Upstream Petroleum Matters And The Petroleum Industry Bill - A Presentation At The Lbs Roundtable

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Upstream Petroleum Matters & the Petroleum Industry Bill: A Comparative & Critical Analysis of the Official Version & Version IV Dr. Adeoye Adefulu Odujinrin & Adefulu Barristers, Solicitors & Notaries Public Lagos – Abuja – Port‐Harcourt

Outline

Acreage Control  & Licensing

Official version  vs. Version IV

30/09/2009

Institutional  Framework

NNPC Ltd

Incorporated  Joint Ventures

•Licenses & Leases •PEL •PPL •PML •PPL & PML  Award Process •R

Odujinrin & Adefuluestd. 1972

Environmental  Management

Relinquishment  of existing  Licenses &  Leases

2

Official Version vs. Version IV Official Version vs. Version IV • PIB PIB was submitted to the National Assembly in  b itt d t th N ti lA bl i December 2008 – Gone Gone through 1 through 1st and 2 and 2nd readings and now at  readings and now at committee stage

• Executive Executive through an Inter through an Inter‐Agency Agency team  team continued work on the PIB which has now come  up with version IV • Version IV submitted to National Assembly as a  “memorandum” • Version IV substantially different from official  version 30/09/2009

Odujinrin & Adefuluestd. 1972

3

Institutional Framework Institutional Framework Official version

Version IV

Mi i Minister National  Petroleum  Directorate

Policy Direction Acreage Holder

30/09/2009

Mi i Minister

Petroleum  Inspectorate

National  Assets  Petroleum  Management  Agency

Technical  Regulator

Costs/commercial  Regulator

National  Petroleum  Directorate Policy Direction Acreage Holder

Odujinrin & Adefuluestd. 1972

Petroleum  Inspectorate Technical  &  Costs/Commercial  Regulator

4

NNPC Ltd. NNPC Ltd. Official Version • NNPC Ltd. to be estd. as a  limited liability company • Ownership vested solely in  the FG • Shares may be divested  to  Nigerians after 2 years on  i i f 2 the NSE

30/09/2009

Version IV • Retains same provisions • Sole vesting of powers in  the FG does not take the  provisions of CAMA into  consideration • Divestiture provision is  i i ii i limiting

Odujinrin & Adefuluestd. 1972

5

Incorporated Joint Ventures Incorporated Joint Ventures Official Version • Provides for the  establishment of IJVs as  limited liability companies  • Shares in each IJV to be held  according  to the existing  participating interests participating interests  • Makes general provisions in  relation to the rights and relation to the rights and  duties of shareholders and  board of directors 30/09/2009

Version IV • NOC to appoint majority of  board members & management  staff • Decision of the board to comply  Decision of the board to comply with that of shareholders • Restrictions on transfer of NOC  & other shareholder shares • Protection against additional tax  liabilities • Assets may only be transferred  to NOC in liquidation

Odujinrin & Adefuluestd. 1972

6

Acreage Control & Licensing: General Acreage Control & Licensing: General  Official Version • Vests all unallocated  acreages in the  Directorate

30/09/2009

Version IV • Acreage vested in the  Directorate • Creates a National Grid  System  for the definition of  license and lease areas,  relinquishments etcetera relinquishments etcetera

Odujinrin & Adefuluestd. 1972

7

Acreage Control & Licensing: Licenses &  Leases Official Version • Creates PPL & PML to  replace OPL & OML • PPLs & PMLs may be  granted with respect to  either crude oil or natural  gas not both gas, not both • PPLs & PMLs may be  granted to: granted to: – NOC & indigenous oil companies  (60% or more Nigerian  shareholding) h h ldi ) 30/09/2009

Version IV • PEL is also created • PPLs  & PMLs may be granted  with respect to both crude oil  and natural gas and natural gas • Introduces a difference  between the qualifications of between the qualifications of  an operator and a non‐ operator • Licences may be granted to  NOC & a winning bidder

Odujinrin & Adefuluestd. 1972

8

Acreage Control & Licensing: PEL Acreage Control & Licensing: PEL Official Version • No provisions for a PEL

30/09/2009

Version IV • PEL may be awarded by the  Minister to a qualified  company • Term not more than 3 years • Non‐exclusive right to  explore for oil l f il • License area may however  cover the area of a PPL or cover the area of a PPL or  PML Odujinrin & Adefuluestd. 1972

9

Acreage Control & Licensing: PPL Acreage Control & Licensing: PPL  Area

Offi i l Official Version i

Version IV i

Land & Shallow Waters

Not more than 5 years

Not more than 7 years  consisting of: 1. Initial Period of 3 years 2. Renewal Period of 2  years 3. Appraisal Period of 2  years

Deep Water Areas & Inland  Not more than 10 years Basin

30/09/2009

Odujinrin & Adefuluestd. 1972

Not more than 10 years consisting of: 1. Initial Period of 5 years 2. Renewal Period of 10  years 3. Appraisal Period of 2  years 10

