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THE PROCEDURE FOR OIL EXPLORATION LICENCE IN NIGERIA

THE PROCEDURE FOR OIL EXPLORATION LICENCE IN NIGERIA

 

Introduction

The oil industry is primarily one of the most important sources of growth and development for the Nigerian Economy. It brings the avenue of generating revenue to the government, fostering business partnerships with the nation and multinational companies, providing an average of 90% of the country’s export revenue, providing job opportunities to its citizens etc it is undoubtedly the backbone of the Nigerian economy.

It would be trite to state that the Constitution, the Petroleum Act and the Exclusive Economic Zone Act grants the right as well as control of all the nation’s mineral resources (Oil and Gas) found in its geographical location and its territorial waters to be vested solely in the federal Government Conferred under Section 44(3) of the Constitution of the Federal Republic of Nigeria.

Oil Exploration Licence

Exploration companies conduct petroleum operations through licenses given to a company or a joint venture, allowing them to search for commercially feasible deposits for the extraction of petroleum.

An Oil Exploration Licence is non-exclusive and granted in respect of areas of unproven reserves for the exploration of petroleum. The licence confers exclusive rights of surface and subsurface exploration for the production of oil in an area not more than 2590 square kilometres. The Oil Exploration Licence granted expires on December 31 in the year it was granted with the option to renew for a further year.

In acquiring an interest in an oil field, a company must first obtain an Oil Exploration Licence (OEL) to explore the concession area. After the OEL expires, the company can apply for the OEL to be converted to an oil prospecting licence (OPL) so that it can exploit petroleum discovered. If the company then discovers oil in commercial quantities and it satisfies the conditions set by the Minister of Petroleum Resources, the company can apply for its OPL to be converted to an oil mining lease. An oil mining lease will allow it to produce and dispose of any petroleum discovered.

Regulatory Agencies that Govern OEL in Nigeria

  1. Ministry of Petroleum Resources
  2. Department of Petroleum Resources (DPR)
  3. Nigerian National Petroleum Corporation (NNPC)
  4. Nigerian Oil Spill Detection and Response Agency

Criteria to be considered before an Oil Exploration License is granted

 

The minister of petroleum has the absolute discretion under the Petroleum Act through the Department of Petroleum Resources to grant an Oil Exploration Licence (OEL) to companies incorporated for the exploration, extraction and production of oil and gas in Nigeria.

The Petroleum (Drilling and Production) Regulations outlines the application process and requirements for submission which are:

  1. Evidence of the Licence Financial status
  2. Ten copies (10) of a map on a scale or scales specified by the DPR upon which is marked in red, as the area in respect of which the application is made.
  3. Technical competence
  4. The proposed work programme of the exploration operation
  5. the proposed annual expenditure
  6. the licence capacity to market petroleum found
  7. annual report on the licensee exploration and production activities
  8. any other information that may be required by the minister of petroleum

 

The government awards exploration licence through competitive bidding processes known as Licensing Round. Criteria for this award are:

  1. the licensee must provide evidence of financial and technical capacity
  2. the applicable premium such as signature, production bonuses and prospectively
  3. Evidence of commitment to projects of strategic national interest and work programme commitments.

 

Procedure to obtain an Oil Exploration Licence

There are several major steps to take in applying for an Oil Exploration Licence which are as follows:

  1. An application is made on the letterhead paper of your company to the Minister of Petroleum Resources requesting for Oil Exploration Licence, indicating sufficient technical knowledge and experience and sufficient financial resources to operate oil exploration effectively.
  2. The copy of the application and ID of the payee should be taken to the nearest bank to pay for the registration application form or opt with the option of paying online with your ATM Card.
  3. The applicant shall attach all the required documents which include the following:
  • A completed Application Form
  • A copy of Certificate of Incorporation and company profile
  • A certified true copy of Memorandum and Articles of Association
  • A certified true copy of Form CAC 7 (profile of the Directors)
  • Bank draft drawn in favour of the Federal Government of Nigeria
  • A copy of the technical agreement of MOU Partnering with a Nigerian organization or firm in exploration if any
  • A copy of current tax Clearance Certificate
  • Training programme for Nigerian staff
  • List of equipments facility to the company
  • Proof of technical experience from previous work in oil exploration if any
  • DRP Endorsed Request for Expatriate Quota
  • Location of the business, Contact address (email, phone number, website) of the business
  • Current workmen compensation policy
  • Community affairs, safety, heath environment and security
  • Copy of company ID of staff handing for the company
  • Mission and objectives of the organization
  • Copy of current medical and retainership agreement with the hospital or clinic
  • Evidence of payment of the non-refundable registration fee

All these documents will be attached and submitted with the application to the Department of Petroleum Resources Registration Department.

