SPE-178347-MS

Developing a Framework for Maximizing Marginal Oil and Gas Field

Economics
Oyebimpe Adeogun, World Bank African Centre of Excellence for Oil Field Chemicals Research, University of
Port Harcourt, OmowumiIledare, Director, Emerald Energy Institute, University of Port Harcourt. Nigeria

Copyright 2015, Society of Petroleum Engineers

This paper was prepared for presentation at the Nigeria Annual International Conference and Exhibition held in Lagos, Nigeria, 4–6 August 2015.

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Abstract
The notion to develop marginal oilfields as a means of increasing oil and perhaps marginal natural gas
reserves in Nigeria has not been well defined since inception. Many have argued that oilfields regarded
as marginal have often times been allocated discretionally because the Federal Government of Nigeria has
the sole prerogative to classify fields as marginal. In Egypt for instance, fields with recoverable reserves
of less than five million barrels of oil are regarded as marginal. To this end, this paper seeks to redefine
the concept of marginal oilfields in terms of concrete and measurable terms, keeping in perspective the
recoverable reserves, prevailing fiscal terms and available technology and economic conditions.
Considering the nature of marginal oilfields, a review of the contractual agreement for operators was
examined with new fiscal terms recommended. This was necessitated to determine at what point these
fields become unattractive to investors with existing technology. A comprehensive economic analysis was
carried out showing that these fields are actually a worthwhile investment if adequate incentives are
granted by the government. A downward review of signature bonus by 50% had little or no impact on rate
on return of investment. A reduction in royalties and petroleum taxes as proposed in the yet to be
approved Petroleum Industry Bill 2012, will make the investment in marginal field more rewarding for
investors than ly established fiscal terms. Further reduction of oil price below the proposed benchmark
of $50 in this work also has adverse effect on the development of marginal oil fields. Financing projects
of a high degree of uncertainty poses a challenge to the development of marginal oilfields and various
options were suggested including equity financing, technical partnerships, sourcing of loans from
local and foreign banks.

Introduction
Worldwide demand for petroleum resource will continue to increase with less alternative sources of
energy being fully exploited. Crude oil cannot be continuously produced without careful planning, being
an exhaustible natural resource. According to Nwaozuzu (2013) Nigeria has an oil reserves estimated to
be about 37 billion barrels and 187 trillion standard cubic feet of gas, hence the significance of the oil and
gas industry in the country cannot be ignored. Since mid-1950s when oil exploration and exploitation
commenced in Nigeria, only 35% of the oilfield discovered have been in production (Nwaozuzu, 2013)
2 SPE-178347-MS

