Indigenous oil firms seek CBN’s intervention over oil price plunge

Indigenous oil and gas companies have called for the intervention of the Central Bank of Nigeria (CBN) in view of the persistent fall in oil prices.

The companies while expressing concerns, said it may be difficult for them to meet their debt obligations to commercial banks at the current oil prices.

Speaking in Lagos, Mr Abiodun Adesanya, a former president of the Nigerian Association of Petroleum Explorationists (NAPE) disclosed that the collapse in global oil prices having been triggered by the Coronavirus pandemic, accounts for the current liquidity issues of the indigenous players, making the repayment of loan obligations which were secured before the current turmoil in the market near impossible.

Mr Adesanya stressed that the oil and gas industry will need to be rescued from this current situation by the direct intervention by the federal government through the Central Bank of Nigeria.

Given that this exposure represents approximately 25 percent of Nigerian banks’ overall bad loan portfolio, Mr Adesanya warned that without direct CBN intervention, this could lead to structural shocks within the Nigerian banking system affecting depositors’ money and restricting banks’ ability to support vital economic sectors as Nigeria prepares to emerge from the economic crisis.

He also added that if the developing scenario is not ameliorated through a policy measure which gives short-medium term respite until the Oil market rebounds, there will be significant job losses in the oil and gas industry, as the current shock may not be withstood by a number of indigenous players.

“If the current situation is unchecked, it threatens to wipe out this administration’s achievements and successive achievements in enforcing the Local Content Act that gave indigenous companies the opportunity to play significantly in the oil and gas sector,” Adesanya said.

Aside from the position of Adesanya, other experts that spoke on the same issue believe there has to be an agreement between the banks and the indigenous Oil companies which needs to be facilitated a policy pronouncement of the Central Bank of Nigeria, acting on behalf of the federal government on the way out of the quagmire given the fact that over a fourth of the total loan exposure of the Banking industry is to the indigenous upstream companies.

The experts hold that besides negotiating a policy-aided moratorium on the principal sums owed, as well as the interest accruals in order to allow the indigenous oil concerns continue to carry on operations until full market recovery, local players also need to find innovative ways of reducing their cost of production, with reference to Saudi and Russia combining average unit cost of production at $6 per barrel, an industry operators’ vital survival index would be a downward analysis of unit cost, currently averaging $30 per barrel, rendering local producers relatively uncompetitive.

Source: Leadership

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