  1. The next step is to take the completed application form to the Federal Ministry of Petroleum Resources department of registration for exploring oil centre, along with the original copies of requisite documents for verification. These details will be uploaded into the department database.
  2. After the successful capturing of the applicant’s details into the departments’ database, a temporary slip will be printed as proof of registration pending the readiness of the application for approval or rejection based on the decision of the Board.
  3. Where the Minister is satisfied with all the work done and report submitted by the license, the Minister then permits in writing the Department of Petroleum Resources to grant a Licence of Oil Exploration to the applicant.
  4. After the Board’s decision, the applicant will be contacted that the Oil Exploration License is ready for collection at the Federal Ministry of Petroleum Resources where you registered.

The Minister who depends on the recommendation of the Director General of the Department of Petroleum Resources and in accordance with guidelines, special terms and condition to be followed in oil exploration grants the licence.

Some of these conditions are to be considered before the issuance of an exploration license:

  1. The minister considers the likelihood of exploitation of natural gas discovered
  2. He also considers the participation by the Federal Government in the venture to which the licence relates on terms negotiated between the Minster and the Applicant for the licence.
  3. That the applicant is of a good reputation, a member of a reputable group of companies.
  4. The applicant has the sufficient technical knowledge and financial capability to operate effectively under the licence.

 

Who is eligible to apply for this licence?

Any registered oil companies and stakeholders who wish to explore for oil and gas operation in Nigeria are qualified to apply for the OEL. The company which is qualified under the terms and condition as stated above is free to apply for the grant, award and licence for the exploration to the minister of Petroleum Resources.

 

Revocation of an Oil Exploration Licence

The licence can be revoked where the applicant is not consistent with the provisions of the Act in respect of the licence, including the terms and condition as stated therein.

 

Renewal of Oil Exploration Licence

The Oil Expiration Licence has the duration of 1 year, terminating on the 31st December next following the date it was granted. It can be renewed for one further year.

The applicant can apply for a renewal of the licence to the Minister at least three (3) months before the date of expiration of the licence, where the applicant has fulfilled the following conditions:

  • The Applicant has fulfilled in respect of the licence, all obligations imposed upon him by this Act or otherwise;
  • The Minister is satisfied with work done and the reports submitted by the licensee in pursuance of the licence

 

Withdrawal

An applicant can withdraw its application by notifying the Minister of the intention in writing, and the Minister shall accept the withdrawal if the prescribed fee of N20, 000.00 (Twenty Thousand Naira) is paid. The Minister can also waive the payment of this fee for the applicant withdrawing.

 

Caveat

The Oil Exploration Licence does not apply to any indigenous company operating in the upstream sector whose aggregate production is less than or equal to Fifty Thousand (50,000) barrels per day of crude oil or natural gas equivalent.

 

Samples and Specimen

The holder of n Oil Exploration Licence is allowed to remove for examination and analysis samples and the specimen of rocks and petroleum found by it in the course of its operation. These samples are given to the Director of Petroleum Resources if requested.

 

Appointment of a Manager

The holder of a oil exploration license must appoint a manager who is resident in Nigeria to supervise the operations under the licence. The holder of the licence must notify the Director of Petroleum Resources in writing of the appointment by providing the name and address of the manger. The manager has a continual charge of all operations authorised by the licence.

 

Post- Grant of Oil Exploration

As soon as possible but not six (6) months after the grant of the licence, the licensee can commence the examination of relevant area by geographical, geophysical and any other acceptable method for the purpose of arriving at the petroleum-producing prospects until the area has been adequately explored for that purpose., and this examination process continues during the sustenance of the licence.

The work under carried out under the examination shall be supervised continuously by a qualified geologist, carried out to the satisfaction of the Director of Petroleum Resources.

Where the licensee discovers any hydrocarbon, it must report without delay to the Director on the discovery. In addition to the report and information submitted, the licensee shall also within two (2) months of the expiration of the licence forward to the Director a report in triplicate on the work done and conclusions reached in the relevant area. Necessary data, maps, plans and sections accompany the report.

In conclusion, it is worth of note that the following restrictions are applicable to a granted licence:

  • The Licensee upon the grant of a licence cannot assign the Oil Exploration Licence without the consent of the Minister of Petroleum Resources.
  • The holder cannot extend the scope of operations beyond the areas covered by their licences.
  • A licensee cannot commence operations or exercise any rights of control in areas within its licence, if such area is held to be sacred, appropriated or dedicated to public purposes unless the applicant obtains consent from the Minister.

Finally, the Oil Exploration License is sacrosanct before any exploration of oil can be carried out in Nigeria, as failure to obtain such license shall amounts to criminal conduct in accordance with the provisions of the Petroleum Act.

 

Written by Oil & Gas Law Department at Resolution Law Firm, Nigeria

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