Generally Marginal Field Operators agree that the Challenges Facing them include: Litigation with technical partners; many awardees have ended up in litigation with their technical partners. Capacity Building and Technology Limitations; There have been capability and capacity issues as well as technology limitations. Asset acquisition and management – many of the assets were not bankable and they could never have raised funds on them and agreements were delayed among other problems. The non-bankability of some Marginal Field assets; has led to the inability to raise funds for the development of the fields. Environmental Issues; Many have had environmental issues such as communities, security, gas flaring, among others)

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Marginal Field Operations...What You Need to Know.1
The nature of the Oil and Gas industry in Nigeria makes it unattractive for commercial
lenders to agree to finance such projects when they are embarked upon by smaller
companies.
Regardless of the difficulty in securing loans oil and gas exploration projects have
developed alternative means of finance through the use of Drilling Funds, Illustrative
Agreements, Royalty Purchase, Sale Purchase Agreements, Production Sharing Contracts
and Farm Out Agreements.
History of Farm Out Agreements
The term “farmout” came about from the Roman practice of transferring the right to
collect taxes to a third party for a fee. This practice spread to England, Scotland and
France but was abolished a long time ago.
Farm Out Agreement
Farm Out Agreementshave been extensively used in the oil and gas industry as an
alternative means of financing exploration activities. A “Farmout Agreement” is an
agreement between operators whereby a lease owner (Farmor) assigns the lease or a
portion of it to another operator (Farmee); the obligation of the assignee to drill one or
more wells on the assigned acreage is the primary characteristic of the Farmout.
Evolution of Marginal Fields In Nigeria
The main thrust of Marginal Field Development was to promote indigenous participation;
put an end to continuous holding of undeveloped fields by International Oil Companies
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(IOCs) without exploring same, increase government’s take on undeveloped acreages
and help in building indigenous capacity in the upstream sector.
The first marginal fields competitive bidding licensing round was held in February 2003
when 24 licenses were awarded. Interestingly of those 24(twenty four) marginal field
licence operators, it was reported that only 9 out of those companies are presently
producing.
However, indigenous companies have experienced many challenges making it difficult
for most of the awardees to reach production.
Generally Marginal Field Operators agree that the Challenges Facing them include:
Litigation with technical partners; many awardees have ended up in litigation with their
technical partners.
Capacity Building and Technology Limitations; There have been capability and capacity
issues as well as technology limitations.
Asset acquisition and management – many of the assets were not bankable and they
could never have raised funds on them and agreements were delayed among other
problems.
The non-bankability of some Marginal Field assets; has led to the inability to raise funds
for the development of the fields.
Environmental Issues; Many have had environmental issues such as communities,
security, gas flaring, among others)
This article attempts to address the possible causes of “Litigation with technical
partners” and possibly suggest solutions to same. Possible causes of disputes may
include skewed joint venture agreements, access to trade secrets and a willingness of the
technical partner to dislodge the farmee.
Litigation with technical partners
Some Nigerian companies have been awarded oil blocs and entered into joint ventures
with established oil majors, but found themselves holding the short end of the stick after
being schemed out of the equation by their supposed technical partners. Agreements

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entered into with Technical partners like all other agreements are not different from
stories in the sense that they tell a story about the agreement that both parties have
arrived at either independently or through the guidance of their lawyers if any. If there
was no “meeting of the minds” in the first place no matter how water tight the written
contract is, it would still explode into dispute.Above all get appropriate referrals
companies are like human beings their reputations precedes them.
What is a Joint Venture/Operating Agreement?
A joint venture is an association of corporations or other legal entities who agree by
contract to engage in a common undertaking for joint profit. Typically in Marginal Field
Operations the Joint Venture is usually between Marginal Field Operator and a technical
partner. The parties to a joint venture, (contribute money, intellectual property and
other assets) in order to produce oil and gas from a given acreage.
A Good Joint Venture/Virtual Partnership Agreement must...
It must not only be legally binding it must also make “business sense” for both parties to
be willing to abide by the terms, as some firms are of the opinion that is more profitable
to breach contractual terms and pay damages than to abide by the letters of an earlier
agreement. That is if the string of litigation that has plagued Marginal Field operators is
any indication to go by.
The Marginal Field Operators seem to suffer a disadvantage by virtue of their difficulty in
sourcing funds while the Technical partners seem to bring more to the table thus
fostering resentments.
Challenges/Pitfalls Unique to Joint Ventures
Lack of clarity, as regards who owns the assets, intellectual property contributed to the
project, improvements on such intellectual property or new property that is developed
may lead to ownership disputes that can be costly, lengthy and freeze a profitable
project.

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Trade secrets
Another possible cause of the endless litigation is the unhindered and “unencumbered”
access by the technical partners to the trade secrets of the Marginal Field Operators. It’s
not unheard of that a former technical partner turned around to apply for the same
acreage it was once engaged in as a technical partner with a marginal field operator,
having benefited from the knowledge it gathered as technical partner. Some cases were
resolved by the Courts with the former technical partners being made to pay a
percentage of their profits to the original lease/license owner.
A "trade secret" is defined as any product, operating formula, pattern, device or “other
compilation of information which is used in a business”, which gets its economic value
from being kept secret, and gives the business a competitive advantage.
The upstream oil and gas industry, “Marginal Fields Operators” inclusive depend heavily
on trade secret protection.
Trade secrets arise without any administrative process, they operate by denying
competitors information that is necessary to access and use the technology.
For trade secret protection to be operative, the owner of the trade secret must take
active steps to prevent dissemination of the trade secret information to the public by the
use of contractual and other methods.
Paradigms of Trade secrets protection
A school of thought as regards trade secrets states that ideas are ten naira a dozen; so
they share their innovations but believe in executing better and getting to the market
place quickly.
The second school of thought believes that you should treat your innovation as
proprietary, and use available legal means to protect it; data protection mechanisms,
nondisclosure agreement; non-compete agreements, employment agreements; and
generally limit access to valuable information.

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Conclusion
Marginal field companies are presently innovating; some are integrating value through
crude oil production (for example Nestoil), monetization of gas and small scale refining.
They are deploying new technologies to help them produce cheaper, better and faster,
with the right exposure our indigenous companies will grow to become major players in
the global energy scene.
The information contained in this piece should help inform the Marginal Field Companies
and their service providers as to possible alternatives, and possibly foster frank
discussion between the Marginal Field Operators and their Technical Partners prior to
signing any agreements and when in doubt all parties should please seek legal advice.
Olufola Wusu Esq. © 2013
folawusu@yahoo.com
Commercial Lawyer, Oil and Gas Contracts Specialist and I.P. Consultant
Please connect with me on LinkedInhttp://www.linkedin.com/pub/olufola-wusu/22/317/587