Econometric Analysis of Oil Price Volatility and its Impact on Marginal Field Economics in Nigeria

Abstract

This study provides an econometric assessment of crude oil price volatility and its transmission to the Nigerian marginal field sector during 2020–2026. Utilizing EGARCH, TGARCH, and the Heston Stochastic Volatility model, it captures asymmetric leverage-effect and fat-tail characteristics of Brent crude returns, wherein negative shocks generate disproportionately higher volatility than positive ones. A global supply surplus of 3.85 million barrels per day in 2026 is projected to depress Brent toward $50–$60/bbl. Sensitivity analysis of a Niger Delta marginal field reveals a counter-intuitive result: higher recovery scenarios maximize NPV while reducing IRR due to capital intensity. Petroleum Industry Act 2021 incentives — a 45% headline tax rate and 0% royalty below $50/bbl — are examined alongside a 762.5% increase in rig counts and 90% reduction in production losses since 2021. The study concludes that shared infrastructure and agentic digital operations, reducing OPEX by up to 20%, are essential for viability at a $60 benchmark.