Falling oil prices: Oil firms, banks risk bankruptcy –Report

The fall in oil prices may have far worse consequences than most Nigerians envisaged, as Indigenous Oil Companies (OICs) that acquired the divested interests of Shell, Total and Chevron in Nigeria, between 2013 and 2015 and the banks that offered them funds for such acquisitions are at risk of going bankrupt.

This grim picture painted by Forbes, added that most of these deals were consummated during the period crude oil sold for about $100 per barrel, therefore making it difficult for the oil firms to meet their financial obligations to the lending banks now that the price of oil is hovering around $30 per barrel.

Affected by this downturn are Newcross Exploration and Production Limited, First Exploration and Petroleum Development Company, Seplat and Aiteo Group.

Forbes reports that at the time the acquisition deals were concluded for Shell’s OML 18, 24, 25, 29, oil prices were above $110 a barrel and local banks lent on a price basis of about $80-$90 per barrel.

Read also: Oil prices to remain low for next decade, experts forecast

“The nation’s indigenous firms that rose to prominence to purchase oil fields from supermajors, such as Chevron, Shell and Total, are now in deep distress. The billions of debt they raised for these acquisitions risk going unpaid with oil revenues a fraction of 2013 levels.

“The scramble to prevent firms such as Aiteo and Newcross from defaulting has begun. And with some banks looking to leave loan syndicates, the market is welcoming the arrival of new entrants – commodity traders.

“But with oil now hovering around $30 a barrel, and showing little signs of recovering, how effective can restructuring measures be?“, the report asked.

Commenting on the development, a banker posited that “Although when the drop in prices is this dramatic, new loan agreements are almost impossible. There is only so much oil a company can pledge with current prices” while another said “the last thing you want to do as a lender is to enforce. If there is still some cash flow, then you would rather restructure.”

According to Forbes report, the nature of the expected restructurings maybe in the form of amend-and-extend exercises, through covenant readjustments and extension of debt maturities.

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