The determination of Renewal Bonus has been the concern of the Department of Petroleum Resources. Renewal Bonus is the amount to be paid by leaseholders to Government for the renewal of expired leases. The challenge has been which technical criteria should be used for an equitable determination of the bonus to be paid to ensure industry-wide acceptance.

To overcome this concern, an economic model was developed and fine-tuned using already existing fiscal terms. The model was made robust by using actual oil, gas and condensate production data over the life of the block, the company's projection of the performance of the blocks over the next five years that is acceptable for business decision making and its further estimates for fifteen years to cover the twenty year renewal period, assuming its license renewal is approved.

The economic model was run using existing fiscal terms together with the concession's historical OPEX, CAPEX, and annual production. The ultimate recovery and reserves of the fields within the block was also utilised. The model then determined the NPV for liquid (oil and condensate) and gas (Associated and Non Associated Gas) over the twenty-year renewal period. The model was run over the block life covering periods before expiration up to the new twenty-year renewal time and beyond.

Company equity and logically derived Renewal Bonus Constant was used to compute the amount to be paid by the operator. Sensitivities were run on the model to determine the best-case scenario for liquids, gas and BOE (for a combination of liquids and gas) that could enable the DPR management make appropriate, fair and therefore acceptable recommendation to the Honourable Minister of Petroleum Resources (HMPR).

The result of the Renewal Bonus for each company suggested consistency when the plots of Renewal Bonus against the BOE for all the companies were made.

This paper is intended to give insight to the fairness of the DPR in technical decision making that have led to effective advice to government.

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