HOW TO START AN OIL SERVICING COMPANY IN NIGERIA
The petroleum sector is one of the highly regulated sectors in Nigeria, and as such, every entity intending to engage in such sector must be duly licensed to do so. The procedure to start an oil service company in Nigeria starts with the incorporation of such an entity and obtaining a requisite license in Nigeria. The steps to start an oil & gas service company shall be discussed briefly below.
The steps for starting an oil and gas service company are
- Incorporation of Company– the first step to starting an oil service company in Nigeria is to incorporate the company with the Corporate Affairs Commission. This incorporation is regulated by the Companies and Allied Matters Act (CAMA), 2020 (as amended). Only companies incorporated in Nigeria are allowed to engage in the exploration, production, and distribution of oil and gas in the petroleum sector of the Nigerian economy. Every foreign company seeking to carry out oil services in Nigeria must also register in Nigeria exempt such a company has been exempted by the Federal Government by the provisions of CAMA.
- Obtain the Company’s Tax Clearance Certificate (TCC)– this certificate is an important and compulsory certification for operating an oil service company in Nigeria. It is issued by the Federal Inland Revenue Service (FIRS) to evidence that the company’s tax affairs for the preceding years are in order. Even where the company is newly registered, the TCC must be obtained by the company.
- Obtain the Department of Petroleum Resources Permit– Some various permits or licenses must be obtained from the Department of Petroleum Resources before the commencement of operation as an oil services company. Some of the relevant permits are Oil & Gas Industry Permit (OGSIP), which are three categories namely; general, major, or specialized, depending on the specific service the oil servicing company intends to provide. For companies that intend to offer oil and gas services on the offshore, they are required to obtain the Offshore Safety Permit (OSP). The application for the OGSIP permit must be accompanied by the required information and documents such as TCC, Nigeria Social Insurance Trust Fund (NSITF) payment receipt among others.
- Obtain the Nigerian Social Insurance Trust Fund (NSITF)- The Nigerian Social Insurance Trust Fund is targeted at protecting private-sector employees and their dependents from financial difficulties in the event of either disease, injury, or death associated with the employee’s employment. The NSITF is also one of the requirements to obtain the DPR Permit.
- Obtain the Industrial Training Fund (ITF) Certificate– this certificate is one of the important documentation required to be obtained to start an oil service company in Nigeria. The purpose of registering with ITF is for promoting the acquisition of relevant skills in industry or commerce to generate a pool of indigenous manpower to satisfy the needs of the economy.
Employers that are liable to make contributions under the Fund are:
- Employers having five (5) or more employees in their establishment;
- Employers who have less than five (5) employees but having a turnover of N50 million and above per annum;
- Suppliers, Contractors or Consultants who bid for contracts from any federal government agency or parastatals or private companies.
- Registration with the National Pension Commission– this step is not compulsory for new oil service companies whose staff strength is below five (5). The certificate is obtained when the oil service company is making employee contributions. Although the registration with PENCOM serves as a pre-requisite to register with Nigerian Petroleum Exchange.
- Register with the Nigerian Petroleum Exchange (NIPEX)– obtaining NIPEX is an important requirement in the oil and gas industry. Major contracts and jobs are obtained and completed in NIPEX bidding platforms in Nigeria. It is important to state that oil service companies can carry on their business for some time without registering with NIPEX simply because some minor jobs and contracts can be offered without going through the NIPEX bidding system.
- Registration with Production Companies– To start an oil servicing company in Nigeria, most oil and gas production companies such as SHELL, TOTAL, NLNG, etc, will require registration with them before oil services can be rendered to them. The time frame for registration with these production companies differs from one production organization to another.
- Registration with the Local Content Board (NCDMB)– to operate an oil service company, it is crucial to register for Nigerian Oil & Gas Industry Content Joint Qualification System (NOGIC-JQS) with the Nigerian Content Development and Monitoring Board (NCDMB). Essentially, the NOGIC-JQS is a data consolidation on all major activities in the Nigerian oil and gas industry. Under the NOGIC Act, the NCDMB must ensure local talents are engaged in oil and gas sector, and the majority stakes in any upstream oil service company are held by Nigerian citizens.
Oil service companies are essential to the upstream sector of the oil & gas industry, as they provide services such as constructing rigs, designing pipes and pipelines, carrying out technical, mechanical, engineering, construction works, which range from mechanical, electrical, carpentry down to supplies among other functions. Under Nigerian law, it is an offense to engage in any oil & gas services without the appropriate permit or license.