OIL AND GAS REGULATIONS
OIL AND GAS POLICIES IN NIGERIA
There are various laws regulating oil and gas in Nigeria. The principals among these laws are the 1999 Constitution of Nigeria (as amended) and the Petroleum Act, which vested ownership and control of oil found anywhere in Nigeria in the Federal Government. This includes oil located within any land in Nigeria, under its territorial waters, continental shelf or within its exclusive economic zone. Government participation in the oil & gas industry is through the National Oil Company, the Nigerian National Petroleum Corporation (NNPC).
Nigeria has 34 pieces of legislation, excluding regulations and directives, regulating various aspects of the oil industry. The Petroleum Industry Bill (PIB) pending before the National Assembly aims to harmonies all the legislations and significantly restructures the industry, particularly the functions of the various regulatory agencies, with a view to eliminating overlaps. The draft law, among other objectives, aims to:
In an attempt to secure the passage of the bill, the government has divided the bill and intends to pass it in phases. The first one is the Petroleum Industry Governance Bill. The aims of the bills are to:
The upstream sector, the most active sector of the Nigerian petroleum industry, is largely export-focused and until recently dominated exclusively by international oil companies. The Nigerian government’s marginal fields licensing regime and its local content development drive have led to increased participation of indigenous oil companies in the petroleum industry.
The Constitution vests ownership of mineral resources, including oil and gas, exclusively in the federal government and further confers on the federal government exclusive powers to make laws and regulations for the governance of the industry.
Apart from the 1999 Constitution, the other legislations impacting, governing and regulating the oil & gas sector in Nigeria are as follows:
The legal framework regulating the oil sector in Nigeria is based on several laws. The Federal Ministry of Petroleum Resources has primary responsibility for policy direction and exercises supervisory oversight over the industry. The Minister of Petroleum Resources (the Minister) issues regulations, guidelines and directives pursuant to the Petroleum Act and other enabling laws. The Department of Petroleum Resources (DPR) is responsible for the day-to-day monitoring of the petroleum industry and for supervising all petroleum industry operations such as:
Other important regulatory agencies include the Federal Ministry of the Environment (FME), Nigeria National Petroleum Corporation (NNPC), the Nigerian Content Development and Monitoring Board (NCDMB) and the National Oil Spill Detection and Response Agency (NOSDRA).
The government participates in oil and gas operations through the Nigerian National Petroleum Corporation by adopting various contractual models for the development of oil and gas resources (such as concession agreements, traditional joint ventures agreements, service contracts, production sharing contracts and sole-risk contracts).
The licensing regime under the Petroleum Act provides for the following Licenses:
This is a non-exclusive licence that permits a licensee to explore for petroleum in the licensed area. The OEL does not confer a right to an oil prospecting licence (OPL) or oil mining lease (OML). It is granted for one year and is renewable upon satisfaction of certain conditions. Due to modern technology available in the oil & gas industry, the government rarely issues this license again.
This grants the licensee the exclusive right to explore and prospect for petroleum and allows the licensee to carry away and dispose of petroleum won during prospecting operations subject to fulfilment of obligations imposed under the Act, by the Petroleum Profits Tax Act or other law imposing taxes on petroleum. The duration is determined by the Minister and it usually issued for a period not exceeding 5 years for onshore areas and shallow waters areas, while an OPL for Deep Offshore and Inland Basins issued for 10 years.
This is granted only to the holder of an OPL upon satisfaction of all conditions of the licence or the Act and having discovered oil in commercial quantity (currently defined as a flow rate of 10,000bpd). The lease confers on the holder the exclusive right to search for, win, work, carry away and dispose of petroleum within the specified acreage for a period of 20 years. This may be renewed subject to the fulfilment of prescribed conditions.
In conclusion, there are several laws regulating the oil and gas industry in Nigeria. This is because the oil & gas is very critical to the Nigerian economy; the earnings from oil & gas export is up to 90% of the total export earnings of the government. The most recent and radical of the laws is the Nigerian Oil and Gas Industry Content Development Act 2010 and following regulations and presidential directives, which mandates compulsory participation of Nigerian citizens in the upstream sector.
By Oil & Gas Law Team at Resolution Law Firm