In order to encourage local participation in the industry, the marginal oilfield licensing rounds which
emanated from the Petroleum Amendment Act of 1996 stipulates that an Oil Mining lease can farm out
any marginal field that lies within the OML. In order to develop the Nigerian local content, the Federal
Government of Nigeria commenced allocation of these fields in 2003 and another round of bid is set to
be completed in 2014. Nwaozuzu (2013) reports that out of the 24 oilfields allocated, only eight (8) are
producing with about 100million barrels of oil exploited cumulatively, while others are in different stages
of development. It is worthy of note that marginal oilfields were awarded by the government in 2003 with
the hope of increasing total oil production by 1billion barrels.
Adeoye (2014) reported that the Petroleum Amendment Act (1996) defines a marginal oilfield as “such
field as the President of the Republic of Nigeria may, from time to time, identify as a marginal field”. It
further states that “marginal field is any field that has (oil and gas) reserves booked and reported annually
to the Department of Petroleum Resources and has remained non-producing for a period of over 10
years”.
According to Egbogah (2013), marginal oilfields are any oil discovery whose production would, for
whatsoever reasons, fail to match the desired or established rates-of-return of the lease holder. The
definitions given above are, however, not in terms of concrete and measurable terms, keeping in
perspective the recoverable reserves, prevailing fiscal terms and available technology and economic
conditions. These oilfields, though considered to have low reserves can still be economically produced by
smaller indigenous companies with less overhead cost and improved technology.
According to Agiza et al (1986), an overview of marginal oilfields in Egypt showed that though these
fields have comparatively low reserves they were still produced at a profit to investors. Some of the
observed strategies adopted in these fields are: use of shared facilities by operating companies in order to
reduce OPEX, use of non-traditional production techniques and modification of management style.
However, high cost of exploration expenses was seen as a challenge. In order to address this, it was
proposed that minimum or no signature bonus should be paid by operators of Marginal Oilfields; cost can
be cut by use of national technical staff instead of expatriates, government support and providing
companies with necessary information to avoid costly mistakes.
Similar research was carried out by Boyne et al (2003) for a marginal oilfield located in the North Sea,
the Otter field. Use of existing infrastructures was used to minimize CAPEX investment with a
combination of innovative drilling techniques, production technology and process systems to overcome
technical challenges. With an excellent combination of technology and the team’s ability to mitigate risk,
an improved recovery was obtained from this field. Field development planning of another offshore field
was reported by Shaw et al (1998), the Laminaria/Corallina fields in the Timor Sea. In order to maximize
oil production, subsurface developmental studies were conducted parallel with facility concept and
engineering design studies. The principal objective of the study was to maximize the Net Present Value
(NPV). The study also accounted for uncertainties in the subsurface and quantifying their impact on
project NPV.
According to Till et al (1986), a good understanding of the reservoir characteristics is required for
further development planning. A reservoir simulation was carried out to develop the field. The formation
had its peculiarities such as heterogeneity, unconsolidated shallow reservoir with varied sedimentology,
mineralogy and permeability. This necessitated the inclusion of sand control measures over long
distances, high angle drilling and high production rate completion practices. The Heidrun field, being an
offshore field, required that different structures be considered to support production as well as various
completion scenarios. The options that gave the best economic returns and met environmental conditions
should be adopted. However this study did not provide answers to these issues but were recommended for
further study.
In the paper by Cullick et al (2005), reservoir uncertainties were adequately addressed and how it
affects maximizing oil production from marginal oilfields. The paper was limited to field development
planning of well locations. Well locations were optimized using both static and dynamic flow simulations
SPE-178347-MS 3

to maximize recovery. The dynamic simulation outputs provided an excellent set of updated well
locations based on predictions of ultimate recovery and NPV. It was noted that the presented procedure
is one of many field development components.
The availability of limited data and uncertainties pose a challenge to reservoir development. This was
reported by Azuka et al (2009). A field X, with typical characteristics of a Niger Delta field in Nigeria,
was used to demonstrate their findings. A range of static and dynamic models were built for the
subsurface development with different scenarios. The scheme that gave the optimum recovery was taken
for further uncertainty analysis. A decision tool was deployed to consider the element of risk and
uncertainty in a qualitative manner. The research also includes the export options available after oil has
been produced.
Oluropo et al (2003) proposed a contractual agreement that makes development of marginal oilfields
beneficial to all stakeholders. However it was pointed out that the fiscal terms will only work if the price
of oil doesn’t fall below $18.07 and the signature bonus kept at a minimum. An economic model was
built and sensitivity analysis as well as risk analysis was carried out. Risk analysis showed that the
NPV increases as the risk associated with it also increases. Recommendations for finance options of this
capital intensive project were presented. The options were the stock exchange, bank financing,
government policies that allows foreign investment.
The Nigerian government is interested in maximizing the potential of these fields via the local content
policy and the proposed Petroleum Industry Bill which will address the fiscal terms of the project.
However, delay in passing this bill has hindered investors from making concrete decisions in developing
marginal oilfields and other oil and gas investments have been equally affected. Further, the unkempt
scheduling of bidding for marginal fields in a less transparent manner remains a challenge to the
realization of government aspiration to build its reserves to 40billion barrels

