Nestoil, GHL’s financial struggle revives bank crisis fears

…as lenders face huge losses, debt write offs

The Nigerian banking industry is on edge as fresh loan blow-ups fuel credit risk concerns and stir memories of the 2008/2009 national banking crisis, Business Hallmark can report.

According to findings, many Nigerian businesses, especially those in the oil and gas industry, are currently having trouble servicing their debts.

Available data obtained by BH show that Nigerian banks’ exposure to oil and gas at the end of 2024 is N21 trillion, with nine banks, namely the United Bank for Africa (UBA) Plc, Zenith Bank Plc, First Bank of Nigeria (FBN), Wema Bank, Stanbic IBTC, Guaranty Trust Bank (GTBank), First City Monument Bank (FCMB), Fidelity Bank and Access Bank Plc accounting for  N15.6 trillion of the amount.

Going by previous years performances, banks’ exposure to the oil and gas sector is expected to increase when the DMBs released their 2025 reports next year as the continued fall in the prices of crude oil and fluctuation in the nation’s oil outputs continued to negatively impact oil firms finances.

Among the oil companies with huge bad loans are Nigeria’s largest indigenous engineering, procurement, construction and commissioning oil and gas firm, Nestoil Limited and its sister company, Neconde Energy Limited, as well as General Hydrocarbons Limited.

Nestoil’s troubles started some years back when it secured a syndicated loan from Nigerian banks.

The loan, which is in excess of $1.01 billion and N430 billion, was facilitated by FBNQuest, a subsidiary of First HoldCo Plc.

Road to Hell

However, due to several factors, including falling oil prices, oil theft and vandalization of its assets, Nestoil and its oil prospecting arm, Neconde, were unable to meet their expected revenue targets that would have enabled them service the loans facilitated by FBNQuest.

The same scenario played out at General Hydrocarbons Limited owned by media baron, Nduka Obaigbena, as industry challenges prevented the firm from meeting up with its debt obligations, which is in excess of $225 million.

Tired of the borrowers inability to meet up with their loan obligations, financial institutions have been exploring ways to recover the non performing loans, NPL, through delicate methods that many financial experts argue will have far-reaching implications for the health of the banking system.

Some of the avenues the banks are using to recover the non performing loans include seizing fixed and movable assets of the affected oil firms, including funds in banks, properties (real estate), and oil and gas cargoes.

For instance, FBNQuest Merchant Bank Limited and First Trustees Limited secured a Mareva injunction on October 22, 2025 from a Federal High Court sitting in Lagos restraining Nestoil Limited and its affiliates from disposing of or tampering with their assets, including shares, and funds in more than 20 financial institutions.

Apart from empowering FBNQuest Merchant Bank Limited and First Trustees Limited to take possession and assume control of Nestoil’s assets and subsidiaries under receivership, the presiding judge, Justice Dipeolu, also gave the court-appointed receivers power to take control of Nestoil’s assets, oversee its operations, and preserve them from being encumbered while the dispute between the feuding parties are resolved.

In the same vein, FirstHoldCo got a Federal High Court in Lagos to freeze General Hydrocarbons Limited’s  accounts in banks, alleging that the oil firm failed to repay over $225million debt it’s owing it despite streams of revenue the oil firm gets daily from OML 120.

BH reliably gathered that while the push has yielded initial results, with the lenders now  having access to the assets of the “defaulting” oil firms and are now in a position to either manage or sell them off to interested investors, there are fears that their actions are coming a bit too late.

Damage Already Done

According to some financial experts and stakeholders in the banking and oil and gas industries, who spoke on the matter, the released funds are are good as lost, as most of the oil companies are not in good financial standings to repay the debts.

An oil and gas consultant, who spoke on the condition of anonymity, maintained that it is only firms that are doing well that can generate enough income to liquidate their loans.

“While Nestoil’s legal battles are scaring away prospective customers that initially ensured the inflow of income from servicing contracts that guaranteed it rise and expansion as an indigenous oil and gas powerhouse, output from its subsidiary, Neconde, is so minimal to offset the loans.

“Though Neconde’s OML 42 currently produces 40,000 barrels of crude oil per day, the company only gets about 16,600 barrels per day from its 49 percent stake in the JV. The remaining 51 percent equity is owned by Nigerian National Petroleum Company Limited (NNPCL) and other technical partners.

“With the cost of producing a barrel ranging from $25 and $48 (depending on several factors, including frequent sabotages and  community troubles recorded in onshore operations and expensive machinery for offshore drilling), Neconde’s revenue will amount to from his 49 percent equity based on the current price of crude $16 to $30 oil in the international market.

“Meanwhile, there are other expenses like taxes. So, in actual sense, Neconde only gets about $10 to $13 on each barrel produced after all deductions are made. These translates to $215,800 daily revenue.

“This amount is revenue, not profit. There are several expenses to be made like the cost of running its offices, workers wages, loans servicing, logistics, social responsibility, as well as payments to pipelines owners transporting its crude and gas to oil terminals, and the rest.

“So, you can see that it will take the banks decades to retrieve their funds, that is if they (loans) are not already impaired,” the source stated.

A banker, who also spoke anonymously on the matter, disclosed that owing to the CBN’s strict regulations of loss provisions, the banks may be forced to make more provisions for the toxic loans in their income statements.

Recent Bad Memories

It would be recalled that a stock market bubble and the collapse of crude oil prices in the international energy market in 2008/2009 resulted in many DMBs to be loaded with toxic margin loans, as well as a high level of massive non performing loans (NPLs) that could not be written off as provided by Prudential guidelines.

As a result, many banks became insolvent, forcing the Federal Government to set up the Asset Management Corporation of Nigeria (AMCON) in July2010 to purchase non performing loans and to inject capital in insolvent banks.

AMCOM ended up injecting a total of $15 billion (about N2.3 trillion in the exchange rate of that period) capital into eight different financial distressed banks.