Abstract
Petroleum E&P operations in Nigeria were virtually restricted to land, swamp and shallow offshore until 1993. The Federal government, in its quest to open a new frontier in oil and gas exploration, allotted the first set of deep-offshore blocks to some international oil companies (IOCs) and indigenous oil companies, in 1993, to operate under contractual fiscal arrangements. The adoption of the contractual fiscal system was to provide a suitable agreement structure for encouraging investment in offshore acreage. As at year end 2015, there were seven deep-offshore producing fields, which contributed about 40% of total oil production in Nigeria.
There are a number of deep-offshore fields on the queue for investment decisions, but progress has been inhibited because of several factors, including the low crude oil price regime and lack of fiscal instruments and terms for natural gas development. The proposed Nigeria National Petroleum Policy of November 2016 estimated the cost of producing a barrel of oil in Nigeria as $28.99/bbl. At this high estimated unit cost, coupled with the sustained volatility in crude oil prices, the deferment of cost recovery and declining earnings from the field development projects have become inevitable.
This paper evaluates the impact of current fiscal provisions on deep-offshore developments and estimates thresholds of oil price, reserves and cost of services, with the view of determining optimal terms that will encourage new field developments. The model framework adopted for this paper is based on the generic discounted cash-flow modelling with considerations for risk and uncertainty analysis using Monte Carlo simulation process.
E&P investment measures are derived by solving a discounted cash flow equation iteratively in a coded Excel spread sheet model. Using estimated responsiveness measures, the paper investigates how to adjust contractual fiscal terms and instruments to make investing in E&P ventures in deep-offshore Nigeria offer satisfactory returns under low price regime. The significance of the impact of fiscal agreement terms and instruments using Monte Carlo simulation provides a framework to compare the performance of deep-water projects.
