NNPCL Mulls Assets Sales, Public Offers As Calls for Divestment Grows

The Chief Financial Officer of the Nigerian National Petroleum Company (NNPC) Limited, Umar Ajiya, has revealed that the company is open to asset sales as part of its strategy to enhance profit margins and achieve higher returns in the near term.

In an interview discussing the 2023 audited financial statement of the oil company, Ajiya stated that NNPC is not just focused on maximizing the utilization of its assets but is also considering divesting those that cannot be optimized to generate better returns.

“We have a company that is literally just one year old. We started on the first of July, 2022, and 2023 marks our second year of operation.

“We are going to maximize the value of our assets by bringing in partners to help optimize them. Additionally, we will sell off assets that we believe we cannot optimize ourselves.

“This approach will allow us to rebalance the balance sheet and ensure that our assets are fully utilized, leading to expected returns,” Ajiya explained.

NNPC, which reported a 28% increase in profit, reaching N3.2 trillion, holds total assets valued at approximately N246.8 trillion, surpassing Nigeria’s entire Gross Domestic Product (GDP).

NNPC Ready for Public Offers

Ajiya also indicated that the company is preparing for public offers, contingent on shareholder approval. He pointed out that the Petroleum Industry Act (PIA) recommends a two to three-year financial history to assure investors that the national energy giant is on a profitable path.

He highlighted that NNPC has already demonstrated profitability in its first two years and that shareholders are eager to see the company deliver strong performance as it moves toward becoming a publicly traded entity.

“Entering the public market is ultimately a decision for the shareholders. We are almost there in the sense that we have at least two or three years of financial history to show investors that the company is on a profitable trajectory. We’ve demonstrated that for the first two years.

“Hopefully, the shareholders will determine how much equity to sell down and unwind. It’s really their call.

“The shareholders are not currently inclined to sell down. They are eager to see us deliver robust performance, and they can direct us to enter the market at the appropriate time,” Ajiya added.

The latest audited financial report of NNPC has sparked discussions about the company’s profit margins and the structure of its capital equity.

While the national oil company reported a 28% profit increase, reaching N3.2 trillion compared to 2022, many analysts argue that it has not fully optimized its assets and equity, which now exceed Nigeria’s GDP. However, NNPC has maintained that as a limited liability company for just two years, its profitability reflects a strong commitment to corporate governance. This has already generated significant interest from potential investors and shareholders as the company prepares for a potential public offering.

The Financial Struggles Behind the Curtain

While NNPCL’s public declaration of profit may have sparked optimism, its struggle to maintain financial solvency tells a different story. This paradox is further underscored by the company’s recent efforts to secure a $2 billion loan from the international market, a move that raises questions about the true state of its finances.

The NNPCL’s financial woes have become so pronounced that even high-ranking government officials have acknowledged the challenges. Heineken Lokpobiri, Nigeria’s Minister of State for Petroleum, recently admitted that the NNPCL lacks the necessary funds to rehabilitate its aging pipeline infrastructure. This admission stands in stark contrast to the company’s public image of profitability and success.

Calls for Asset Sales Grow Louder, Energy Expert Weighs In

NNPCL’s financial struggles have instigated growing pressure from industry stakeholders to adopt more drastic measures, including divestment of its assets. The Crude Oil Refiners Association of Nigeria has been vocal in urging the government to consider selling NNPCL’s refineries in Port Harcourt, Warri, and Kaduna. They argue that the proceeds from these sales could be redirected to finance the development of modular refineries, which could play a crucial role in bolstering Nigeria’s refining capacity.

Energy expert Kelvin Emmanuel supports this call for divestment. He argues that the government should unbundle NNPCL and focus on its core business areas where it can generate the highest returns.

“I agree with the Crude Oil Refiners Association that the government-owned refineries should be sold off to private sector companies who are interested in making a move for it,” Emmanuel stated.

Emmanuel further elaborated on the potential business lines where NNPCL could excel: including exploration and production through the IJVC model, gas and power, trading, new energy, and shipping. He believes that these areas offer significant opportunities for NNPCL to generate substantial returns if managed effectively.

However, he is critical of the company’s current focus on its retail business, which he describes as yielding low and negligible margins—a “complete waste of the potential the company has.”

Emmanuel suggests a series of strategic shifts for NNPCL to emerge from its current financial quagmire. These include increasing daily gas output to over 10 billion standard cubic feet (SCF), boosting crude oil production to meet both domestic and export demands, and investing in new energy sources such as bio-grade ethanol. He also advocates for NNPCL to invest in tankers and vessels to enhance its export capabilities and reduce gas flaring through joint ventures in Floating Liquefied Natural Gas (FLNG) projects.

One of the most critical aspects of Emmanuel’s recommendations is the unbundling of NNPCL. He believes that the company’s current board and management have failed to deliver the necessary results and that a transition team should be brought in to initiate the unbundling process.

“A major part of me thinks the current board and management has failed, and Mr. President needs to fire them and bring in a transition team that can start that unbundling process,” Emmanuel stated, underscoring the urgency of reforming NNPCL’s structure to ensure its long-term viability.