Finding the Funds

AOP takes a look at the companies behind African oil and gas financing in 2017, and how funding for petroleum projects is adapting to the “lower for longer” climate.
Africa’s oil industry will require $1.6 trillion in cumulative infrastructure investment between 2013 and 2035, with a further $721 billion needed for gas infrastructure over the same period. The total upstream capital requirement is estimated at $92 billion a year, according to firm Taylor-DeJongh, despite a decline of 16.4 percent in overall oil and gas CAPEX spend between 2014 and 2015. While government- and development-sponsored financing, including export credit agencies and export-import banks, play an important role in sustaining the liquidity of the industry, regional and international banks as well as private equity firms remain significant players in a relatively capital constrained climate.

International Banks

Large scale international bank lending remains the backbone of oil and gas financing, with players such as HSBC and Standard Chartered doing the heavy lifting. However, commodity price volatility in recent years has ushered in a climate of caution, with careful hedging and collateralization undergirding most syndicated deals. Small- and medium-sized operators continue to rely on the role of specialist project finance and merger and acquisition advisory firms, such as Renaissance Capital, Taylor-DeJongh, and Tudor, Pickering, Holt & Co., as intermediaries to the capital markets. The move toward reserve-based lending has also created space in the market for Islamic finance in both debt and equity markets. At the national level, Kenya and South Africa are planning Sukuk issuances in 2017, similar to government bonds, while Senegal completed the launch of a $263-million round in June 2016.
Following a successful project financing round in London in September 2016, Eni’s multi-billion dollar outlay in the development of the Coral discovery located in the deep waters of Mozambique’s Rovuma Basin received approval from the board of directors in November, according to the oil company. The terms of loans have not been made public, but the Phase 1 investment is estimated at $8 billion, according to Offshore Technology, and banks are said to have sought credit guarantees from foreign governments including Britain and China.

Private equity

According to PwC’s annual Africa Oil and Gas Review, private and public equity were the joint second largest funding source for the African operations of oil and gas firms in 2014, with the value of private equity investment, across all industries, reaching $8.1 billion in 2014.
EY predicts oil and gas assets will be high on the list of targets for private equity in 2017, with 43 percent of the 100 active funds surveyed by EY expected to complete deals in the sector before mid-2017 and 15 percent of respondents actively looking to transact in Africa as big regional infrastructure developments, particularly on the continent’s eastern coastline, open up new opportunities. Firms such as Black Rhino, having committed $5 billion to African energy infrastructure projects from 2014 to 2019, and TPG, with its decision to invest up to $1 billion in Africa in a partnership with Sudanese private equity firm Satya Capital, are good examples of the profile and scale of current investment.
In May 2015, Helios Investment Partners, a firm particularly active in the African energy sector, announced it had acquired a 12.4 percent, $100-million stake in Africa Oil Corp. Later in 2015, Emerging Capital Partners announced a $35-million investment in Ocean & Oil Investments, a Nigerian holding company whose main asset is a 32 percent common equity stake in Oando. In September 2016, Oando Gas & Power courted Helios Investment Partners to divest 49 percent for $116 million. Other significant private equity players, such as KKR and Abraaj, offer more specialized funding, in oil and gas services and power infrastructure respectively.

Regional banks

South Africa’s major banks, such as Standard Bank and Nedbank, have extended their fiscal reach across the continent, with reserve-based lending, pre-export finance and development finance deals in Angola, Nigeria and the East African rift. The largest markets for local currency loan syndications are found in Kenya, Zambia, Nigeria, Ghana, Angola, and South Africa, according to Bloomberg, while Export-Import Banks, such as Afreximbank, are channeling the growth in demand for trade finance.
Nigeria’s banking sector has felt the impact of slowing growth and a less than buoyant hydrocarbons industry, which accounts for approximately 35 percent of the country’s GDP, according to OPEC. Five of Nigeria’s largest banks – First Bank, Diamond, FCMB, Ecobank and Skye —issued profit warnings between January and March 2016. Nearly $10 billion worth of exposure to asset purchases, made at the height of the oil price cycle (circa $100 a barrel), have precipitated restructuring rounds as a medium term measure, the Financial Times has reported. Bloomberg reports that an estimated loan-book exposure to oil and gas of 30 percent (and as high as 47 percent at First Bank) explains the difficulties faced by the industry.


With the “lower-for-longer” oil price environment creating opportunities for cash rich investors, financiers are finding a way to structure their oil and gas exposure for a balance of yield and security. Upstream oil and gas projects offer private investors value growth in the form of reserve increases, making them an attractive alternative to the more competitive buyout market, while energy demand from expanding local markets also helps to balance risk.

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