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Nigeria’s quest to raise crude oil production is facing a major hurdle. The newly licensed oil and gas operators are still battling the old funding challenges.
To come out of the quagmire, industry experts said the licensed players may have to risk their own capital, surrender part of their equity or secure strategic partnerships before they can attract meaningful bank financing.
According to them, indigenous operators and prospective investors are grappling with the high cost of developing petroleum assets, particularly at a stage when reserves have yet to be converted into production and revenue.
The Founder and Chief Executive Officer of Petralon Energy, Mr. Ahonsi Unuigbe, captured the challenge confronting new entrants with a blunt assessment: “No production, no debt financing, no bank funding.”
Unuigbe, who recounted his company’s experience in raising capital to develop an upstream asset, said even established relationships with lenders, a strong repayment record and substantial reserves might not be enough to unlock financing before crude production and evacuation arrangements were in place.
His account provided a practical illustration of the funding hurdles confronting holders of Petroleum Prospecting Licences (PPLs), many of whom must commit substantial resources to exploration, appraisal and development before generating revenue.
The discussion took center stage at a panel session titled; “Funding and Governing the Asset: Raising Capital, Building Partnerships and Joint Ventures that Deliver”, during the Nigerian Upstream Petroleum Regulatory Commission’s (NUPRC) onboarding workshop for PPL holders under the 2022 and 2023 Mini Bid Rounds and the 2024 Licensing Round in Lagos last week.
Other panelists were: Mr. Akintunde Thomas-Owoseni, Executive Principal, Standard Chartered Bank, Nigeria; Mr Emeka Nkemakolam, Assistant General Manager and Head of Energy and Power, Fidelity Bank Plc; Mr Tominiyi Owolabi, Managing Partner, Olaniwun Ajayi LP; Mr Musa Usman, Development and Planning, TotalEnergies E&P; and Mr Valentine Ugbeide, Executive Chairman, Moore Oil Exploration and Production Nigeria Limited.
Their contributions highlighted the fact that winning a petroleum licence is only the beginning. Operators must demonstrate technical and commercial viability, provide credible funding plans, select the right partners and establish governance structures capable of sustaining a project through the uncertainties of upstream development.
Standard Chartered: Equity must come before bank loans
Executive Principal, Standard Chartered Bank, Nigeria, Mr. Akintunde Thomas-Owoseni, said the financing options available to newly licensed operators were considerably more limited than those accessible to companies with established production and predictable cash flows.
He explained that reserve-based lending, a common financing structure in the oil and gas industry, relied on proven reserves and the expected revenue they could generate to support borrowing.
For operators without producing assets, however, the absence of an established revenue stream makes it difficult to secure conventional debt financing.
Thomas-Owoseni said sponsor equity was therefore critical during exploration and appraisal, when companies needed to demonstrate sufficient financial commitment to advance their assets towards commercial production.
According to him, banks would want to see a clearly defined development plan, credible technical information and a realistic strategy for monetising the asset before committing substantial funds.
Lenders would also undertake their own technical and financial assessments to determine whether the project could support the proposed borrowing.
He said operators should approach financing as a staged process, using equity and other appropriate funding arrangements to advance the asset until it became sufficiently mature to attract debt.
The strength of the sponsor’s commitment would influence a lender’s willingness to participate, while the structure and availability of financing would depend on the risks associated with the particular project.
For new licence holders, the implication is that a credible capital plan must account for the costs of early-stage development rather than assume that banks will provide the money needed to reach first oil.
Fidelity Bank: Avoid borrowing that cannot be repaid before production
Assistant General Manager and Head of Energy and Power, Fidelity Bank Plc, Mr. Emeka Nkemakolam, warned operators against relying on conventional commercial loans to finance activities whose returns might take years to materialise.
He explained that exploration and appraisal involve substantial expenditure, uncertain outcomes and long development timelines, making them difficult to finance with debt facilities that require repayment within relatively short periods.
A company could spend years drilling and evaluating an asset without finding commercially recoverable hydrocarbons or achieving production quickly enough to meet its financial obligations.
In such circumstances, the borrower could be left with a maturing loan but no cash flow to service it.
Nkemakolam also highlighted the dangers of borrowing in foreign currency without a corresponding source of revenue, warning that currency mismatches could compound the financial pressure on operators.
He urged PPL holders to assess their assets carefully, establish realistic production and cash-flow projections and ensure that the repayment period of any facility reflected the development timeline.
He advised operators to consider equity investors and strategic partners who could share the risks associated with exploration and appraisal.
