Developing Marginal Fields Profitably Through Technology and Capital Availability
By Sunny Oputa
The African oil patch is full of marginal oil and gas fields which if developed will help to boost the economy of the continent tremendously. Whether offshore or onshore, these fields which are considered marginal based on ranking of mega oil companies are abundantly “wasting” in many countries of Africa. Be it in Nigeria where there are more than 200 marginal oil fields, Equatorial Guinea, Ghana, Angola, and even in the region's new frontiers, name it, some of these fields will remained undeveloped.
When it comes to deep water exploration and production, it is certain that the Golden triangle of deep water production in the world is Gulf of Mexico, Offshore Brazil and West Africa. In these three areas, more deep water oil and gas fields have been discovered than any other place in the world. Unfortunately, West Africa is losing abundant revenue due to many fields classified as marginal which may never be put into production. Yet, there are tendencies that more deep water fields will still be discovered in West Africa. All of the fields to be discovered in future may not be like the Bonga and Agbami in Nigeria or the Jubilee Field in Ghana.
Some of the yet to be discovered oil and gas fields may end up been marginal fields due to the level of reservoirs which big oil companies consider not to be commercially attractive enough for them to produce. However, some of these field have the potentials of producing up to 100,000barrels of oil which at today’s price of oil turns out to be billions of dollars buried and untouched, while millions of Africa’s struggle in abject poverty - some living with less than $2 a day.
The characteristics of marginal fields, according to Department of Petroleum Resources Nigeria are:
Low reserves, long distance from existing production facilities thereby making them uneconomically viable to put upstream; Fields with crude characteristics that is different from current streams (such as API , viscosity), fields not yet considered for development because of marginal economics under current market and fiscal conditions; fields with one or more wells which have not been developed by the operating companies as a consequence of the company’s ranking including unapprised discoveries and undiscovered fields, but excluding fields with high gas and low oil reserves, producing fields which have become uneconomical when close to or passed abandonment limits. That is field abandoned due to economic reasons and also that marginal fields are small fields which cannot produce 10,000 barrels per day and are adjudged not viable for development by leaseholder.
According to Dr. Keith Millheim, who is an expert in production technology, “the simple answer why these marginal oil fields cannot be drilled is that conventional perceptions of reserves and deep water technology, costs, time, and the deployment of human resources continue to limit the development of these fields.”
Millheim went further to state that “the knowledge of the oil company ranking system is critical in understanding why many deep water fields, are ranked as non – commercial or declared non-commercial by mega oil companies. Another threshold been used by some companies are manpower necessary to do all the engineering and operations to commercialize a deep water field.”
In his further analysis, Dr. Millheim, stated that, another major reason companies are deferring or even backing away from some deep water discoveries are the upfront capital demands for field development without good understanding of the reservoir complexity.
Therefore, the bottom line to the challenges in developing deep water marginal oil fields between 50 and 100 million BOE in West Africa will not be developed in the near future, even with the price of oil around $100 per barrel. This presents a challenging scenario for West African countries that rely on the major E & P companies for development of their resources
As fields are ageing and does not fit into the commercial ranking of assets which were originally owned by mega oil companies, these fields are been sold out to marginal operators and other indigenous sole risk or JV companies. With government objectives of increasing indigenous partnership in running of oil and gas assets
Accessing capital to develop these assets economically and deploying appropriate technology amid market volatility to reduce remains a big issue in the note books of marginal and other indigenous operators. Inability to raise capital is one of the most crucial factors that militates the development of both large and marginal assets.
While there are many sources of funding, Damien Mauvais, Managing Director and Head, Oil/Gas Investment Banking, Standard Bank, London, said that a “challenging start and main key for operators to receive funding is offering the right risk and reward to providers of capital”. According to Mauvais, there are lot of capital available to the right equity and debt story.
It is paramount for operators seeking for funding to create and show well defined route to production and also part of a wider growth strategy. Added to building and presenting the right team, operators must show track record of value creation. This includes how they intend to do it and whether they have done such operations before. An outline of consistent progress toward production and a strategy of not to over promise or under deliver is very important. It is also necessary for operator to provide access to good data create opinion from credible third party. The importance of presenting an organic plan that has room for further development and possibility for acquisition cannot be overemphasized.
On sharing his thought on strategies for acquiring capital for development of assets, Mauvais explained the need to start engaging capital providers early and for operators to do proper home work. He went further to say, that hiring and advisor could be an advantage and also operators should have it at the back of their mind that you never raise too much equity.
In this journey to elevate indigenous participation, it is also valuable for governments to be mindful of the structures of energy reforms they propose. Every energy or fiscal policy has a way of raising country risk that might deter capital providers and investors from aligning with local operators in developing their assets.