Marginal Oilfields Definition in Other Countries of the World

Marginal fields otherwise known as stripper field in the USA have been given a number of definitions
worldwide. Most countries have defined these fields in terms of barrels of oil and gas produced taking
into consideration, the terrain, whether onshore of offshore where production is taking place. However,
the case is different in Nigeria, because categorizing a field to be marginal has been the sole
prerogative or rather the discretion of the president of the Federal Republic of Nigeria (Petroleum
Amendemnt Act, 1996)
The Table 1 below shows the definition given to marginal field in some oil producing countries.
According to Egbogah (2013), marginal oilfields are any oil discovery whose production would, for
whatsoever reasons, fail to match the desired or established rate-of-return of the lease holder. Certainly
this classification fits so many wells that could have been so defined in Nigeria. The challenge is defining
this desired internal rate of return, which actually could easily mean the minimum acceptable return at
which a firm can do business (Mian, 2012)
4 SPE-178347-MS

Table 1—Marginal Field Definition in Selected Countries

S/N Country Definition

1 Egypt ● Fields with recoverable reserves of about five million barrels of oil are regarded as
marginal (Agiza et al, 1986)
2 Netherlands ● A gas field is classified as marginal when it holds less than four thousand million cubic meters
of reserves. (Nor AziahAbdManaf et al, 2014)
3 United Kingdom ● Oilfield is classified as a marginal field with equivalent of 20 million barrels of oil
(Ref:ccsenet.org/Akhigbe 2007)
4 Malaysia ● A marginal oilfield is defined as a field that can produce 30 million barrels of oil equivalent
or less. (Ref:platts.com)
5 USA ● A marginal (or stripper) gas well is defined by the Interstate Oil and gas Compact Commission as one that
produces 60,000 cubic feet (1,700m3 ) or less of gas per day at its maximum flow rate
● Marginal (or stripper) Oil wells are those that produce ten barrels per day or less for any twelve month
period. (Netl.doe.gov)
6 Nigeria ● At the discretion of the president or non-producing field after 10 years since discovery

From table 1 above it is evident that Nigeria definition of marginal oilfields still remains the
prerogative of the Federal Government. This should be reviewed and critically looked into. This paper is
based on analysis of marginal oilfields onshore with recoverable reserves ofless than fifteen (15) million
barrels. With increase in reserves, favourable fiscal terms and oil price, these fields were seen to be
profitable. Hence, we can conclude that marginal oilfields can be defined as oilfields with recoverable
reserves of less than fifteen (15) million barrels of oil in an onshore terrain under favourable
technology and fiscal terms.
Cash Flow Analysis
The cash flow gives the amount spent over a period of time ususally on a yearly basis. This begins by
generating a production profile and the gross revenue is obtained as a product of oil price and oil
production rate. The cash received less the expenses gives the Net Cash Flow. Components of the
proposed Petroleum Industry Bill are incorporated to generate cash flow for this paper. Components for
generating cash flow include:
Capital Expenditure (CAPEX)
This refers to all capital intensive expenses needed to develop and produce oil. The following costs are
accounted for in the developing marginal onshore oilfield: pre-development cost, asset acquisition,
production facilities, work over as well as drilling cost etc. CAPEX can be classified as either tangible
and intangible costs depending on whether they are capitalised and depreciated or they are expensed
through amortisation for tax calculation purposes. While tangible CAPEX are depreciated, intangible
costs are expensed. Depreciation in this work was done as straight line depreciation with 1% of the
depreciated cost accounting for abandonment.
Operating Expenditure (OPEX)
This refers to all operatingexpenditure used to operate and maintain the facilities, cost incurred to get the
hydrocarbon to the surface as well as treatment and transportation cost. They are operational cost that are
incurred continuously to keep production going, they include: field fixed OPEX, variable OPEX, general
and administrative cost. All OPEX are treated as intangible costs and expensed as they are incurred.