Companies should also examine the technical history of their assets, including previous exploration activities and the reasons earlier operators may have abandoned them.
Such information, he said, could help determine the work required to establish commercial viability and whether further investment was justified.
Nkemakolam stressed that operators needed sufficient financial resources to meet their obligations without jeopardising the wider business.
His message was that a licence and the prospect of discovering oil were not, on their own, adequate foundations for a sustainable borrowing plan.
Petralon Energy: Banks waited until the crude was ready for export
Founder and Chief Executive Officer of Petralon Energy, Mr. Ahonsi Unuigbe, offered one of the session’s most revealing accounts of the difficulties involved in financing an upstream petroleum asset before it begins generating revenue.
He recalled that Petralon had raised about $60 million in debt and equity to acquire an interest in an oil and gas asset, including approximately $45 million in debt.
Despite the company’s previous borrowing experience and repayment record, he said, lenders approached its subsequent development project with considerably greater caution because the new asset had not yet established production.
He explained that banks assessed the underlying asset rather than relying on the borrower’s reputation or existing relationships.
Petralon spent about two years and several million dollars studying the asset, interpreting seismic data and developing geological models to establish the presence of reserves.
The company identified approximately 17 million barrels of 2P reserves, but Unuigbe said this did not immediately persuade lenders to provide the funding needed to develop the field.
The banks wanted further evidence that the company could execute the project, drill successfully, bring the well into production and evacuate and sell the crude.
Even after the company had drilled and produced crude, the financing challenge continued because lenders wanted assurances that the output could reach a market and generate revenue.
Unuigbe said Petralon approached several banks but struggled to secure the support it needed while the crude was still moving through the production and evacuation process.
The company consequently relied on short-term bridge facilities and other financing arrangements to sustain its operations while working towards production and eventual refinancing.
He said the experience demonstrated that the most difficult stage of financing often occurred before production, when operators had to commit substantial sums without the certainty of immediate returns.
Unuigbe disclosed that Petralon had incurred approximately $12 million in interest expenses over the preceding year, illustrating the cost of financing development without access to cheaper, longer-term funding.
He advised new operators to look beyond commercial banks and seek equity investors or entrepreneurial partners willing to take on the risks associated with undeveloped assets.
Such arrangements, however, come with a trade-off. While an equity partner can provide capital and potentially reduce the burden of borrowing, the original licence holder may have to surrender part of its ownership.
Unuigbe said operators must therefore weigh the benefits of retaining full ownership against the cost of financing development independently.
His experience also carried a caution for banks: lenders that wait until a project has overcome its major risks may find that the operator no longer needs the financing they were initially unwilling to provide.
Olaniwun Ajayi LP: Choose partners who fit the asset
Managing Partner, Olaniwun Ajayi LP, Mr.Tominiyi Owolabi, said operators should approach partnerships as strategic decisions rather than merely a means of raising capital.
He explained that investors could enter a transaction at the asset level or the holding-company level, depending on the operator’s objectives, corporate structure and future financing needs.
An investor seeking technical participation or exposure to exploration risk might be better suited to an asset-level arrangement. A partner expected to provide broader strategic guidance or support the growth of the company might be more appropriately accommodated at the holding-company level.
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Owolabi warned that an unsuitable structure could make it harder for an operator to attract additional investors or raise further capital as the project progressed.
He urged licence holders to consider the implications of admitting new shareholders, existing shareholders’ agreements and the extent to which prospective investors would influence the company’s future direction.
He also highlighted the importance of understanding regulatory requirements when structuring transactions involving upstream petroleum assets.
Questions surrounding consent, notification and the creation of security over assets or shares, he said, could affect financing arrangements and the certainty of transactions.
Where lenders sought security that could eventually result in a change of ownership or control, the applicable regulatory requirements needed to be properly understood.
Owolabi called for greater clarity in the interpretation of relevant rules to help operators, investors and lenders structure transactions with confidence.
Beyond the legal framework, he identified the behaviour and compatibility of partners as major determinants of a joint venture’s success.
Even carefully drafted agreements, he said, could not eliminate every dispute arising from differences in expectations, working culture and commercial priorities.
He advised operators to assess prospective partners’ conduct, objectives and willingness to work collaboratively before entering into long-term commitments.
TotalEnergies: Governance is as important as capital
General Manager, Development and Planning at TotalEnergies E&P, Mr.Musa Usman, said access to capital and technical competence were essential, but neither could guarantee the successful development of an upstream asset without effective governance.
He explained that disagreements over responsibilities, decision-making authority and the management of projects could undermine partnerships even when the parties had the financial resources to proceed.
