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Nigeria’s Aiteo in talks with lenders to restructure debt

By David Whitehouse
Posted on Wednesday, 22 July 2020 09:57

Apapa port in Lagos, where Aiteo has one of the largest private storage facilities for refined petroleum products in sub-Saharan Africa. REUTERS/Temilade Adelaja

Aiteo Eastern Exploration and Production is in debt restructuring talks with its lenders, group managing director Victor Okoronkwo tells The Africa Report.

All parameters of the company’s debt are under consideration as part of the talks, which began shortly before the COVID-19 pandemic, Okoronkwo said. The discussions to date have been “fruitful” and Okoronkwo said he hopes that an agreement can be reached “as soon as possible.”

He declined to say whether a debt-for-equity swap was on the table, citing “commercial sensitivities.”

Aiteo Eastern is the operator of oil mining lease  (OML) 29, a joint venture with the Nigeria National Petroleum Corporation (NNPC).

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The company also operates the 97-kilometre Nembe Creek Trunk Line, which serves as an industry-wide evacuation pipeline for produced fluids to the Bonny Terminal.

  • That pipeline is a source of comfort to the company’s lenders, Okoronkwo said.

The company is grappling with the consequences of loading up on oil reserves at a time of much higher prices. Aiteo in 2015 bought Shell’s stake in OML 29 and the Nembe Creek Trunk Line for $1.7 billion. It also purchased Total’s stake in OML 29 for $569 million.

  • Those decisions now mean that Aiteo is among Nigerian oil producers least able to withstand prolonged low oil prices, according to Yann Alix, head of Ashurst Africa in London.
  • Aiteo “acquired assets with substantial borrowings in a drastically different oil price environment”, Alix said in March.

Such a view is “uninformed,” Okoronkwo said, pointing to the company’s resource base which “gives us the robustness we need.”

  • Increasing oil production would be one possible course of action, he said.

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Resource base

Nigerian banks face severe risks from the oil price.

According to Fitch, the oil and gas sector represented about 30% of Nigerian banks’ gross loans at the end of the third quarter of 2019.

  • The cost of risk for Nigerian banks rose by 200 basis points during the 2015 oil price shock and Fitch does not rule out a similar increase in 2020.

Aiteo, which contributes over 5% of Nigeria’s daily oil production, has one of the largest private storage facilities for refined petroleum products in sub-Saharan Africa.

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These include petroleum storage facilities with capacity of more than 320 million litres at Port Harcourt and Apapa.

Okoronkwo has previously said that the Nigeria’s power shortage could be resolved through better use of the nation’s huge gas deposits. Part of Aiteo’s strategy is to raise gas production.

  • The company is now producing 60m square cubic feet of natural gas per day, which is derived from oil production, Okoronkwo said.
  • Depending on financing, he hopes to raise that to 250m square cubic feet in three years.  “Our focus is to unlock the gas resource.”

Okoronkwo is confident that its resource base gives it the “buffer” to withstand even a prolonged period of low oil prices.

The company’s assets mean that “all you need to do is restrategise” if an unexpected event like COVID-19 occurs, he said. “Our aims are still attainable. We are weathering the storm.”

Bottom Line: Aiteo’s diversified resource base puts it in a stronger position than most to push through debt restructuring on its own terms.

 

 

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