Prevailing Fiscal Terms of Marginal Oilfields in Nigeria

Marginal oilfield development in Nigeria is one of the policis the government brought forth to increase
reserves in order to meet the ever increasing need for fossil fuels for energy generation. Increase in
reserve is not the singular advantage of marginal oilfield development; others are: increase in
indigenous participation in the oil and gas industry, technology transfer, local content actualisation,
generation of
SPE-178347-MS 5

employment amongst others. However, in other to maximize their development, the prevailing fiscal
terms has to be favourable for the operators. An unfavourable fiscal system implies that these
investments may not be worthwhile for investors. The yet to be approved Petroleum Industry Bill was
adopted for this research, some of the components applicable to marginal oilfield include:
Bonuses
Like in other giant fields, bonuses applicable to marginal oilfields include signature bonus and production
bonus. The amount is lesser for marginal oilfields in Nigeria. Signature bonus for this analysis was taken
as 300,000USD, while production bonus is tied to the cumulative production. However specific produc-
tion bonus was not stated in the PIB, hence the 2005 Royalty regulation for marginal oilfield operations
was adopted as shown in Table 2 below:

Table 2—Production bonus as Stipulated in the Proposed PIB

Negotiable (Not Specific in PIB draft)

Cum. Prod. Level (MMbbls) Bonus (MMbbl)

1 0.2 or Cash
220 1 or Cash
500 1 or Cash

Royalty
This is a percentage of the gross revenue paid by the operator to the government. In marginal oilfields
where there are certain facilities of the farmor on ground, another royalty known as farmor royalty is
applicable. Royalty can be paid in cash or in kind. For the purpose of this work, payment was made in
cash. Sliding scale royalty was applicable to both royalty types.
Royalty to the Government
This is a front loaded take payable to the government from the hydrocarbon produced on a yearly basis
irrespective of whether profit is made or not. Royalty to the government is minimum 2.5% and maximum
18.5% depending on average daily production as shown in Table 3 below: The 2005 regulations for
marginal field operators shall be adopted as shown below, according to the Inter Agency Team (2009)
proposed PIB

Table 3—Royalty rate To Government on Sliding Scale

Average Daily Production (BOPD) Royalty Rate

Lower limit Upper Limit

0 5000 2.5%
5000 10000 7.5%
10000 15000 12.5%
15000 25000 18.5%
25000 No limit unless otherwise negotiated 18.5%

Methodology

A comprehensive spreadsheet cash flow economic analysis was carried out to determine the profit-
ability of a marginal oilfield in an onshore terrain. The fiscal terms of the Petroleum Industry Bill was
adopted with some assumptions where applicable rates were not expressly stated. The following assump-
tions were considered:
6 SPE-178347-MS

● Oil price (99USD) was taken as real dollar at the average price of crude oil in year 2014, the year
begin
● A hypothetical data of a typical marginal oilfield in the Niger Delta region of Nigeria was used
bearing in mind prevailing situations.
● Signature bonus taken as $300,000 which is a 100% increase from previous rate of $150,000
● Initial oil production rate was taken as 1500 BOPD which reached a peak of 3500bopd, the
assumption is that being a matured field, certain reservoir management practices were put in place
to boost production within the first year of production.
● Total CAPEX was capitalised at 80% and the balance expensed.
● Discount rate was set at 15%
● Abandonment cost was remitted to government same year as depreciation began.
An excel spreadsheet was used to model the production and net cash flow of the marginal field
operator. The Arp’s equation formed the basis for production forecast, with an initial daily
production of 1500BOPD and exponential decline rate of 15%, the production life of the field was
examined for 25 years. For this period of production, the field was observed to be producing
profitably for a marginal oilfield operator with less overhead costs.
Oil price was assumed to be real oil price of 99USD/ barrel, (the average price of oil for 2014 which
was taken At the beginning of the year. Yearly gross revenue was obtained as the product of oil price and
daily production.
The methodology adopted in this paper was in two parts: The deterministic model and the stochastic
model. The deterministic model was built as a dynamic model on EXCEL spreadsheet for cash flow
analysis.
Production Profile
A production profile for the field was developed assuming initial oil production rate of 1500BOPD,
typical of an onshore marginal oilfield. Production rose to 3500BOPD within the first one year. It is
assumed that being a matured field, certain reservoir management procedures were put in place to boot
production. However this was for just two (2) years after which production began to decline again.
Decline was exponential according to the Arp’s Equation given as follows:

