Capital markets turning hostile as oil sector defaults scare investors

NIGERIA’S oil and gas industry is facing a growing credibility problem in global capital markets, as rising loan defaults by some producers are making it harder and more expensive for even the strongest companies to access financing.

Chief Executive Officer of Seplat Energy, one of the country’s largest indigenous oil and gas producers, Mr Roger Brown, has warned that poor borrowing behaviour by a few companies is now hurting the entire sector. According to him, lenders and investors are no longer assessing firms only on their individual balance sheets but on the overall risk profile of Nigeria’s upstream oil industry.

“We’re all chasing the same pots of capital, whether it be the African banks, whether it be the international banks, or commodity-backed financing,” Mr Brown said at the Nigeria International Energy Summit 2026 in Abuja last week.

“We have to be exemplary borrowers. We have to perform, we have to give good returns, and defaults have a massive impact on that pot of capital.”

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Nine banks’ exposure to the oil & gas sector increased to N15.6 trillion in 2024, representing about 94.4 percent increase from N10.17 trillion reported in 2023 financial year. The banks are : Access Holdings Plc, Guaranty Trust Holding Plc (GTCO), United Bank for Africa (UBA) Plc, Zenith Bank Plc, FBN Holdings, Fidelity Bank Plc, Wema Bank Plc, FCMB Group Plc and Stanbic IBTC Holdings Plc, ThisDay reported.

Zenith Bank’s 2023 financial stat showed a significant uptick in its loan portfolio, particularly in the oil and gas sector. By the end of fiscal year 2023, foreign currency loans surged to $3.79 billion, up from $3.32 billion the previous year.The oil and gas sector alone accounted for $1.91 billion, representing 50.3 percent of the bank’s dollar loans and 25.7 percent of its gross loans. Apart from Zenith Bank, several banks are exposed to the sector, with some of the loans already non-performing.

Risk premium

Mr Brown’s warning comes at a time when Nigerian energy companies are under pressure from multiple fronts. Crude oil theft, pipeline vandalism, foreign exchange volatility, rising interest rates and tightening global environmental standards have combined to make investors far more cautious. As a result, lenders now demand higher interest rates, stronger collateral and shorter tenors before committing funds to oil and gas projects in the country.

Mr Brown explained how a single large default can distort risk pricing across the sector. Using a simple illustration, he noted that if one company borrows $100 million at a 10 percent interest rate, it pays $10 million annually in interest. However, if that borrower fails and the bank loses the full $100 million, the lender would need the interest payments from 10 performing companies just to recover the loss.

“So defaults and provisioning of capital don’t help everyone,” he said. “One bad loan makes the entire industry look risky.”

This growing perception of risk has real consequences. Nigerian oil firms, even those with strong production records, now face higher borrowing costs than peers in other emerging markets. Some international banks have also scaled back their exposure to African upstream assets, preferring safer jurisdictions or renewable energy projects that align better with global climate policies.

Yet, despite the headwinds, Mr Brown believes there are signs of renewed investor confidence in well-managed Nigerian operators. He pointed to Seplat Energy’s eurobond as evidence that disciplined companies can still win the trust of global markets.

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Seplat issued a eurobond last year at a coupon of 9.125 percent, reflecting the high risk premium attached to Nigerian assets at the time. However, the bond has since strengthened in secondary trading and now carries an effective yield in the ‘sevens,’ representing an improvement of around 200 basis points within 12 months.

The bond is also rated slightly above Nigeria’s sovereign rating by some international agencies, a rare distinction that underscores the market’s confidence in Seplat’s governance, transparency and financial discipline.

“There’s a buzz,” Brown said. “The excitement’s there. The demand is there, and it’s that consistency of message.”

Industry analysts say this shift is significant. In a market where Nigeria’s sovereign risk often overshadows corporate performance, any company that can outperform the country’s credit rating sends a powerful signal to investors.

However, experts warn that isolated success stories are not enough to restore full confidence in the sector. They argue that systemic reforms are needed to reduce operational risks and improve financial transparency across the industry. This includes stricter regulation, better enforcement of contracts, improved pipeline security and stronger corporate governance standards.

Local banks are also under strain. Many Nigerian lenders have large exposures to the oil and gas sector, and any wave of defaults could weaken their balance sheets. This, in turn, limits their ability to extend new credit, not just to energy firms but to the wider economy.

“When you borrow money, please do work hard to repay. If you don’t, you expose the banks to risks,” said a Lagos-based financial analyst, Mr Olisa Udumekwe.

For Nigeria, which depends on oil for most of its foreign exchange earnings and a significant portion of government revenue, the stakes are high. If capital continues to dry up, production growth could stall, new projects may be delayed, and the country’s long-term energy security could be threatened.

Still, Mr Brown remains cautiously optimistic. He believes that companies that prioritise strong governance, transparent reporting and operational efficiency can differentiate themselves in an increasingly competitive market for capital.

“We’re not just competing with each other in Nigeria,” he said. “We’re competing with projects in Latin America, the Middle East and Asia. Capital is mobile, and it will always go where it feels safest.”