said. "This has been through better supply chain management and cutting on our losses through pipeline damage and theft."
Mr. Barkindo and his senior team have also met Goldman Sachs, law firm Latham and Watkins, and Nigerian banks UBA and First Bank to assess the state of the capital markets and how it will prepare to tap them once Nigeria's Petroleum Industry Bill (PIB), which underpins its transformation, has become law.
The PIB will allow the government to seize blocks from operators that remained unexplored – opening opportunities for NNPC's subsidiary, Nigerian Petroleum Development Company (NPDC).
Currently it produces 60,000 barrels a day and expects to increase this to 90,000 by the end of 2010 and to 250,000 by 2015. This would make it the fifth largest producer in Africa. Other increases in production could also come through NNPC exercising its pre-emptive rights in any sales by its foreign partners of assets.
Convincing the investment community to come on board is a major challenge as this is the third time that NNPC has embarked upon reform – earlier attempts were in the 1980s and 2000s.
In its current form, NNPC suffers from conflicting interests because it has operating, national assets management and regulatory roles. These would be spun out to different autonomous agencies under a new structure, Nigerian National Petroleum Co Ltd.