The Effect of Capital Structure on the Performance of Marginal Oil Fields in Nigeria

Abstract

Marginal fields are pivotal to wealth creation and indigenous participation in the oil and gas industry. Despite the potential role of marginal fields in economic growth, indigenous operators are confronted with financing fields development. This study examined the relationship between capital structure and performance of producing marginal oil fields in Nigeria. Ten fields operated by five companies were empirically investigated between 2011 and 2021. Firm’s performance indicators are accounting-based measurement namely, Return on Asset (ROA) and Return on Equity (ROE). Capital structure measures are equity, long term debt and short-term debt. Panel Corrected standard errors regression technique was employed to analyse time series cross sectional data. Findings indicate that there was a significant positive relationship between equity and performance of Marginal fields in Nigeria. These corroborate Pecking order theory that firms use retained earnings first, then debts. Long term debt and short-term debt show negative relationship with marginal field operators’ performance. This could be attributed to the high cost of borrowing in Nigeria and the unwillingness of local banks to grant loans without adequate collateral.