Negotiations between Nigeria and Saudi oil giant Aramco over a $5 billion oil-backed loan have slowed, as falling global crude prices and concerns from potential lending banks put the deal on shaky ground.
Sources familiar with the discussions say the proposed facility would be Nigeria's largest oil-backed loan and Aramco's first major lending exposure to the country. However, with Brent crude prices dropping from over $82 per barrel in January to about $65, lenders are increasingly wary, fearing that Nigeria may struggle to meet oil delivery commitments.
President Bola Tinubu first raised the idea during a meeting with Saudi Crown Prince Mohammed bin Salman at the Saudi-African Summit in Riyadh last November. The deal, if concluded, would form part of the government's broader plan to secure $21.5 billion in foreign loans to support the national budget.
Banks involved reported to include Gulf institutions and at least one African lender are cautious about Nigeria's production capacity, especially as the country is already using around 300,000 barrels per day (bpd) to service existing oil-backed loans. Sources noted that securing this new $5 billion loan could require pledging an additional 100,000 bpd, stretching Nigeria's already pressured output.
One major concern is that the slump in oil prices means more barrels are needed to generate the same loan value, making repayment harder and deliveries less certain. Years of underinvestment in Nigeria's oil sector have further complicated production, with the country producing just under 1.5 million bpd in April well below the 2 million bpd target in the national budget.
"There's hesitancy among banks to underwrite the deal due to uncertainty about oil availability," one source said. While Aramco has not commented publicly, insiders say Oando, a Nigerian energy company, is expected to manage the offtake of physical crude cargoes tied to the loan.
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Nigeria's state-owned oil company NNPC, as well as the finance and petroleum ministries, have not issued any official statements. However, the government is under pressure to raise funds, stabilize reserves, and maintain fiscal support, particularly amid weaker-than-expected oil revenues.
Industry observers say the government may need to either boost production significantly or renegotiate existing loan agreements to free up more crude for new deals. An executive order recently signed by President Tinubu seeks to reduce production costs, which could improve Nigeria's margins per barrel if successfully implemented.
Despite its current challenges, Nigeria has a history of repaying oil-backed loans. Still, analysts warn that with declining oil prices and growing repayment obligations, the country's ability to balance its fiscal needs against production constraints will be closely watched by both investors and credit partners.
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