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 10 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 harmonize 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:
- Make sweeping reforms by repealing laws like the Petroleum Act 1969.
- Create new institutions to govern the operations of the industry, incorporation, and privatization of the Nigerian National Petroleum Corporation (NNPC).
- Transform the existing unincorporated joint ventures between the multinational oil companies and the NNPC into incorporated joint ventures.
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:
- Establish a framework for the creation of commercially oriented and profit-driven petroleum entities.
- Ensure value is added and the international best practice of the petroleum industry is adopted.
- Promote transparency in administering petroleum resources
- Create an environment that allows petroleum industry operation
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 the exclusive power 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 Petroleum Act and the Schedules and Regulations made pursuant to it: the laws provide the framework for the licensing of oil and gas companies to engage in activities connected with the exploration, production, and transportation of crude oil;
- The Petroleum Profits Tax Act: it provides the framework under which the federal government obtains revenue from oil and gas operations by way of signature bonuses, royalties, and taxes;
- The Deep Offshore and Inland Basin Production Sharing Contracts Act: this Act gives incentives to oil and gas companies operating in the Deep Offshore and Inland Basin areas under Production Sharing Contracts (PSCs).
- The Nigerian National Petroleum Corporation Act: the Act establishes the NNPC and empowering it to participate directly in petroleum operations on behalf of the federal government;
- The Environmental Impact Assessment (EIA) Act – providing the framework for assessing the impact of oil and gas projects on the environment;
- The Federal Inland Revenue Service (FIRS) Establishment Act 2007 – detailing the statutory powers of the FIRS to collect all taxes, fees, levies, royalties, rents, signature bonuses, penalties for gas flaring, depot fees, including fees for oil prospecting licenses, oil mining licenses, etc.;
- The Education Tax Act – it provides for the imposition of annual taxes of 2 percent of assessable profits on oil and gas companies for the development of Nigeria’s educational sector;
- The Niger Delta Development Commission (Establishment) Act – it mandates the payment to the Commission by oil and gas companies of 3 percent of their annual budgets for the development of the Niger Delta areas where oil and gas are exploited;
- The Nigerian Oil and Gas Industry Content Development Act 2010: it provides a framework for promoting the participation of Nigerians in the oil and gas industry and laying down the minimum thresholds for local contents utilized in the sector;
- The Nigerian Extractive Industries Transparency Initiative Act 2007: it provides the framework for transparency and accountability by imposing reporting and disclosure obligations on all oil and gas companies upon requirement by NEITI of revenue due to or paid to the federal government;
- National Oil Spill Detection and Response Agency (Establishment) Act: it establishes the National Oil Spill Detection and Response Agency (NOSDRA), which coordinates and implements the National Oil spill Contingency Plan (NOSCP) for Nigeria.
- The Oil Pipelines Act; and
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:
- Monitors the operations of oil companies,
- Sets and enforces environmental standards.
- Collects royalty and rents.
- Supervises and ensures compliance with oil industry regulations.
- Issues licenses and permits.
- Ensures the protection of all oil and gas investments.
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 venture agreements, service contracts, production sharing contracts, and sole-risk contracts).
The licensing regime under the Petroleum Act provides for the following Licenses:
- The Oil Exploration License (OEL)
This is a non-exclusive license that permits a licensee to explore for petroleum in the licensed area. The OEL does not confer a right to an oil prospecting license (OPL) or an 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.
- The Oil Prospecting License (OPL)
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 fulfillment 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.
- The Oil Mining Lease (OML)
This is granted only to the holder of an OPL upon satisfaction of all conditions of the license 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 fulfillment 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