The Marginal Field Business Case

Companies are rushing to develop their Marginal Field Business Case now that the 2020 Nigeria marginal field bid round is up and running.  By some accounts there have already been over 300 expressions of interest.  The Nigerian Ministry of Petroleum Resources is quoted as saying that over 500 companies could apply.

Bids will be evaluated, and preference will be given to companies that can demonstrate financial, technical and managerial capacity to develop the marginal fields.  Winning bidders will need to demonstrate progress on an awarded field within 60 months and the Ministry of Petroleum Resources has the right to cancel the farm-out agreement if insufficient progress is made.

For further details of how WBC is supporting clients with Marginal Field Business Case development, email angus@warrenbusinessconsulting.com or telephone/WhatsApp on +44 754 026 9827.

The Department of Petroleum Resources has recently released guidelines on the 2020 round with 57 fields* located in onshore, swamp, and shallow offshore available.  These fields are governed by existing OMLs and winners will need to negotiate a farm-out agreement with the existing OML holder.  It is expected that signature bonuses will play a large role in the bid evaluation process.

Key objectives of government policy are indigenous company participation and technology transfer.  After award up to 49% of the winner’s interest may be transferred to foreign company to help bring into Nigeria international know-how and funding, subject to approval.

The pressure is on and the DPR has issued a 6-month bidding process which started in June.

Many bidders will be seeking to emulate successful Nigerian marginal players such as AMNI, Shoreline Energy and Seplat Petroleum.  But with the recent fall in oil prices, tight timeline, historical marginal field failures and requirement for signature bonuses, bidders will need to tread carefully.

Key to bidders’ success will be creating a well thought through marginal field business case that carefully considers the nature of the opportunity and articulates their competitive advantages.

Key Content of a Marginal Field Business Case

  1. Resource
  • Size, potential for material development
  • Type of hydrocarbon
  • Resource risks and upside
  1. Local/Country/Regional Assessment
  • Resource and growth potential within company
  • PESTLE Analysis
  • Reputation risk
  1. Strategic Fit
  • Partners:
    • Service companies and technology providers
    • International oil companies
  • Technology – e.g. EOR
  • Marginal fields experience
  1. Market Assessment
  • Markets served
  • Transportation
  • Prices obtained
  1. Downstream Opportunities
  • Processing
  • Value chain synergies
  1. Granting Instrument
  • OML terms and legal aspects
  • Stability
  1. Development and Production Feasibility/Concepts
  • Scope of recovery scheme – asset management
  • Schedule and milestones
  • Costs
  1. Infrastructure and Export Systems
  • Existing versus new build
  • Integrity and access
  1. Economics
  • Material value creation
  • Sources of value
  • Asset valuation
  1. Supply Chain and Logistics
  • Supplier performance
  • Total cost of ownership
  • Contracting strategy
  1. Healthy, Safety, Environment and Security
  • Major hazards
  • HSSE management requirements
  1. Finance
  • Use of funds
  • Source of funds
  1. Local Laws and Regulations
  • Understanding the bidding process
  • Stability
  • Local content requirements
  1. Competition
  • Competitive strength
  • Potential JVs
  • Bidding strategy and premium

WBC will support clients taking part in the marginal field bidding process through:

  1. A FREE webinar
  2. A series of Virtual Workshops each of 1-2 hours and designed to build your capabilities in developing the marginal field business case.
  3. An online version of WBC’s popular “3 Day MBA in O&G” adapted with content specifically addressing marginal fields.

For further details on Marginal Field Business Case development, email angus@warrenbusinessconsulting.com or telephone/WhatsApp on +44 754 026 9827.

*Marginal fields:  defined in the guidelines as any undeveloped discovery that has lain fallow under existing OMLs operated by international oil companies for 10 years or more.  They are usually fields which existing investors have considered as uneconomic to develop.

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