EXPLORING FINANCING STRATEGIES IN THE OIL AND GAS INDUSTRY: LESSONS FROM NIGERIA

ELUMAH, Lucas OKAH; Isah, Samaila N; Sopelola, Tolulope A

doi:10.22050/pbr.2025.502211.1380

EXPLORING FINANCING STRATEGIES IN THE OIL AND GAS INDUSTRY: LESSONS FROM NIGERIA

Document Type : Original Article

Authors

Lucas OKAH ELUMAH ¹

Samaila N Isah ²

Tolulope A Sopelola ³

¹ Ph.D., Nile University of Abuja, Abuja, Nigeria

² M.S. Student, Nile University of Abuja, Abuja, Nigeria

³ B.S. Student, Aradel Holdings plc, Nigeria

https://doi.org/10.22050/pbr.2025.502211.1380

Abstract

This study explores the intricacies and challenges of financing the oil and gas industry in Nigeria, a sector that has significantly shaped the nation's economy since the discovery of oil in Oloibiri in 1956. Despite Nigeria's substantial oil and gas reserves and the implementation of the Petroleum Industry Act (PIA) in 2021, which aimed to overhaul the legal framework and attract investor interest, the sector still faces a significant financing gap. The study examines the challenges that have hampered the sector's growth, including inadequate infrastructure, frequent sabotage, inadequate funding and the reluctance of foreign banks to invest due to perceived risks. It also evaluates the available financing options, differentiating those applicable to local, international oil companies, and the national oil company. The research highlights the importance of selecting the best financing options for oil and gas business while exploring various financing strategies available to players in the oil and gas industry.

Highlights

Historical context and economic importance
The Nigerian oil and gas industry has shaped the nation’s economy since oil was first discovered in 1956 at Oloibiri, significantly contributing to government revenue and export income.
By 2023, Nigeria remains a major oil producer, with proven reserves of 36.967 billion barrels of crude oil and 5.913 trillion cubic meters of natural gas.
Persistent financing challenges
Despite the enactment of the Petroleum Industry Act (PIA) in 2021 to attract investors, the sector faces significant financing gaps due to inadequate infrastructure, sabotage, and the reluctance of foreign banks to invest due to perceived risks.
Annual financing needs are estimated at $25–$30 billion, yet underinvestment threatens sectoral and economic growth.
Diverse financing options
The study identifies financing strategies, including equity (e.g., IPOs and shareholder funds), debt (e.g., reserve-based lending and project finance), and innovative tools like Sukuk and production-sharing contracts.
Third-party financing methods, such as carry arrangements and swaps, are highlighted as critical for addressing capital requirements.
Investment in infrastructure
Major projects like the Ajaokuta-Kaduna-Kano (AKK) gas pipeline and Port Harcourt Refinery rehabilitation underscore the need for massive investments to improve midstream and downstream infrastructure.
Stakeholders emphasize reducing logistics costs and enhancing operational efficiency to attract further investments.
Policy and regulatory insights
The study underscores the need for continued improvements in Nigeria’s legal and regulatory framework to create an investor-friendly environment and ensure sustainable growth.
It recommends fostering local participation in the oil and gas industry and addressing security concerns to protect critical infrastructure.
Global relevance
Lessons from Nigeria’s experience can inform financing strategies for resource-driven economies facing similar challenges in attracting investments and transitioning toward sustainability.

Keywords

Natural Resources Finance

Debt

Equity

Derivatives

IOCs

Subjects

Oil and Gas Economics and Management

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