Cumulative oil production, N p

(1)

Time required to produce cumulative production Np

(2)

qt ϭ production rate at any time t, BOPD

qi ϭ initial rate of production, BOPD
t ϭ time period between q i and qt, years
a ϭ nominal decline rate, fraction per year
Np ϭ cumulative production during the time period, barrels.
Total productive life of the oilfield was taken to be 25years/,
Cost Outlay
The associated CAPEX and OPEX for developing the field wasanalysed. While tangible CAPEX was
capitalised at 80% and depreciated over a 5 year period using straight-line depreciation at the rate of 20%
SPE-178347-MS 7

and the fifth year at 19%, with the 1% accounting for abandonment cost. The OPEX being an intangible
cost was expensed 100%.
Front-loaded Government Take
Rentals to government can either be taken back-end or front loaded. For the purpose of this paper, front
loaded government take was adopted. This comprises of bonuses (signature and production bonus),
royalty, NDDC levy and rentals.
Nigerian Hydrocarbon Tax (NHT)
The NHT replaced the Petroleum Profit Tax (PPT). Previous fiscal terms stipulates PPT of 85%, the
proposed PIB splits PPT into NHT of 50% and Company Income tax of 30%. This is taken as 50% of
assessable profit. The NHT is a flexible tax which is tied to a special production allowance as stipulated
in the proposed PIB.
Company Income Tax (CIT)
This is proposed to be 30% of the assessable income. This is a generally acceptable income tax that
will be credited to the government of the host country, thereby increasing income for the host country.
Petroleum Host Community Fund (PHC Fund)
This was newly introduced in the proposed PIB, 2012 to address social and economic development in
the oil producing community. It is taken as 10% of the contractor’s profit.
Education Tax
Education tax is remitted to the host government as 2% of assessable profit.
NDDC Charge
This is proposed as 3% of total technical cost.

The Stochastic Model

This was built using @Risk an excel add in to analyse possible scenarios as changes occur in certain input
variable with corresponding output. The input variable for the purpose of this paper was taken as oil price
with a base case of $99 per barrel. Output analysed to ascertain profitability of the venture were Net
Present Value (NPV), Internal Rate of Return (IRR), discounted government take and pay out years. The
analysis gave the best and the worst case scenarios for all variables.

Results and Discussion

The concept of marginal oilfield definition in Nigeria has been adequately addressed. Based on the
analysis in this paper, it can be concluded that marginal oilfields can be termed as oilfields with
recoverable reserves of less than fifteen (15) million barrels of oil in an onshore terrain under
favourable technology and fiscal terms.
One of the objectives of the deterministic model is to determine the profitability of operating a
marginal oilfield in an onshore terrain. At a glance with the prevailing fiscal terms, the venture
appears to be profitable at a favourable oil price with corresponding incentives given by the
government in terms of taxes and royalties. Previous fiscal regimes gave a government take of 90%
which is unfavourable for onshore and shallow waters oil production (PIB, Interagency Team,2009)
The 2009 PIB proposed an undiscounted government take of 65% - 70% as obtainable in other
countries of the world at oil price of above 70USD per barrel. The Table 4 below also shows that this
investment is worthwhile when IRR is above the discount factor of 15%. However as oil price reduces,
there is a corresponding reduction in IRR. Government’s participation in the funding of this highly
capital intensive venture is needed for it to be worthwhile. A reduction of cost of capital to about 10%
is suggested. So that after all deductions, the profitability indicators such as IRR and NPV will give
substantial returns.
8 SPE-178347-MS

Table 4—Results Showing Deterministic Profitability of Onshore Marginal Oilfield Development @ $99 per barrel

