Picking up the pieces from marginal fields

There has been laudable progress by the marginal field operators from the winners of the marginal fields bid round of 2003. However, a greater number of them failed. Less than 60 percent of the 24 fields are yet to be developed or reach first oil – 13 years after. The Department of Petroleum Resources (DPR) threatened severally to revoke about 18 of the marginal fields having missed the deadline for development of the fields.

There are a plethora of reasons for the non-performance of some of the marginal fields. Some of the challenges enumerated were on funding issues, shortage of Forex due to low oil prices, insecurity and deferred production due to attacks by militants, fiscal issues that pertains to royalty, PPT; low oil prices and market volatility, declining FDI due to country risks, problems of technology, equipment availability, lack of standardized processes, failure of local banks to grow domestic investment market due to funding of IOC divestments. There are also enumerated issues of multiple regulators from the side of government and incessant risk emanating from host communities.

The former Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, had in November 28, 2013 announced the commencement of the exercise, with 31 fields on offer, 16 of which are located onshore, and 15, offshore. It never happened after all the publicity, roadshows and town hall meetings.

But there have been success stories from the marginal fields. Dolapo Oni, energy analyst at Ecobank, said the marginal field programme gave a lot of indigenous companies access to oil and gas resources in the country.

“It provided them with the industry experience and also financial backing to expand production such that they can now look into acquiring assets being divested by IOCs. The programme has also encouraged the growth of the local content,” Oni said.

In a way, the government achieved part of its objectives of ensuring that indigenous companies play a greater part in developing oil and gas assets.

Lessons from low oil price

A lot of exploration and production deals were consummated at over $100 per barrel at a do-it-at-all-cost era. Had the price remained so, it will still be profitable and the deals would be deemed successful but with the plunge of global crude oil prices to below $30 per barrel, it is almost impossible to operate those assets.

The market volatility exposed poor operational system and unhealthy financial condition of some of the marginal fields which hitherto were thought to be strong and vibrant.

“They are merely portfolio companies that could still be operated out of a “coffee shop”. In times of boom, they could only flip assets, conduct farm-in and farm-out or operate haphazardly”, said an analyst.

The drastic slide in prices has also given some investors and banks jitters. Banks have suddenly found out that some loans were given out without adequate risk analysis and due diligence. There were also companies that truly knew that what they declared as commercial finds were mere pockets of gas trapped oil and at the period of boom, banks and investors were not caring much to go into details.

Picking up the pieces

At a recent Africa Small and Marginal Oil Fields Development conference in London organized by Energy & Corporate Africa, industry stakeholders identified multiple regulatory conflicts as one of the challenges frustrating the operations of marginal field companies in the country. They stressed the need for the government to align its policies in order to curb the conflicts by its regulatory agencies.

In its communiqué, they stressed need for government to align its policies in order to avoid multiple regulatory conflicts by its agencies which frustrates the operations of marginal field companies.

“The exigency on the part of government to recognize that for the objectives of promoting marginal field development to be achieved fully, government must be proactive to global issues, support marginal field operators and should not use same yard stick to bench mark or regulate marginal field operators and international oil companies”, they stated adding that indigenous companies should also ensure corporate governance, by avoiding family laden organization and anything that will dent their reputation, create a high performance corporate culture to be a preferred place to work by their employees, build strong team with technical and organizational expertise, uphold social license and robust community relations, have proper internal control system, show competency in HSE, seek for quality alliance/partnership and invest in human capital to ensure capacity building through quality training.

On how to access capital for the development of marginal oil fields in Africa, the conference established that for indigenous operators to receive funding they have to put the right story to banks. This will entail a clear strategy which shows a well-defined route to production; presenting a right team that has a track record of value creation and also indicating that they have done it before.

“The indigenous company seeking for fund must also show consistent progress towards production and should not over promise or under-deliver. It is also important that such companies should be able to demonstrate asset value through access to good data, opinion from credible third party and present a well identified upside by way of intents for future acquisition”.

FRANK UZUEGBUNAM