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2019: Oil firms heighten race for $5bn capex conversion

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2019: Oil firms heighten race for $5bn capex conversion

 ●Jittery over further naira crash

 

Indigenous oil firms in Nigeria have advanced race for conversion of over $5 billion capital spending from naira to dollars and other foreign currencies. The process, which began with the successful conversion of 60 per cent naira spending by $114 million London-listed Lekoil to dollars, investigation by New Telegraph showed at the weekend, became extensive by many others, who are now jittery over further ‘weakening’ of naira in election years. The local oil explorers have begun the adoption of capital spending budget conversion from naira to dollars as weak naira worsens effects on their over $5 billion loans and other assets. Lekoil, one of the companies, had earlier declared that it converted about 60 per cent of its annual capital spending budget from naira to dollars, compared with 100 per cent two years ago, as a cost cutting strategy.

A leading operator, who pleaded anonymity, maintained in a chat with this newspaper that there is a “mad rush” by local operators to adopt the Lekoil model. Stating that foreign oil business concerns in Nigeria have commissioned special researches on likely threats the elections could pose, he maintained that local oil companies “who have nowhere to go are also adopting the model of converting their capital spending to dollars in droves. “Everyone could now see that it is safer and safer to keep your assets in a currency that is largely consistent.

Keeping it in naira, which has been in free fall recently, is a mistake and many of us are in mad rush, if you allow me to use those words, to correct it,” he said. The London-listed Lekoil took the first bite when it revealed that it had converted about 60 per cent of its capital budget spending from naira to dollars, adding that its projects could make money even if oil prices fall to $25 a barrel.

The plan to bring production at Lekoil’s Otakikpo oil field to 10,000 barrels per day was being helped by the naira to dollar conversion of its annual budget. “Lekoil has converted around half of its investment budget into naira from US dollars, benefiting from the Nigerian currency’s weakness to fund an oil field expansion despite growing militant disruptions,” the document read. Other oil firms active in Nigeria, such as Canadian Overseas Petroleum (COPL), prefer using dollars, believing investment in Nigeria’s oil industry using foreign money will help the domestic economy. Nigeria’s central bank is keen to attract foreign currency, as its dollar reserves have fallen yearon- year.

“The topside risk is something that’s manageable because you know below ground the oil is there,” said Christopher McLean, COPL’s capital markets manager, referring to risks out of the company’s control.COPL, which also has operations using dollars in other countries such as a partnership with Exxon Mobil in Liberia, is awaiting approval from the Nigerian government to acquire a company holding an oil exploration block off Nigeria’s coast.

A large chunk of the about N5 trillion in loans granted to energy firms between 2013 and 2014, had also impaired and threw the banking sector into another round of crisis. Already, banks’ non-performing debt profile has risen to more than N546.02 billion as at March 2015 and likely to increase further following the slump in the international oil market.

Specifically, the Nigerian Deposit Insurance Corporation (NDIC) has decried the build-up of non-performing loans, saying that this increased from N286.09 billion in 2012 to N354.84 in 2014, and further to N546.02 billion as at March 2015. NDIC disclosed that its examination of banks in the country showed increased loan concentration in some sectors, such as power, oil and gas, and state governments, many of which owe workers’ salaries for many months.

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