It should be noted however that the royalty applied for this analysis still remains the 2005 Royalty
regulations for marginal oil field operations. This is due to the fact that this is the only existing scheme
that gives a minimum of 2.5% and maximum 18.5% royalty. The royalty scheme proposed in the PIB has
a minimum 5% and maximum 25%, this is unfavourable even though both are on sliding scale.
It was also observed that the pay-out period of about 5years was ideal for a profitable investment with
a base case oil price of $99 per barrel. However as oil price dropped, the NPV and IRR were adversely
affected. By varying oil price the corresponding NPV, IRR, pay-out, host government take were obtained.
At $49.535 oil price, NPV was equal to zero, IRR was 15% same as the discount rate, pay-out tine was
about 27 years beyond the years of exploration on the field. Discounted host government take was 100%
as shown in the Table 5 below.
SPE-178347-MS 9

Table 5—Results Showing Profitability of Onshore Marginal Oilfield Development @ $49.535 per barrel

Until recently, signature bonus for marginal oilfield operators was $150,000 before it was increased to
$300,000. Analysis here shows that despite the increase being a 100% it has little or no effect on
profitability of the venture. It is evident that reduction of taxes and royalties with favourable oil price
remain the fulcrum on which the productivity of marginal oilfield lies.
The results shows that without adequate incentives and careful economic planning, these fields may
not be as attractive as expected. Since the Nigerian local content policy is hinged on the
development of marginal fields for participation of indigenous companies in the oil and gas sector,
measures to encourage their profitability should be put in place. Despite these challenges a number of
marginal oilfields have been successfully developed since the last allocation of these fields in 2003.
The field operators should endeavour to also strategize means to reduce expenditure within the
company. Other means of reducing cost include sound reservoir management practice, re-entry of
existing wells instead of drilling new wells as well as use of specially designed production methods for
marginal oilfields. Where technical expertise is lacking, operators may partner with foreign companies
interested in the Nigerian oil and gas industry as long as their equity is less than 49% as stipulated in the
Petroleum Act of 1969. Equity funding between local partners should also be encouraged as against
loans which increases cost of funds and invariably reduces profitability. Different sources of funding
options were also analysed.
A thorough review of the Petroleum Industry Bill is suggested and marginal oilfield terms clearly
stated, this will give other non-operating marginal field owners to be properly informed on the terms upon
which these fields will be operated. The government has a lot to gain from this and the Nigerian populace
will also benefit immensely. With unemployment being the bane of the average Nigerian, this is an
avenue if well exploited can give solution to this challenge.
The impact of profitability indicators vis-a`-vis NPV and IRR is represented graphically by Figure 1
below. It will be observed that as oil price increased the NPV and IRR of the operator increased. However
at oil price of about $50 per barrel, the IRR is 15% which is same as the discount factor, this implies a
10 SPE-178347-MS

breakeven point for the investor. Also at this benchmark, the NPV is zero. Hence it can be concluded that
oil price is a major driver in marginal oil field operations.

Figure 1—Effect of Oil Price on NPV and IRR

Stochastic Model Results

The stochastic simulation using @risk, an add-on on Microsoft Excel spreadsheet was used to carry out
the probabilistic analysis. This is done to analyse the risk and uncertainties associated with the input and
output variables used for the deterministic model. It presents the best and worst case scenario for various
variables. It indicates the profitability of the venture with variations in oil price and how this affects the
output profitability indicators such as NPV, IRR, pay-out and host government take using an assumed
discount factor of 15%.
Table 6 below shows the probability distribution functions imposed on the various stochastic variables.
SPE-178347-MS 11

Table 6—Summary Statistics of input and output variables

12 SPE-178347-MS

Table 7—Proposed Petroleum Industry Bill Fiscal Terms (PIB 2012 draft)
SPE-178347-MS 13

