Optimality test of marginal field development financing arrangements in Nigeria.

Ekeh, Chibueze; Asekomeh, Ayodele

Abstract

Marginal oil fields in Nigeria, some of which the International Oil Companies (IOCs) have abandoned for over 10 years previously, are now being awarded to indigenous oil companies. Due to difficulty with raising development finance domestically, some of the indigenous Marginal Field Operators (MFOs) have resorted to allowing foreign-listed Financial Partners (FP) to 'carry' their share of development costs. We test the optimality of such 'carried' cost arrangements by using the discounted cash flow method to analyse the economic viability of two model marginal fields (one onshore and the other offshore) in the Niger Delta/Gulf of Guinea region. Four different scenarios (sole risk [MFO], sole risk [FP], joint venture without carry, and joint venture with carry) for each model are compared. The empirical results appear to imply that marginal field operators are better off if they can contribute their share of development costs, by equally sourced debt and equity financing domestically, than when they are carried by a foreign financial partner. The computed net present value (NPV), NPV per barrel, modified internal rate of return (MIRR) and payback period all show that carrying of interest favours the FP over the MFO in a joint venture arrangement. Additionally, oil price and Petroleum Profit Tax (PPT) have the greatest impact on NPV in both models.

Citation

EKEH, C. and ASEKOMEH, A. 2015. Optimality test of marginal field development financing arrangements in Nigeria. Presented at 39th SPE (Society of Petroleum Engineers) Nigeria annual international conference and exhibition 2015 (NAICE 2015): natural gas development and exploitation in an emerging economy; strategies, infrastructure and policy framework, 4-6 August 2015, Lagos, Nigeria.

• Presentation Conference Type: Presentation / Talk
• Conference Name: 39th SPE (Society of Petroleum Engineers) Nigeria annual international conference and exhibition 2015 (NAICE 2015): natural gas development and exploitation in an emerging economy; strategies, infrastructure and policy framework
• Start Date: Aug 4, 2015
• End Date: Aug 6, 2015
• Deposit Date: Jul 15, 2022
• Publicly Available Date: Aug 30, 2022
• Peer Reviewed: Peer Reviewed
• Keywords: Project valuation; Asset and portfolio management; Omole; Nigeria; Arrangement; Upstream oil and gas; Capex; NPV; Sole risk; Investment
• Public URL: https://rgu-repository.worktribe.com/output/1188027
• Additional Information: The file accompanying this output is the presentation slides used in the conference, the full paper is available on OnePetro: ; EKEH, C. and ASEKOMEH, A. 2015. Optimality test of marginal field development financing arrangements in Nigeria. Presented at 39th SPE (Society of Petroleum Engineers) Nigeria annual international conference and exhibition 2015 (NAICE 2015): natural gas development and exploitation in an emerging economy; strategies, infrastructure and policy framework, 4-6 August 2015, Lagos, Nigeria. Hosted on OnePetro [online], paper number SPE-178396-MS. Available from: https://doi.org/10.2118/178396-MS