Optimality test of marginal field development financing arrangements in Nigeria

Chibueze Ekeh, Ayodele Asekomeh

Research output: Chapter in Book/Report/Conference proceedingConference contribution

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.

Original languageEnglish
Title of host publicationSociety of Petroleum Engineers - SPE Nigeria Annual International Conference and Exhibition, NAICE 2015
PublisherSociety of Petroleum Engineers
ISBN (Print)9781613994344
Publication statusPublished - 2015
EventSociety of Petroleum Engineers - SPE Nigeria Annual International Conference and Exhibition, NAICE 2015 - Lagos, Nigeria
Duration: 4 Aug 20156 Aug 2015

Conference

ConferenceSociety of Petroleum Engineers - SPE Nigeria Annual International Conference and Exhibition, NAICE 2015
CountryNigeria
CityLagos
Period4/08/156/08/15

Keywords

  • Carried' Cost
  • Financial partner
  • Marginal field
  • Net Present Value
  • Operator

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