Table 8—Field Development Data at year end (31-Dec-2012) 2014

The Table 6 above gives the 90% certainty levels of the stochastic variables used for the analysis. It
shows that there is 90% confidence that discounted pay out varies between 4.95 and 27 years with an
average payout of 6.79years. This indicates that exploration of marginal oil field given this prevailing
14 SPE-178347-MS

fiscal system is a profitable venture and can be explored; however oil price still remains a driving factor
in its development. NPV varies from $(13.01) to $64.99 million with a mean of $39.40 million. Except
in situations of very low oil price which yields a negative NPV, as long as oil price remains increases, the
NPV will yield a positive value with a positive mean reported $64.99 million, it indicates a high return
on investment for marginal field operators. An IRR of average of 23.30% higher than the discount rate
of 15% used for the analysis, this venture is worthwhile as it can adequately pay back borrowed funds and
have a reasonable margin. There is 90% confidence that IRR will vary from 12.08% to 28.36%. The
lower limit is only possible at low oil price. All these indices are pointers to profitable investment in a
marginal oilfield in an onshore terrain with favourable fiscal system as recommended.
Finance Options
The major challenge to marginal oilfield development has been identified as finance being a highly capital
intensive venture. Various options have been proposed in previous papers. However without implemen-
tation and government participation in this process, its actualisation might still be in the future. Oluropo
et al (2003) suggested the following options: listing indigenous oil companies on the stock exchange both
locally and internationally, operators should be willing to farm out part of their lease to foreign small and
medium sized foreign companies as well as sourcing for funds from banks with international partners and
local banks which are listed both locally and internationally.
In addition to the above mentioned funding options the following can also be explored: Equity
financing between two or more indigenous companies. This is already implemented and some of the
beneficiaries of the last allocation of marginal oilfields benefit from this, more marginal field operators
are encouraged to follow suit. This makes such companies 100% indigenous. Moreso, it reduces the cost
of funds of these operators and increase profitability. The undiscounted contractor and government take
is a proof of this assertion.
Where technical expertise is lacking, marginal field operators can partner with foreign oil companies
with the requisite know-how. Leveraging on the expertise of these other companies will provide the
necessary equity and technology transfer. Loans can be sourced from local and international banks,
however excellent financial management skills are required to make appreciable profit on these borrowed
funds. Most local banks sometimes cannot raise the money needed to finance these ventures, but were
they have international partnerships, financing can be gotten from there or a consortium of local banks
can pull funds together to finance these projects. Many banks in Nigeria have been part of the success
story of some of the functional marginal oilfields.
In as much as these banks are willing to finance these project, a document known as Information
Memorandum (DrEnu, 2014) containing comprehensive and accurate information of the business oppor-
tunity should be provided. Most times the banks have not been fully convinced if the operators are able
to generate the revenue as stated. A sound understanding of the business demands is necessary to access
funds.

Conclusion and Recommendation

This paper has addressed definition for marginal oilfields in terms quantifiable and measurable terms. It
also analyzed the economic indicators for a viable investment in marginal oilfields. Oil price has been
shown to be a major driver in the profitability of this capital intensive venture. Results shows that at oil
price greater than about $50 these fields if they have 15 million barrels of recoverable reserves are
profitable, lower than this benchmark is not encouraging. Discounted government take of about 70% is
a welcome development in oilfield development.
Incentives from the government and access to funds are major factors that could either promote or
hamper the operators if marginal oilfields. Being fields with relatively low oil reserves, a judicious
utilization of the opportunity is required. Many operators of these fields have been successful; more
SPE-178347-MS 15

marginal field operators should take advantage of this goldmine for the good of the country and the entire
citizenry.

Figure 2—Oil Production Profile

Figure 3—Effect of changing Oil Price on Undiscounted and Discounted Government Take
16 SPE-178347-MS

Figure 4—Stochastic Output Result for NPV

Figure 5—Stochastic Output Result for IRR

SPE-178347-MS 17

Figure 6—Stochastic Output Result for Discounted Contractor Take

Figure 7—Stochastic Output Result for Discounted Payout (years)

Acknowledgement
The authors will like to acknowledge Mr Adeogun Moses Adewunmi as well as members of my team,
Mr. Joseph Echendu, Mr. Emmanuel Onwuka and Mr. Green Ovunda, the following for their support
and contribution to the success of this paper.
18 SPE-178347-MS

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