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20 Jan

OIL AND GAS 1.4 STATE PARTICIPATION (B) CONCESSIONS

NATURE AND TYPES OF CONCESSIONS.

Black’s Law Dictionary defines a concession as a government grant for specific privileges… Concessions are contractual agreements between the government through NNPC and oil companies which permit the production, exploration, transportation, and so on of petroleum. Since Section 44(3), Section 1 PA, 1 Minerals Act, 2 PIB and so on vest ownership on the Federal Government.

Traditional concession

International Oil Companies were granted exclusive right over huge choice areas (40-75 years) to explore, produce, transport, and dispose petroleum. nearly amounting to sovereign rights. Royalty was paid to the government. However, with attainment of independence, new international economic order, the modern concession arose.

Modern concessions.

unlike Traditional Concessions, their duration was reduced to 20 years not exceeding an area of 500 square miles. Higher taxes are paid.

By Section 2 of the Petroleum Act, the minister is entitled to grant (a company incorporated under the Companies and Allied Matters Act of Nigeria) the following licences:

  • Oil Exploration Licence (OEL).
  • Oil Prospecting Licence (OPL).
  • Oil Mining Lease (OML).

The details are provided under schedule 1 to the Petroleum Act 1969.

A licence has been described as a permission to do an act which may have otherwise grounded liability.

All areas of grant must be bounded by straight lines running north to south and east to west

OEL (Oil Exploration Licence).

(Paragraph 1-3, Schedule 1, Petroleum Act) is a non-exclusive right to explore for petroleum in an area not exceeding 12,950 square kilometres. Exploration must commence within three months of grant and discovery of minerals should be reported to the Director, Department of Petroleum Resources. Although in practice such discovery is fraudulently concealed.

By Section 15 Petroleum Act, explore means to make a preliminary search… drilling not below 91.44 meters.

An applicant fills a “form A” and attaches ten copies of the map of the area in which the license is sought. The license lapses on the 31st of December of the year following the date of grant. Renewable for another 1 year period where applicant has fulfilled obligations and files application within 3 months from lapse.

OPL (Oil Prospecting Licence)

An exclusive grant by the minister (section 2(1)(b)) to explore and prospect for petroleum within an area not exceeding 2,590 (after the payment of signature bonus). A duration of 5 and 7 years for onshore and offshore areas respectively. The licensee has the right to clear the land, construct roads, bring and construct facilities and machineries and use water found in the area. On the condition that the area would be restored when licence operations terminate. The licensee has the right to dispose of petroleum produced in the contract area subject to the provision of the petroleum act, ppt and other relevant laws.

OML (Oil Mining Lease)

This is a lease but it does not create legal estate (unlike the ordinary lease). It is an exclusive right granted to the holder of an OPL (who has found oil in commercial quantities) to explore, transport and dispose petroleum found within the leased area upon the payment of royalty and fulfilment of other financial and statutory obligations. The area of grant must not exceed 1,295 km- The Petroleum (Drilling and Production) (Amendment) Regulations 2001.

The OEL and OPL are means to achieving the OML.

An OML must not exceed 20 years renewable by applying to the minister not less than 12 months to the expiration period. By paragraph 12 (1) First Schedule to the Petroleum Act, half of the concession area shall be relinquished to the grantor after 10 years.

The OML document should be stamped. By virtue of Section 4 and item 58 of the second schedule to the 1999 constitution, stamp duties is within the exclusive legislative competence. After stamping, the OML shall be registered in the place where the OML area is located-“relevant area”-regulation 8 Petroleum (Drilling and Production) Regulations.  For areas located in the territorial waters, continental shelf, eez, they should be registered in the littoral state-section 1, Offshore Oil Revenue (registration of Grants) Act. After stamping and registration, a copy of the document is forwarded to the Director of the Department of Petroleum Resources for retention.

The OML can be revoked (after notice and reasons for revocation has been published and served to the leasee) where:

  • The leasee company becomes controlled by a foreigner whose country prohibits Nigerians in a similar positon to control.
  • The leasee fails to perform his obligations or contravenes the provision of the pact, ppt, pdp regulation and other laws.
  • By Paragraph 24(1) of schedule 1 to the petroleum Act where he disregards good oil field practice, fails to pay rents or royalties, fails to furnish report on operations.
  • Where there is an assignment of interest without the consent of the minister or payment of the prescribed fee in accordance with Paragraph 14 to 15 First schedule to the petroleum Act. Regulation 4 of the Petroleum Drilling and production Regulations provides a similar obligation.
  • Where the grantor (ie the government) exercises his right of pre-emption: in accordance with Section 7 of the Petroleum Act in situations of national emergency, war

Rights under the OPL and OML can be assigned to a reputable and capable beneficiary after the payment of N500,000 and the consent of the minister has been obtained. The right can also be terminated after three months notice has been given to the minister and termination fee of N50,000 has been paid.

Comparison of the OEL, OPL and OML.

  • They are granted by the minister and are subject to the provisions of the ppt and pAct.
  • They are all confronted by working, safety and environmental challenges, compensation of disturbed third parties.
  • The OEL is non-exclusive as it can be granted to another person in respect of the same area. While the OPL and OML rights are exclusive.
  • Duration: although the lifespan in all can be renewed, The OEL last for one year (terminates on the 31st December), the OPL last for not more than 5 and 7 years in respect of onshore and offshore areas respectively. The OML must not exceed 20 years.
  • The Area of coverage: must not exceed; for the OEL-12,950km2. OPL-2,590km2. OML-1,295km2 with one half relinquished after 10 years (Paragraph 12 and 13 schedule 1 of the Petroleum Act).
  • Annual Rent: OEL- N500, OPL USD 10 for each square mile. OML- USD 20 Each Square Mile.
  • Royalty: not provided for under the OEL, the royalty is payable under the OPL and OML by virtue of Section 60(3) of the Petroleum (Drilling and Production) Regulations.

THE DIFFERENCE BETWEEN PRE-1969 AND POST-1969 GRANTS.

In the pre-1960 grants, the rights existed for 30 (for land and territorial waters) and 40 years (for land in continental shelf). Due to the huge technology requirement of offshore drilling. And could be renewed for another 30 years. However, the 1969 legislation does not distinguish and provides a limit of 20 years where half of the area shall be relinquished after 10 years.

It has been argued that the pre-1969 leasee should remit half of contract area to the grantor like the position which applies to the post 1969 leasee. By their acqisence in paying the higher tax imposed by the 1969 provision they can also be brought under the provisions.

 

Isochukwu

Quite eccentric really

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