Opportunities for U.S. Partners, Investors to Unlock Marginal Field Development in Nigeria

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As oil and gas exploration budgets tighten and megaprojects are postponed or canceled due to the ongoing pandemic, marginal oil and gas fields have risen to the forefront of operators’ agendas. Marginal fields can often be developed in a fraction of time and at a fraction of the cost that it takes to bring large-scale assets online, while also being able to kick-start an energy transition –via natural gas – and offset reduced state revenues. As a result, marginal and stranded gas field development represents a strategic opportunity to supply domestic markets and drive indigenous participation in the industry, if local companies can access sufficient financial and technical resources from U.S. and foreign partners and investors.

Nigeria represents one such opportunity, where the term ‘marginal’ can appear counterintuitive. The country’s marginal resources are substantial, with current resources on offer estimated at around 800 million barrels of oil and 4.5 trillion cubic feet of gas. The Federal Government first introduced its marginal field development program in 1996 to stimulate domestic oil and gas production and build local capacity building in the upstream sector by divesting International Oil companies of dormant discoveries and awarding them to indigenous operators. Nigeria’s Department of Petroleum Resources (DPR) defines marginal fields as those that have been left unattended for more than 10 years, and divides resources into five categories based on surface terrain and the range of minimum recoverable reserves needed for commercial production: onshore land (2-5 million stock barrels); onshore swamp (7-20 million stock barrels); coastal offshore (12-25 million stock barrels); continental shelf offshore (20-45 million stock barrels); and deep offshore (>40 million stock barrels).

In June 2020, the DPR launched its first marginal field bid round in almost 20 years, placing 57 fields on offer that span onshore, swamp and shallow water acreage. Previously held by IOCs including Shell, ExxonMobil, Chevron and Total, the fields remain undeveloped and few have been appraised. As a result, the round has attracted significant attention from potential bidders, and the DPR awarded the rights in June 2021 to develop marginal fields to 50% of the 161 firms shortlisted, provided they meet the conditions. According to energy research and consultancy firm Wood Mackenzie, the 25 largest oil fields have the potential to generate $9.4 billion of investment over the first five years and over $38 billion in revenue over the lifetime of the fields.

While progress has been made in the development of Nigerian marginal fields to date, financial and technical factors still constrain activities for marginal field operators. Of the 24 fields awarded in the last auction, for example, only 13 are producing and the Federal Government revoked the 11 non-producing licenses. A lack of funding represents one of the primary constraints cited by Nigerian E&P companies, owing in part to the limited participation of the local banking sector. This is where U.S. financiers, hedge funds, private equity or private debt funds can help fill the gap and backstop the balance sheets of strong, competent local and regional companies.

Nigerian operators cite a lack of technical expertise as an inhibitor to development. U.S. technology and service providers are well positioned to lend technical expertise and facilitate technology transfer to indigenous operators to become self-sufficient in operating their own assets. U.S. technical operators can help unlock untapped subsurface potential through reservoir, wells, risk management, integrity and commercial assets to boost reliability, maximize cost efficiency and ensure project success. African operators can utilize American technical expertise and operational infrastructure to harness marginal resources and expand into new development opportunities, so long as projects are supported by sufficient gas resources and access to stable markets.

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Grace Goodrich

Grace Goodrich

Grace Goodrich is a Publications Editor at Energy Capital & Power, where she writes about the intersection of energy, policy and global finance in sub-Saharan Africa's fastest-growing economies. Grace produces our Africa Energy Series investment reports in Angola and Equatorial Guinea (2019), as well as co-authored African Energy Chamber: Road to Recovery (2021).

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