According to him, operators needed to establish clear governance arrangements covering operational responsibilities, financial commitments, approval procedures and mechanisms for resolving disputes.
Partners should understand where management authority began and ended, which decisions required board approval and how disagreements would be addressed without unnecessarily delaying project execution.
Usman said the selection of a partner should go beyond its ability to provide money.
A suitable partner should possess credible funding capacity, relevant technical expertise and the ability to contribute meaningfully to the development of the asset.
He also stressed the value of partners who could challenge assumptions, identify overlooked opportunities and provide independent technical perspectives.
Such contributions could improve project decisions and help operators avoid costly mistakes.
Usman further reminded licence holders that upstream exploration remained inherently risky. Even substantial financial commitments and strong technical capabilities could not guarantee a commercially viable discovery.
He urged operators to work with partners who understood these uncertainties and were prepared to make decisions based on the long-term commercial interests of the project.
Moore Oil: Consensus keeps joint-venture partners together
Executive Chairman, Moore Oil Exploration and Production Nigeria Limited, Mr. Valentine Ugbeide, illustrated how clear financial arrangements and inclusive decision-making could help a joint venture manage its obligations.
He said the company’s partnership had evolved from an initial group of 10 participants to five, with the remaining partners working within agreed structures for funding and operating the asset.
According to him, the partners began by agreeing on a work programme, estimating its cost and allocating the financial obligations among themselves according to their equity interests.
The company secretary issued cash calls, while an agreed payment schedule allowed the partners to plan their financial commitments in advance.
Ugbeide said this approach made it easier to meet funding obligations because payments were aligned with the work programme rather than imposed as unexpected, large demands.
Where issues arose over cash calls, the partners sought practical solutions instead of allowing disagreements to disrupt the project.
On operations, he explained that the asset was managed through an established operating arrangement, with oversight provided by the joint venture’s governance structures.
An operations committee served as an important decision-making forum, while the chairmanship rotated among the five partners annually.
The company also operated different levels of decision-making, with authority thresholds determining which matters could be handled by management and which required consideration at committee or board level.
Ugbeide said the partners generally preferred consensus to majority voting, even when reaching agreement required additional discussions.
He explained that the arrangement encouraged all parties to take responsibility for the asset rather than allow differences in ownership percentages to determine whose views mattered.
“We don’t think there’s anything like a majority partner or minority partner. We just own this asset,” he said.
The approach, he added, was built on a shared understanding that the success of the project depended on the commitment of every partner.
His account offered a practical example of how financial discipline, defined responsibilities and a willingness to accommodate different perspectives could help a joint venture navigate the challenges of upstream development.
NUPRC’s role in building workable partnerships
The question-and-answer session further highlighted the importance of regulatory clarity and effective mediation in developing partnerships.
A participant raised concerns about perfecting security arrangements and the circumstances in which regulatory consent might be required when lenders sought security over assets or shares in licence-holding companies.
Owolabi said the distinction between consent and notification required further clarification, particularly where enforcement of security could result in a change of ownership or control.
He argued that clearer guidance would help reduce uncertainty for operators and lenders structuring transactions.
Another participant, reflecting on the experience of an earlier licensing round, said negotiations over joint-venture arrangements could be difficult before operations even began.
The participant commended the NUPRC for helping parties resolve differences and establish governance structures that enabled them to work together.
He noted that building a functioning partnership required time, negotiation and a willingness to understand the interests of other participants.
The experience reinforced a key point from the session: partnerships cannot be sustained by contracts alone. They require a shared understanding of responsibilities, confidence in the decision-making process and a commitment to resolving disagreements.
From licence award to commercial production
The panel’s contributions provided a sobering assessment of the challenges facing Nigeria’s new upstream operators.
A petroleum licence may provide access to an asset, but it does not guarantee funding, commercial reserves, production or revenue. Each stage requires additional capital, technical work and decisions that can determine whether the project advances or stalls.
For operators without producing assets, sponsor equity and strategic partnerships may be essential to financing the early stages of development. Commercial banks are more likely to participate when the asset has established reserves, a credible development plan and a clearer route to cash generation.
However, the speakers also warned against treating capital as the only measure of a suitable partnership. Technical expertise, governance, regulatory certainty and the ability to work through disagreements are equally important.
For the PPL holders, the challenge is to build projects that can withstand the risks of exploration, attract credible investment and progress towards sustainable production.
The central lesson was clear: operators must demonstrate that they can manage the asset, finance its development and govern their partnerships before they can expect lenders to back their ambitions.
