Implications of Petroleum Industry Fiscal Bill 2018 on Heavy Oil Field Economics

Abstract

Abstract Recent increase in energy demand has made necessary the exploitation of Nigerian heavy oil fields neglected in the 1990s. These heavy oil fields were neglected due to low oil price and lack of technology to aid their recovery. Stakeholders in the heavy oil sector have been divided over what fiscal framework applies for the exploitation of Nigerian's heavy oil. The Nigerian Oil Industry has a well-developed fiscal framework for light and medium oil exploitation and the Proposed Petroleum Industry Fiscal Bill (PIFB) 2018. This work studies the economics of an onshore heavy oilfield under the PIFB 2018, to examine the implications of heavy oil exploitation using the PIFB 2018 as a fiscal policy. Field production profiles showing exponential, harmonic and hyperbolic field decline patterns were developed to represent 25.38% recovery factor for a heavy oil field of 196MMSTB OIIP. Deterministic models were built featuring the fiscal instruments of the PIFB 2018, heavy oil price, capital expenditure, operating expenditure and economic metrics. The stochastic model featured the impact of heavy oil price, capital expenditure, price escalation rate, discount rate, and peak production on the contractor's and host government takes for the PIFB 2018. Our stochastic results show that the output variables are most sensitive to heavy oil price, discount rate and capital expenditure. The petroleum industry fiscal bill 2018 is found to be an efficient fiscal policy for the host government and contractor, giving take statistics of 49% and 51% respectively. Varying oil price and discount rate did not make the investment unprofitable but reduced the investment ranking. Exponential decline behavior proved most profitable, while hyperbolic decline proves least profitable. Adjustments of two fiscal instruments of the PIFB was made to enable contractors produce heavy oil using unconventional recovery method and remain in business during periods of low heavy oil price.