Economics Analysis on the Development of Nigerian Offshore Marginal Fields Using Probabilistic Approach

Abstract

Marginal Field Development in the prolific Niger Delta environment is of strategic importance to the Federal Government of Nigeria’s drive towards aggressive Reserve and Production Capacity enhancement. The objective of this study is to provide a perspective on portfolio diversification, investment and resource development on offshore marginal field in Nigeria. The economic analysis was carried out deterministically using economic indices like Net Present Value, Internal Rate of Return, Present Value Rate and others. Probabilistic model was also incorporated to assess the impact of the uncertainties in the input parameters using Monte Carlo simulation through the use of Crystal ball software. The key uncertainties were represented and their respective impacts on economic viability defined. The deterministic model results obtained from the studies were very impressive with Net Present Value of $526,749,924.84 at a discount value of 15% and Internal Rate of Return at 60%. Probabilistically, certainty of having a positive net present value (NPV) and good internal rate of return (IRR) values far above the hurdle rate for investment in Nigeria was obtained. The sensitivity analysis outlined oil price and tax rate as key sensitive parameters in maximizing profit. These clearly showed that the development of offshore marginal fields in Niger Delta of Nigeria is economically viable. Key words: Offshore marginal field; Probabilistic approach; Sensitivity analysis; Economic yardstick