Evaluation of the Profitability of Marginal Field Investment Using the Fiscal Provisions in the Petroleum Industry Act (PIA) 2021

Abstract

Abstract The passage of the petroleum industry act (PIA) 2021 in Nigeria established a new era in the petroleum sector of the country. Before the passage of the PIA 2021, marginal fields were operating using a separate fiscal arrangement that gave them special consideration. But the passage of the PIA 2021, made them operate like other fields depending on the terrain. The fiscal arrangement that governs marginal field investments is embedded in the PIA 2021. It offers marginal field operators dynamic fiscal terms that may increase their chances of survival during periods of low oil prices. This research considered the evaluation of the profitability of marginal field investments in Nigeria using the fiscal provisions in the PIA 2021. Investment in a typical marginal field in Nigeria was modeled using Excel. The fiscal terms in the PIA 2021 for marginal field investments were embedded into the economic model. The profitability of the marginal field investment was evaluated using profitability indicators such as net cash flow, net present value, government take, and internal rate of return. When the oil price was $80/bbl, the contractor's take was higher than the host government take. The contractor's and host government take when the oil price was $80/bbl were 52.40% and 47.60% respectively. While the contractor's and host government NCF when the oil price was $80/bbl were $247.52 MM and $224.816 MM respectively. This shows that the fiscal provisions for marginal field investment in the PIA 2021 are very attractive compared to other fiscal regimes in Nigeria.