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  • How to buy a marginal field in Nigeria

    So you want to buy a marginal field in Nigeria? Heck, who doesn't want to, right now? Ok, I get it. I got you covered. Let's do a burlesque style article about the whole process, shall we? 

    Marginal oil field

    Congrats on your decision. Like one million other people who have also just made this decision, you are on the road to hardship, sleepless nights and potential disappointment but you might make a few millions so congrats again.

    Nigerian govt couldn't have chosen a better time. Oil is in the $30s, PIB is not passed, US no longer needs our oil, China is yet to recover, OPEC has cut output, bank loans to O&G sector are in trouble. History will likely say 'it was the best of times and the worst of times' 

    But they have no choice really, its a revenue drive. There are probably about 60+ fields that are available and even if all you get is $5m as signature bonus, then a share of the cut on the field valuation, FG could book some real good millions, not so sure about billions 

    What are marginal fields?

    Well you could say they are used fields (okrika fields) but that won't be fair to the ones which just never got developed because the IOC that owned them just never got to developing them. So let's give a serious definition, shall we? (deep breath) 

    A marginal field is a small field with reserves undeveloped that has been relinquished by an IOC or deemed commercially unprofitable for the IOC but not for a smaller producer. IOC - Intl Oil Company - Shell, Total, Agip, Chevron, Exxon, etc. So a gateway into the big leagues!! 

    But you get the issues, the fields are available onshore, swamp, shallow water, offshore. You can do this the easy way or the hard way. The choice is yours. You can try yourself and buy a field without proper research and end up with a technical problem that costs millions to fix 

    So what should you buy, who should you buy from, how do you go about buying? Let's go there.

    First here's an article about the botched round that was mulled in 2012, then moved to 2013 and later 2014, then cancelled : Nigeria’s Bid Round Delay Opens To Speculative Lists

    if you click on the link, you'll find a list of the assets that were available back then in 2014, numbering about 46. I think we could have up to 70 fields available now but not all will make it into the round. Oh to be a fly on the wall in DPR right now!!!

    Specification

    Anyway, what's your spec? 

    You want a field that's as old as the discovery of oil in Nigeria, managed by a correct operator like Chevron? I got you bro....OLURE on OML 49 is your best bet. Correct asset, up to 12 million barrels in potential oil reserves. You can do maybe 25/50 barrels per day & buy hummer 

    No? You are too classy for something that old? Ok I gat you. How big is your pocket? Egbolom is almost my age mate sha but Shell finish work there bro for OML 23. Baba, we're talking almost 220 million barrels in reserves. Plug and play oil field. Stainless lomo. Ebeano. 

    Ok...that one is too big for you. Let's come to your level, the Gbagada level of assets. I got you Sis. Usoro on OML 100 from Total or Ugbo on OML 40 from Shell are not too bad. Just manage the water injection or install gas lift and you're good to go, you know...small fixes.

    6 steps to avoid buying the wrong marginal field

    ok...let's get serious. Buying a marginal field is a lot of work and here are 6 steps to avoid buying the wrong asset and making a success of it all in no particular order

    1) If it lacks evacuation facilities within the next 10-15km, don't even give it a second look. 

    2) if the field only has a 2D seismic study, bounce. Unless you're an experienced operator, already operating around that area. If the 3D seismic is older than 10 years also - same thing. You have to reshoot it, interpret, then redo your drilling evaluation before sinking a well 

    3) Talk to the geologist on the field previously. Under all the sub-surface issues. This thing is not small money. Sometimes you may have to just buy the entire team that worked on the field previously with the field if you really want to do this thing right. 

    4) if you're a newbie to oil and gas operatorship, like you've worked in a O&G company but not led operations, don't even look at swamp/shallow/offshore. Just stick with onshore. Do some research on state of community relations but save yourself some stress and stay onshore. 

    5) Who is your partner? Do you have the same idea about what you want to do with a field? Does your partner just want to buy the field and sell it on or actually develop and add value? Does your partner understand his stake/share of the field or thinks his sweat equity means he is entitled to more.

    Clarity around these things can save you a world of heartache and late-night meetings. Someone contributes political connections and wants a 10% equity stake. There's a modular refinery in Houston that never made it to Nigeria because of this. Clarity. 

    Raise a lot of equity. Raise a lot of equity. I am telling you. You are going to use a lot of debt so raise as much equity as you can from the get-go. Talk to private equity, venture capital firms, get mez funds if you can. But equity gives you more liberty to take needed steps 

    What if you have to write off a well? What if you have to reshoot your seismic? What if you need to get a specialized pump for your kind of oil/well because of the technical nature of your field/reserves? You could use debt for these anyway or you could use your equity? 

    Ok...that's all for now.

    Author

    Updated on 6:09-am June 29,2020


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