Nigeria: How marginal fields are generating new opportunities

Felix Tsourakis
April 26, 2022
4 min

Nigeria: How marginal fields are generating new opportunities

2021 has been a year of restructuring and chasing new opportunities in the energy industry. For Africa though, it has been a year of establishing new norms. The recent pandemic accelerated the industry's transformation, originally driven by small and medium companies over the past decade, thanks to energy majors turning to diversification and green power.

Energy majors such as Shell, ExxonMobil, Total and Chevron, were acquiring the majority of assets available in Central and West Africa, during the previous century. However, not every asset being awarded would end up being developed by them or even see initial investment, due to lower profit margins, smaller scale results, or simply different priorities at the time. This resulted in an abundance of fields remaining undeveloped and inaccessible to smaller EPs that were eager to take available assets ripe for development.

One of the biggest paradigm shifts in Africa currently is the drive to tap into these resources.

The Marginal Field Licensing Round Concludes

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Pictured: Eng. Sarki Auwalu, Director & CEO, Department of Petroleum Resources of Nigeria

On the 1st of June 2020, during the peak of the pandemic, Nigeria’s Department of Petroleum Resources launched their Marginal Fields licensing round, making 57 marginal fields available, both onshore and offshore for local companies. The 57 marginal fields have over 800 mmbbl oil and 4.5 tcf gas in reserves. Between the 57 fields, the 25 largest oilfields have the potential to unlock over $9 billion of investment in the first five years of operation and generate over $38 billion in lifetime revenue. The majority of the available fields were previously held by majors, including Shell, ExxonMobil, Chevron and Total. Over 600 companies registered to participate, with 161 becoming shortlisted, and 50% meeting all conditions. It is estimated that Nigeria received over $250 million in signature bonuses so far. Throughout the licensing round, over 24 indigenous companies were awarded marginal fields.

“What is a marginal field? DPR defines it as a discovered resource that has been left unattended for more than 10 years.”

Why are marginal fields driving developments?

Nigeria is Africa’s biggest oil producer, and the 11th largest oil producer in the world. With 18 operating pipelines and an average daily production of 1.8 million barrels, Nigeria’s industry is in an advantageous position to accommodate opportunities for companies of all sizes in the oil & gas supply chain.

Nigeria’s indigenous companies are raising capital, and will require expert services, tools and advice to develop their fields. The development of marginal fields will drive demand of service in the next 5 years for service providers focusing on upstream, specifically for:

Seismic companies: 57 fields will require new 2D or 3D data, and for the fields with existing data, the operators will require expert data interpretation in order to make the right investment decisions

Geological Consultancies: Geological support will be necessary in all stages of the exploration and production life-cycle of the fields, including; basin studies, farm out services, evaluations, geological and reservoir modelling and Field Development Planning

Logistics companies: Supply chain management, maritime logistics services, vessel chartering, relocation of complete rigs and crew assistance both onshore and offshore

Artificial Intelligence: The application of AI has the potential to solve inefficiencies for marginal fields from the planning stages. From initial exploration activities all the way through to the end user, it can help with optimization in exploration, development, production, transportation, refining and sales.

Logistics: It can take over 60 suppliers and 6,000 invoices to drill an offshore well, a number that multiplies for the MF operators once we include the rest of the value chain. Logistics companies will find a lot of windows for operational and OPEX optimization

Environmental advisories: With Nigeria’s turn to energy diversification, environmental standards are being enforced with renewed standards. Local operators need expert advice and guidance on: identifying and managing environmental issues, environmental engineering, carbon and energy management, environmental and social impact assessments (ESIA), environmental modelling, environmental consent roadmaps and management systems

Drilling equipment: The marginal fields are creating demand for land rigs, complete offshore drilling packages, and drilling rig equipment and components designed to mechanize and automate complex drilling rig processes.

Pipeline connection: The 57 fields will need to explore ways to bring their oil & gas products to refineries, and then the market. For some of them the most cost-effective way will be to connect to one of Nigeria’s 18 available pipelines. This will require careful planning, construction and logistics services from companies experienced in midstream

Nigerian Marginal fields and M&A

When Nigeria put 57 fields on its Marginal Fields licensing round, Nigerian businessmen recognised this as an opportunity they must not miss out on.  With signature bonuses ranging from a minimum of $5,000,000 USD to over $20,000,000, only the most cash-intensive local companies were awarded fields.

However, the short one-year window of the marginal round from announcement to the closing of bids led to companies forming specifically to apply and secure marginal fields, while existing local companies applied with enough capital to be awarded the acreage, but not to develop and monetize these opportunities.

On top of this, the Covid pandemic slowed communications significantly, delaying fundraising efforts.

What does this mean for Nigeria’s M&A landscape? Nigeria has a new influx of companies looking to raise a wide range of capital to develop and monetize the newly awarded fields. This creates a window for investors looking for all sizes of opportunities, where they can invest in new opportunities in a mature but growing industry.

At the same time, with Nigeria’s green initiatives moving forward, investors have the opportunity to enter a country that will soon be divesting in an already energy-rich environment.

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