Nigeria’s path to an economic renaissance

April 3, 2023

Segun Sowande, partner and head of energy and natural resources for KPMG in Nigeria, talks to The Energy Year about challenges in the Nigerian oil and gas industry and how companies can take advantage of the IOC divestment trend. KPMG is one of the largest audit and accounting firms in the world.

What main challenges do you see the Nigerian oil and gas market facing?
On the macro level, the main challenges for Nigeria’s oil and gas sector are the issues of safety and security of operations, crude oil theft and energy value chain decarbonisation. These, by extension, impact other areas, particularly investment flow. Although there have been some improvements in security in the Niger Delta in the recent past, product theft has risen to its highest level ever. Some operators are even reported to have made zero returns on oil production at some point.
It is apparent this trend is being perpetrated by organised crime syndicates with the capability to even target underground pipelines during the construction phase with the sole objective of siphoning crude oil and other petroleum liquids at will during the operational phase. Some of the stolen crudes are feedstock for illegal refineries, and the governor of Rivers State recently made a statement about increasing efforts to dismantle these illegal refineries.
As a result of these and other challenges, Nigeria has not been able to meet its OPEC production quota for some time. This has negatively impacted revenue flows to the State and thus compromised the country’s fiscal balance. Consequently, one of the most pragmatic ways to resolve our production deficit is to tackle oil theft, which could potentially add up to 300,000 bopd.

 

What are the reasons behind the difficulties bidding companies encounter in accessing funding?
The financial dynamics behind the bidding round are manifold. With the Nigerian market’s specific history of volatility and the fact that many bidding companies are fairly new to the industry, financial institutions have ample reason to moderate or minimise their funding exposure to these new players.
Many of these joint ventures are also creations of forced marriages during the allocation process, resulting in weak corporate governance systems, which are red-flag issues for financiers. In addition, given the highly capital-intensive nature of some of these projects, many local institutions may be unable to meet the funding requirement.
Furthermore, in light of the energy transition agenda and the decisions taken at the COP26, it has generally become increasingly difficult to secure financing for hydrocarbon-based projects from international institutions. We see that the companies that are thriving are the ones either with a solid track record or the ones that have been able to secure international partnerships that enhance credibility and bring along with them financial and technical know-how.

How is KPMG positioned to help the Nigerian market make the most out of the IOC divestment trend?
KPMG is well positioned to support players in the sector both from the selling and the buying side of these divestment transactions. Our deep knowledge of the sector, as well as the typical financial, commercial and regulatory context of the assets, enables KPMG to assist with structuring these complex transactions in collaboration with our transaction partners.
Our support covers strategic analysis and fit of the asset as well as pre- and post-completion support in order to protect and preserve value while also delivering synergy and efficiency gains.

How is KPMG accompanying the Nigerian energy industry in its drive to meet ESG targets?
KPMG is a purpose-driven firm, and we are committed to building a more sustainable and resilient future. In this regard, the firm has committed to a multi-year, multibillion-dollar investment through KPMG IMPACT to assist clients in achieving their ESG goals and support the world’s attainment of the UN Sustainable Development Goals. Our work with the World Economic Forum to set the metrics for ESG reporting is one example of how we’re using our experience and knowledge to help shape the future of sustainable business.
We’ve accepted roles at the International Integrated Reporting Council (IIRC), the Financial Stability Board’s (FSB’s) Task Force on Climate-related Financial Disclosures (TCFD) and the Taskforce on Nature-related Financial Disclosures (TNFD). This work is part of the wider role we believe we must play to support the development of consistent and credible information on sustainability matters, including supporting the newly formed International Sustainability Standards Board (ISSB).
To this end, KPMG Nigeria has a dedicated team of professionals focused on helping clients articulate and implement their ESG transformation agenda, mitigate risk and unlock new value as they build a resilient business for a more sustainable future. With industry-leading experience, data-driven technology and global alliances, we offer support in ESG reporting and assurance and turn insight into opportunity for businesses, their people and our planet.

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