Marginal Field Development in the prolific Niger Delta environment has taken on added significance since the Federal Government of Nigeria adopted an aggressive Reserve and Production Capacity development strategy as a launch pad for rapid economic development. The last few years have witnessed a number of developments in this area with the Government approving a new set of fiscal parameters for Marginal field development. Various strategies have been proposed to enhance the economic value from Marginal field Assets ranging from early production systems, to innovative least cost production strategies such as the use of a converted Jack Up Rig with subsea storage, to accelerating production through the use of horizontal wells. These strategies involve significant tradeoffs, sometimes quite sophisticated technologies and cost implications.

This paper examines the economics of Marginal Field Development using the latest NNPC fiscal/regulatory terms of December, 2000 with a view to identifying the most significant variables impacting the economics. From knowledge of the economic variables and their impact, insights into potentially proactive strategies to improve Marginal field economics are developed.

Preliminary studies inform that a much more aggressive production strategy be considered for marginal field exploitation since time value of money considerations have a disproportionately large impact in such economics and should be exploited. The production variable is treated as one of the main uncertain variables in the probabilistic model - Nigerian Oil Economic models are usually production dominated. The option of the Oil Majors taking equity participation in Marginal Field development and hence making available their technical expertise has very low probability of success. The main reason that these fields don't make it to the development stage in the budget allocation process of most Majors is economic. The current strategy in which the Majors negotiate an Overriding Royalty rate with the Marginal Field operator is likely to be the preferred option because it is less risky, does not involve any risk of their capital or other resources, particularly scarce human resources.

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