22 June 2018

Nigeria: 'Gas Infrastructure Critical to Nigeria's Power Sector'

Rolake Akinkugbe-Filani is the Head, Energy and Natural Resources of FBNQuest Merchant Bank, in this interview with Roseline Okere, she says there should be fiscal terms in the Petroleum Industry Governance Bill to attract investors to the country's gas sector. Excerpts.

The oil and gas sector continues to play a significant role in the economy of this country. How has FBNQuest Merchant Bank contributed to this space?

I would like to say that our main contribution is to the overall growth of the sector. In the last decade, we have seen international oil companies focus more on the deep-water parts of the Nigerian oil and gas space which is creating opportunity for indigenous players. Many of them are now bigger; are listed on international stock exchanges in the local oil and gas space, managing assets, developing these assets and embarking on production. This could not have happened without the right expertise, structures and capabilities.

The funding capacity of the financial service sector is very important. With our merchant banking license, we see ourselves as really helping to be enablers and drivers of the growth of companies who are now providing world class services that were historically reserved for international players.

What services does the Energy and Natural Resources desk of FBNQuest Merchant Bank provide?

As part of the Coverage team, we help companies raise capital and find funding solutions for their various businesses and operational needs. It is really an exciting time because the industry has been through series of changes and fluctuations in prices of crude oil over the last couple of years. The needs of our clients as well as the types of clients we have constantly vary. The opportunities are also ripe and we are dealing with all types of players - people who provide services to upstream players, the upstream players themselves, midstream and downstream players. This also cuts across mining.

Apart from funding, do you equally provide capacity building and technical support for them?

Yes, I would definitely say so. If you look at the structure or make up of the oil and gas sector or the energy sector, funding is not the only thing you need to drive growth. You also need capacity, technical know-how, and governance.The energy sector is highly competitive, and companies cannot just rely on their ability to fund projects; they need to develop new partnerships, new joint ventures. They need to keep themselves abreast of technological developments. We support with that in many ways.

You moderated the panel on Women in Energy at the 2018 Africa Assembly oil and gas conference. What is the relevance of the event to the Nigerian oil /energy industry?

The Africa oil assembly focuses on the investment and funding for the Africa upstream and midstream industry. I would say women-in-energy is a very hot topic. I have come across a lot of women who are very competent, who are cutting their teeth in the industry, who are making an impact. These are not just women who are in operational or admin roles, these are women who are in technical roles, who have degrees in petroleum engineering, chemical engineering, mechanical engineering, law and finance and yet very minimal visibility.

Times are changing and the world is fast becoming a technology hub. How have innovative solutions in energy financing been leveraged?

A major part of our business has been capital raising and advisory services. In terms of how you look at the risk profile of a typical energy firm, upstream producer and integrated service firm, aspects that make your business viable would usually have a foundation in technology. For instance, your ability to monitor your supply chain as part of a loan that may be given, or your ability to track your suppliers or your buyers may depend on technology.

I will give you a typical example. If you look at the downstream market, and those who bulk-trade petroleum products - whether it is PMS or diesel i.e. those who operate retail stations - a large part of your ability to effectively run a small retail station or even a mega station that provides artillery services, will depend on technology. We are keen to help and support companies that put innovation at the heart of their businesses, because it enhances the overall value of the purpose of that business as a potential pool to attract capital.

What are some of the gaps within the industry that are in need of development, and how has FBNQuest Merchant Bank played a role in changing the status quo?

I would say that one of the critical areas of the sector we really need to accelerate development in is the gas infrastructure, clearly because it is a core part of the foundation of our power sector and energy needs of the country. FBNQuest Merchant Bank has been involved over many years in structuring, advisory for gas infrastructure and gas projects. It is one of our core competencies as an advisory firm, and we are involved in several transactions - some of which are in the public domain and which involve helping to rally and coordinate the efforts to build the public and private sector.

Gas involves large-scale deployment of capital, not all of that can be sourced locally, one of the things that we have done and done very well is our ability to leverage our international network to tap into the development finance situation, since they are very big on infrastructure to help add to the sometimes constrained pool of capital that is available. We have also advised different parts of the gas value chain, whether that is in pipeline or transportation and distribution, and have worked with a variety of actors who are involved with upstream and downstream gas.

What are the opportunities for collaborative funding for oil and gas projects?

We are seeing a trend towards vertical, backward integration. For instance, a lot of upstream players are now talking about modular refining projects as an alternative to monetizing their crude oil because crude oil exports and evacuation sometimes in the Niger Delta has faced issues. So companies need to ensure that they have cash flows, and I think given some of the experience institutions like us have in helping to structure energy infrastructure transactions like refineries, we can definitely bring to bear some of our expertise in identifying where the opportunities in the value chain may be. We can also help leverage international stock value, whether that of investors or lenders to help drive that integration model in oil and gas sector. So I think that is one of the ways to collaborate.

The second one I see is the opportunity to serve as lender to the industry. That is, people who can provide strategic long term expertise because of their knowledge of the industry. We have strong industry expertise both in terms of our research team and industry coverage team, so there's a lot we can do even in terms of non-financial advisory.

What would you say are some of the regulatory changes being effected in order to increase the interest of foreign investors in the Nigerian Oil and Gas industry?

Well, clearly the one we all know is the fiscal bill, which is being discussed in Nigeria right now. The fiscal bill which is contained in the Petroleum Governance Bill is an absolute must, particularly for gas sector development and its one of those areas that has been a source of concern for a lot of international players. The international players have adopted the wait and see approach, which is why international investors have been reluctant to invest heavily in gas. I also think it might be worth a look as to how the energy sector might be an enabler in other parts of the economy, because typically oil and gas has been seen as purely extraction-focused without serving wider benefits for the economy, and it doesn't have to be so.

What are your expectations for Nigeria's emerging natural resources in 2018 and how can local stakeholders be encouraged to invest in the oil and gas sector?

My expectations are high because one of the biggest things I have seen is there are many companies now who are cost disciplined. The oil price has really improved lately, so those who have done business well have a sustainable model and in terms of their budgeting and planning we are seeing a lot more conservatism. I think that is a good way to approach the future.

My expectation is that we will actually see companies emerge stronger, and willing to integrate. The companies will be in a better position to weather a storm. The second expectation is that the emerging oil and gas sector will increasingly be a vocal source of advocacy when it comes to engaging the regulatory and fiscal or development issues in the Niger Delta. I think that what Nigerian companies are doing will continue to go a long way to reshape and build an oil and gas sector that benefits everybody, and not just a few.

What are some of your experiences as a woman in the field and what do you see as opportunities?

There is a strong economic and commercial case for having a diversified work-pool in the oil and gas sector. Research shows that the more gender diversity you have, the more positively the bottom line of the company is affected. So there is actually an economic case, it is not just about representation. If you look at the numbers or any of the index of companies listed in national stock exchanges, diversified companies tend to perform better.

It is very interesting for me and I would say based on my interactions with people in the industry, there should be organizational settings where women are really able to progress. I believe we can sustain the skilled and talented women in the oil and gas sector, which is typically seen as a sort of macho industry. I think we know that women are well qualified engineers but there are some aspects of work in the oil and gas industry that may not be conducive to the quality of life a woman desires at a certain stage in her career, and I think those issues should be tackled.I think the skills of women are going to be more in need as negotiators and problem solvers in terms of how they approach issues, how they engage the international stakes; and I'm pretty confident that this is the era of women when it comes to the energy sector.

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