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Friday, 03 February 2023

Developing and maximising the gains of marginal oil fields were conceived to further boost the oil production capacity and, by extension, revenue earnings for the country. Sadly, achieving this has remained a major challenge. Efforts to set the operation firmly has yielded little results, notwithstanding its huge economic potential.This is why experts, at a recent gathering in Lagos, proffered the way out for the new licensees to make their operations successful. Correspondence reports.

The concept of marginal oil fields began in 2001 as part of the government’s policy to improve the nation’s strategic oil and gas reserves and promote indigenous participation in the upstream sector. It was also aimed at discouraging the continuous holding of undeveloped fields by International Oil Companies(IOCs) and create a leeway for indigenous operators to benefit from the sector.

But, 22 years after, the country cannot say much has been gained, especially looking at the inability to meet her Organisation of Petroleum Exporting Countries (OPEC) production output in over two years.

Notwithstanding its huge potential and economic benefit, much remains to be desired from its operations. Stakeholders have argued that the poor performance of the marginal field operators is due to certain challenges which have impeded their progress. They highlighted some of these challenges to include funding, technical, and public policy. Their situation is said to have been further compounded with the global emphasises on renewable energy and pressure to reduce carbon release into the environment.

But determined to ensure that the recent winners of marginal oil field licences get to work immediately, a professional services firm, PwC Nigeria, recently held an oil and gas stakeholders forum with the theme: ‘Marginal Oilfield Licence: After Winning, What Next?’

Partner, Energy, Utilities & Resources and Africa Oil and Gas Leader, Pedro Omontuemhen, explained the rationale behind forum: “Several new marginal oilfield licence holders who won the recent bid round are keen on moving ahead quickly in the journey to first oil. We aim to foster collaboration by bringing established industry operators to share their experiences and discuss best practices to enable the new players to succeed.

“Developing a marginal oil field is a capital-intensive project. Post the euphoria of winning, the next focus for new marginal oil field operators is to figure out how to achieve first oil production quickly whilst setting up a sustainable structure. We have financiers, producing marginal operators and other stakeholders in the room to provide insights on how to achieve this objective,” Omontuemhen said.

The Executive Commissioner, Economic Regulation and Strategic Planning, Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Dr Kelechi Ofoegbu, who represented Chief Executive Officer of NUPRC, Gbenga Komolafe, emphasised that the Petroleum Industry Act (PIA) is phasing out the Marginal Field regime with the objective of equalising oil and gas producers. The NUPRC is willing to support any innovative financing arrangements that the industry is evaluating and mediate any disputes among licence holders, he added.

Executive Vice Chairman, ND Western Limited, Dr Layi Fatona, advised new marginal oilfield awardees to manage their cost profile and focus on long-term success. He said partnerships were vital to achieving first-oil production timely. He advised marginal operators to prioritise human capital development and strategic partnerships.

Head Client Relations, Anglophone West Africa, AfreximBank, Peter Olowononi noted that based on clearly defined risk-management policies and procedures, the standard practice is to finance projects that are producing oil and gas.

However, Afrexim Bank recently adopted a different approach by working with some marginal field operators on a guarantee-backed facility based on technical expertise provided by competent oil service firms along with the equity contributed by the awardee.

The Managing Director and Co-founder of Subdrill Services Limited, Aysha Abba, highlighted the need for marginal field licence holders to demonstrate the commercial viability of their crude reserves in order to attract finance.

Going the extra mile by working with reserve evaluators to generate a Competent Person’s Report (CPR) can make a huge difference when seeking for finance or strategic partnerships. She recommended using industry-recognised experts to prepare field development plans, evaluate financing options, among others.

Stakeholders highlighted the need for a regulation that provides clarity and certainty to the issues facing marginal field companies. With the difficulty in sourcing funds internationally, marginal field companies were urged to focus on local market to raise finance, including ensuring that the Special Purpose Vehicles (SPV) to be adopted for their operations are structured in a tax and regulatory optimal manner, while marginal field operators should incorporate an ESG action plan into their operations to ensure easy access to scarce international funding.

About IWIN

The Independent Energy Watch Initiative (I-WIN), an enterprise of Energy ConServ and the Roundtable for the Growth and Development of Power (RODEP), is an online/web based power sector portal that strives to engage stakeholders and the Nigerian public on topical issues in the power sector.

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