Acreage Control & Licensing: PPL (Version  IV Additional Provisions) ddi i l ii ) • Minimum work commitments – Licensee must drill at least one exploration well to  p a specified minimum depth – Commitment must be supported by international  Commitment must be supported by international bank guarantee

• Commercial discovery & Field Development C i l di & Fi ld D l t – FDP must be submitted within 120 days of  declaration of commercial discovery – Must be approved by Inspectorate within 90 days  pp y p y 30/09/2009

Odujinrin & Adefuluestd. 1972

11

Acreage Control & Licensing: PPL  Relinquishment li ih Relinquishment li ih Period i d

Version IV i

Upon expiry of initial exploration period

50% of original license area

Upon the expiry of the renewal period

All parcels that are not part of PMLs,  appraisal areas or significant gas discovery retention areas

Upon expiration of the PPL

All acreage that is not included in PMLs,  appraisal areas or significant gas discovery appraisal areas or significant gas discovery  retention areas

30/09/2009

Odujinrin & Adefuluestd. 1972

12

Acreage Control & Licensing: PML Acreage Control & Licensing: PML Official Version • PML to be granted to holder  of PPL who has satisfied all  conditions and has made  commercial discovery i l di • Term is for 20 years and  may be renewed for further may be renewed for further  terms of not more than 20  yyears for each period of  p renewal

30/09/2009

Version IV • Introduces the DGSO • PML may only be granted   for 20 years and renewed  for only  10 years • A PML not in commercial  production after 5 years  d i f may be revoked • A PML in which commercial  A PML in which commercial production has stopped for  180 days may be revoked 180 days may be revoked

Odujinrin & Adefuluestd. 1972

13

Acreage Control & Licensing: Award  Process Official Version Version IV • Awards of PPLs & PMLs are  • Introduces bid parameters: to be made by the Minister  – Signature bonus on the basis of a bid process  – Royalty percentage conducted by the  d t d b th – Work commitment Directorate – Work units

30/09/2009

Odujinrin & Adefuluestd. 1972

14

Acreage Control & Licensing: Assignments,  Mergers & Acquisitions & iii Official Version • Assignments, mergers &  acquisitions to be approved  by the minister • Minister shall approve if  certain conditions are met

30/09/2009

Version IV • Introduces a fee of equal to  2% of the fair market value  of the transaction

Odujinrin & Adefuluestd. 1972

15

Environmental Provisions Environmental Provisions Official Version • Requires licensees/lessees  to submit an environmental  programme or an  environmental quality  i t l lit management programme • No distinction between  No distinction between both as to content and  when required q • Content is similar to EIA  which is also required in  petroleum operations 30/09/2009

Version IV • Requires the submission  and approval of only an  environmental  management plan t l

Odujinrin & Adefuluestd. 1972

16

Environmental Provisions (contd.) Environmental Provisions (contd.) Official Version

Version IV • Requires states and local  • States & Local governments  governments to contribute to  no longer required to make  remediation contributions • Financial Financial contribution to be made  contribution to be made • Substantially retains  by licensees and lessees  into a  provisions on financial  Remediation Fund contributions by contributions by  • Licensee/Lessee to annually  Li /L t ll assess and increase contributions licensee/lessee but subjects  • No provisions for a mechanism  the Fund to audit for reimbursement of  • Introduces provisions for  contributions gas flaring penalties 30/09/2009

Odujinrin & Adefuluestd. 1972

17

Relinquishment of Existing Licences/Leases  ( (Version IV) i ) • Mandatory relinquishment of acreage: – 1 year after the commencement of the Act; or – Ten years after initial OPL was granted • Existing licensees/lessees must select areas to be  Existing licensees/lessees must select areas to be proposed for conversion into PMLs or significant gas  discovery retention areas discovery retention areas • All parcels not selected must be relinquished • Marginal field operators may apply for PMLs in their  areas of operation 30/09/2009

Odujinrin & Adefuluestd. 1972

18

RECAP

Acreage Control  & Licensing

Official version  vs. Version IV

30/09/2009

Institutional  Framework

NNPC Ltd

Incorporated  Joint Ventures

•Licenses & Leases •PEL •PPL •PML •PPL & PML  Award Process •PSCs & other  contracts

Odujinrin & Adefuluestd. 1972

Environmental  Management

Relinquishment  of existing  Licenses &  Leases

19

Concluding Remarks Concluding Remarks • Version IV is a significant improvement on the  official version • The existence of 2 government sponsored  versions of the same bill creates significant versions of the same bill creates significant  challenges for the National Assembly &  Stakeholders k h l • It may be better for the government to  It may be better for the government to withdraw the official version and substitute it  with Version IV or a variation thereof with Version IV or a variation thereof 30/09/2009

Odujinrin & Adefuluestd. 1972

20

Thank You Thank You • All comments and questions may be directed  to:

[email protected]

30/09/2009

Odujinrin & Adefuluestd. 1972

21

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