OIL AND GAS 1.5 FARM OUR ARRANGEMENTS
Marginal fields: Where a major oil company has a concession in an oil field which does not contain a significant discovery and the field is neglected for more than 10 years, the minister may (with the requisite approval of the head of state) cause a farm-out of the oil field to an indigenous company managed and controlled by Nigerians (at least 60 percent Nigerian interest)- Paragraph 16a of the First Schedule to the Petroleum Act. For example the farm out of Chevron’s Ogbelle Field to the Niger Delta Petroleum Resources Ltd. In essence, it is like the FG saying; “Mr Big oil company if you do not value the field we have given you, give it to another smaller indigenous company that would value it and explore for oil on it”.
The government can participate in the agreement and revoke the license. In FG V Zebra Energy, noted that revocation occurs only where the stipulated time for performance of anything by the awardee has lapsed. The profits of the company are taxed under the Petroleum Profit Tax.
The Multi-national Oil Companies assert that neglect of field is as a result of the production limit set by OPEC and the inability of the government to meet its cash call obligations promptly. They also contended that the power conferred on the head of state to cause farm-out without consent of the leasee could amount to expropriation.
On the other hand, proponents of the farm out maintain that it encourages production and facilitate the indigenisation policy.
The farm out process has been criticised for being bureaucratic, too discretionary and lacks transparency. To remedy this defect, the 2001 guidelines for farm-out and operation of marginal fields was formulated. The guidelines provided for consideration of royalty being paid to the farmour, resolved ownership issues and indemnification of the farmour by the farmee for pollution and other liability created or non-observance with good oil practices. The guideline however failed to address the delay in allocation process and did not dispense with head of state’s consent. On February 24 2003, 21 marginal fields were farmed out to 31 indigenous companies (some bidders were jointly awarded). A premium of $150,000 was payable to the government. The seminar on marginal field development (ably attended by nestors and key players in the field) was convened to educate farmours and farmees. During this seminar, the government’s attention was brought to the concerns of the farmees. The Marginal Fields Operator’s Group (MFOG) was created which comprised all awardees of the 34 marginal fields. Formed to improve terms and standard of operation and form a united force to promote their interests.
The article 6 and 7 of the “stubble field model farm-out agreement” provided that the farmee shall conduct and fund operations subject to health, safety, statutory and regulatory requirements. Article 16 places insurance obligations on the farmee.