Nigeria’s oil industry is waiting for long-promised changes to its legislative framework. The country’s independent producers are slowly building asset bases and lender followings.

So the most interesting financing to emerge from the country, and the most interesting financing to emerge from the African upstream sector, was the $1.5 billion financing for the 2012 drilling programme of the Nigerian National Petroleum Corporation/ExxonMobil joint venture.

The $1.5 billion deal builds on the JV’s earlier receivables-based deals, including the $600 million Satellite field financing, which closed in 2005 and backed the development of five specified fields, and the $1.42 NGLII refinancing, which closed in January 2011.

All of these deals demonstrated that there was healthy bank appetite for uncovered commitments to the joint venture, given its operational history. Since then, the sponsors have worked to close a larger and more flexible deal.

Whereas the Satellite and NGLII financings related to discrete assets, and will be ringfenced from the latest deal, the 2012 drilling programme financing is designed to back a more general programme of drilling at the 4 oil mining leases that it owns – OML 67, 68, 70, and 104.

The new debt is designed to be a little more flexible. The drilling programme financing can be expanded and creates template documentation for follow-on deals. Given the length of the leases that the venture holds, regular drilling programmes are important, and the structure is likely to make funding these easier.

The borrower is an orphan special purpose vehicle, something almost akin to a charitable trust, which makes a forward purchase of receivables from the unincorporated JV. NNPC owns 60% of the venture, while ExxonMobil owns 40%. As on earlier financings, Exxon provides the same proportion of the $1.5 billion debt – $600 million – as a sponsor loan. The rest comes from commercial banks.

The two hired Standard Chartered and UBA as joint financial advisers on the debt, letting them carry forward their advisory mandate from NGLII. From late 2010 through 2011 the advisers worked on developing the structure and receiving government approvals, and carried out informal market soundings in the months up to the formal November 2011 launch of the deal.

At that time the sponsors were concerned that Nigerian lenders might be suffering from reduced access to dollar liquidity, but after the request for credit approved commitments, local lenders came back strongly. The leads were able to maintain a 50/50 split between local and international lenders.

The Nigerian commercial bank list consisted of Access Bank ($16 million), Guaranty Trust Bank ($63 million), UBA ($63 million), STANBIC ($32 million), SCB Nigeria ($63 million), Fidelity Bank ($94 million), Ecobank ($38 million), Diamond Bank ($50 million), and Zenith Bank ($31 million). The local piece is priced at 425bp over Libor.

The international commercial bank list is more notable for including no French banks, and three South African banks (the country’s other big lender, Standard Bank, participated in the local tranche through Stanbic). The international list comprised HSBC ($150 million), Nedbank ($100 million), Rand Merchant Bank ($50 million), Standard Chartered ($100 million), and Barclays’ ABSA ($50 million). That tranche is priced at 390bp.

The strong response is all the more surprising given that the sponsors asked for – and received – a two-year grace period on their seven-year door-to-door tenor. The JV is unlikely to take more than about 12 months to complete drilling, and the venture should be producing positive cashflow long before two years, but the lengthy grace period offers withholding tax benefits.

Lenders have also granted the sponsors unparalleled flexibility in how they spend the proceeds, with a large part of the haul simply earmarked for general corporate purposes. Lenders benefit from a position close to the top of the cash waterfall, being paid after royalties, but before operating expenditure. They had to be comfortable that the JV would be able to operate and exploit the field as promised, but in this regard the established JV ensured lender comfort.

The financing signed on 30 April 2012, and closed on 12 September after the sponsors met their conditions precedent, chief among them central bank authorisation to move the proceeds of oil sales offshore.

The RDP Funding structure has few obvious imitators. Exxon has little need to regularly access the project finance bank market, and NNPC is in the ambiguous position of being large and experienced enough to have a devoted bank following, but not quite cash rich enough to fund work itself. The deal, then, is best understood as an impressive refinement of the funding structures that the JV has used over the last decade. 

RDP Funding Ltd
Status
Signed 30 April 2012, closed 12 September
Size
$1.5 billion
Description
Receivables-based financing for Nigerian joint venture’s drilling programme.
Sponsors
Nigerian National Petroleum Corporation (60%), ExxonMobil (40%)
Debt
$900 million sever-year commercial bank facility (split 50/50 international/domestic lenders), $600 million sponsor loan from ExxonMobil
Financial advisers
Standard Chartered, UBA
Nigerian commercial banks
Access Bank, Guaranty Trust Bank, UBA, STANBIC, SCB Nigeria, Fidelity Bank, Ecobank, Diamond Bank, Zenith Bank
International commercial banks
HSBC, Nedbank, Rand Merchant Bank, Standard Chartered, ABSA
Sponsor legal counsel
Latham & Watkins (international); Aluko & Oyebode (local)
Lender legal counsel
Milbank Tweed Hadley & McCloy (international); Olaniwun Ajayi (local)
Independent engineer
Shaw
Reserves engineer
NSAI