Trini Oceania has a distinct vision of where we want to be as a 21st century industry player, today and in the future. Our team makes us who we are as a company; they are guided by strong principles and work ethics. They understand the values that they are a part of. Critical adherence to clients' specifications and delivery expediency makes us stand out from the competition as preferred supplier to our customers and an employer of choice in our industry.
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Recent Governments in Nigeria have tried to improve the way the oil wealth is used, and have attempted to modernize the economy. Since 2008, it has pushed through a series of reforms that have dramatically improved the investment climate, from a more modern banking infrastructure, to more transparent rules, and a much lower tolerance of corruption. Firms like MTN, the South Africa based Cellular provider, talk openly about the successes and the profits they have enjoyed in Nigeria.
According to Merrill Lynch, it is the largest single recipient of Foreign Direct Investment into Sub-Saharan Africa, taking 20% of the continental total. As a result of these initiatives, Nigeria has rapidly become a core market within the Frontier group, and is being favorably compared to Brazil 10 - 15 years ago.
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In November 2013 the Nigerian Department of Petroleum Resources ("DPR") announced the commencement of the 2013 Marginal Fields Licensing Round
What is a marginal field?
In the broadest sense, a marginal field is an oil field that may not produce enough net income to make it worth developing at a given time and/or which has not been exploited for long, due to factors such as:
- The size of its reserves.
- Lack of nearby infrastructure or profitable consumers.
- High development costs, fiscal levies and technological constraints.
- Environmental concerns, political stability, access and remoteness; and the price and price stability of the produced gas/liquid.
However, should technical, local or economic conditions change, such fields can become commercial fields. The most important factor is the field's potential profitability, which in turn depends on the cost of developing it.
Marginal fields can require special field development planning and reservoir management strategies in order to yield acceptable returns on investment. This can have a material impact on development costs.
Marginal fields in Nigeria
In Nigeria, reference to a marginal field is usually a reference to a field (which may or may not have the technical characteristics of a marginal field) that has been discovered by major international oil companies ("IOCs") who have not developed the field for more than 10 years.
Under the Petroleum (Amendment) Act No. 23 of 1996, the President has the power to declare a field as a marginal field. This power applies where a discovery has been made but the field has been unattended for ten years from discovery. IOCs have not developed these fields due to a combination of factors, including:
- Having more important priorities on bigger fields (often offshore)
- The well-known problems (including community strife/action) of developing onshore assets in the Niger Delta.
As part of the local content framework in Nigeria, eligibility to bid is only open to a registered Nigerian company:
- Which is at least 51% owned by Nigerian citizens.
- Where no single shareholder owns more than 25% of the shares (so there must be at least 4 shareholders, although the DPR has clarified that a foreign technical partner can hold up to 49% through a Nigerian registered company)
- Which can demonstrate it has upstream oil and gas experience and has the technical capability to evaluate and develop the asset; and the memorandum and articles of which authorise the company to conduct oil and gas exploration and production activities.
These requirements create the opportunity for Nigerians to further participate in the lucrative oil and gas sectors and to partner with foreign companies.
Develop or lose
Of the 27 marginal fields awarded by the government since 2003, only nine are producing. The rest are still planning production or seemingly dormant. Reasons for nonproduction at the 18 other fields are not entirely clear - it may be that some of these fields were unbankable in the first place.
This lack of activity resulted in the DPR instructing all holders of marginal fields (including the successful 2003 bid round indigenous companies) to develop the fields within the year or risk losing their operating licenses. The DPR has also told investors bidding to acquire marginal fields in the current bid round to make sure that fields allocated to them are developed within two years or risk losing them.
This sends a clear message to those bidding on the current bid round that they need to have a clear development plan and the finances necessary to develop the fields they are bidding for. Failure could either mean their bid is unsuccessful or, if it is successful, their license may be terminated for lack of development, with the loss of their investment made in bidding for and winning the license.
The key issue for any company wishing to bid for these assets is finance. Local risk capital appetite, although growing, remains low. Consequently, these companies are likely to have to go to the international markets for finance.
To be able to raise finance, the fields to be included in this bid round need to be bankable (in terms of oil reserves). The "bankability" of these fields remains to be seen, although according to NOG Intelligence bankability may not be an issue for this marginal bid round. In fact the issue is quite the opposite, with at least one prospective field said to have around 50 million barrels of oil in reserves - hardly marginal.
The bidding process commenced on 12 December 2013 and was scheduled to have specified stages occurring between specified dates, with winning bids due to be announced in April 2014.
Let black gold flow
The opportunity is clear in that these marginal fields can be turned into valuable production assets - in particular for junior oil and gas companies who have the requisite financial, technical and local capability.
Witness the fact that 9 marginal fields are in production and seem to be financially successful. For example, Waltersmith Petroman Oil Ltd (indigenous operator of the Ibigwe marginal field) successfully completed the first phase of the oil field development and is currently producing 4,000 barrels of oil per day (bpd). It expects to move higher to 7,000 bpd after a production optimisation process is concluded.
Assuming that the marginal field bid round runs its course, there are various challenges to anyone bidding for these assets. Whilst the key issues that all bidders need to address as a bid requirement are technical capability and finance (i.e. finance to bid, pay the signature fee and develop the field), there are a host of other issues that will also need to be addressed.
These include issues such as:
- Finding reliable and available equipment and services to enable the field to be developed.
- Obtaining export capacity in the oil pipelines operated by the IOCs – especially where negotiating strength of a marginal field operator is not significant.
- Dealing with pipeline losses and how these will be allocated to the operators who feed into the pipeline; and dealing with local communities and community issues.
Parts of this text is adapted from an article by Raj Kulasingam.