Abstract
Marginal fields are typically characterized by low reserves, high sensitivity to oil price, high subsurface uncertainties, and significant economic and technological constraints. Despite these challenges, they remain a viable tool for local content and sustainable economic growth. Recent reports showed that they accounted for about 10% of total crude oil production in Nigeria. This contribution is quite low but more might be expected in the coming years. The interplay of cost, oil price and fiscal regime has significant impact on the profitability of marginal field assets because of the small reserves size. With persistence low global oil price regime, it has become imperative to critically analyze the economics of marginal oil fields in Nigeria. It is usual for government to design stable and flexible fiscal regimes for marginal field operators in order to capture unforeseen uncertainties peculiar to the oil and gas industry. This paper seeks to examine the profitability of marginal field operators under the prevailing fiscal regime. In addition the paper intends to recommend measures that can be taken to ensure profitability of marginal field despite declining oil prices. An economic model and stochastic simulation using prevailing fiscal regime showed that marginal field operations will be profitable if and only if reserves were at least 10 MM bbl. However, for smaller field size than 10 MMbbl, marginal field development may only add value with economic and policy incentives and cost minimization strategies. Thus, it is recommended that tax holiday should be given when oil price drops below $35/bbl. in order for marginal field development to add value.