FBNQuest analysts highlight risk in marginal field financing

Finance and investment analysts at the FBNQuest have underscored risk in raising finance for the acquisition of 57 marginal field advertised by the Department of Petroleum Resources (DPR).


On June 1, 2020, the Federal Government of via the Department of Petroleum Resources (DPR) formally announced the commencement of the long-awaited marginal field bid round.


According to the guidelines published by the DPR, a marginal field is defined as a field that has been discovered and left unattended for a period of not less than 10 years from the date of first discovery or such field as the president may from time to time, identify as a marginal field.


The FBNQuest stated in a document obtained by New Telegraph at the weekend that based on the independent due diligence results, prospective financiers would seek to ensure that transaction risks have been allocated to the parties’ best placed to handle such risks.


According to the anlysts, “as a bidder, it is advisable to have thought through all possible risks of the proposed transaction and work towards ensuring that risks such as geological, operational, environmental, price, regulatory risks and others are suitably mitigated.


“Extensive due diligence is, therefore, required particularly in Technical (Reserves and Associated Infrastructure) and Environmental areas. In addition, other critical requirements set out in the existing guidelines such as, evidence of technical capabilities of the management and operational teams, proposed field development plans, evacuation infrastructure etc are essential aspects of the deal which need to be taken into consideration and will be critically reviewed by prospective lenders.


“In spite of the current macro-economic environment, significant interest from numerous prospective investors shows that industry participants believe the process is long overdue irrespective of timing.


The energy sector, and in particular, upstream oil and gas, remains a critical sector for Nigeria. It is therefore in the interest of all industry participants that the marginal field bid round process is transparent and that bids are carefully evaluated against stringent criteria to ensure that these marginal fields are ultimately awarded to firms and or consortiums with the technical capacity and financial backing required to develop and operate these assets.”


Finance, according to the FBNQuest, “will be a critical aspect of this process and to ensure that industry players are able to successfully attract the funding required, the above items should be carefully considered as the bid round progresses. “In the oil and gas industry, due diligence is critical in view of the significant quantum of investment, as well as the technical, commercial and environmental complexities which can expose parties to significant risks. “Due diligence is sure to be undertaken by prospective financiers however, the level of due diligence will largely be dependent on the type of financing that the bidder is seeking to raise, with project finance structures requiring extensive levels of due diligence. “Bidders should note that although internal due diligence may have been undertaken on the intended assets, financiers will still seek to independently validate the due diligence results provided by the client.


Typically, financiers will require the services of specialists in various fields such as Technical (Surface and Subsurface), Legal, Environmental, Insurance and a Financial Model,




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