ACQUISITION OF OIL RIGHTS UNDER NIGERIAN LAW By Ehiwe O. Samuel

INTRODUCTION

The ownership of natural resources in Nigeria, with particular reference to oil and gas, has become topical, sensitive, sensational, preponderant and vexatious. This is so because, even when there are other sources for earning national wealth, none provides as much as 80% of foreign earnings. Therefore, the nation reels from the effect of any hiccup in both local and international oil markets. The clamour for resource control is either caused by the type of ownership of natural resources that a country practices for example, as in Nigeria where the Niger Delta Region feels that the government ownership of natural resources (oil and gas) is a deprivation of their right to the natural resources located in their land and/or the desire to appropriate the revenue realised therefrom.

OWNERSHIP AND ACQUISITION

In Nigeria, the permanent sovereignty over natural resources theory is practised. This theory is one that totally confers on the host county sovereign rights to the permanent ownership of petroleum resources found within its geographical location. The theory is traceable to the various United Nations Resolutions which have helped some countries which hitherto no ownership theories had to lay legal claims to deposits within their geographical continental shelves, territorial zones and exclusive economic zone areas.

In Nigeria for instance, ownership of oil and gas (mineral resources found within its territory) is vested in the federal government as established in the case of South Atlantic Petroleum Limited v. Minister of Petroleum Resources and provided for under Section 44(3) Constitution of the Federal Republic of Nigeria, Cap C23, LFN 2004.

In the above case, the plaintiff was granted an oil bloc OPL 246. A half of the OPL area of 1000 square miles was later converted to an OML 130. The government attempted to auction the other half of OPL 246. The contention of the plaintiff was that it was entitled to hold the unexhausted period of the lease while the defendant contended that the remaining portion was deemed relinquished and thus reversionary right was in the Federal government as the grantor. In this action, the plaintiff sought orders of injunctions and declarations. In his judgement delivered on l4/10/06, the learned trial judge, Mustapha J. (as he then was) held, inter alia, that;

“there is nothing unlawful in the government policy that the residue of OPL 246 is automatically relinquished and reverted to the federal government on the grant of an Oil Mining Lease No. 130 to the applicant”.

On appeal, the case was struck out on the ground that the issues raised had become academic.

On the ownership and control of petroleum resources in Nigeria, seven years prior to the promulgation of the Petroleum Act, the United Nations had debated and adopted resolution 1803[1] which affirmed the principle of permanent sovereignty over natural resources [2]. It is submitted that resolution 1803 played an important role in the promulgation of the Act in 1969. This submission is supported by section 1(1) of the Act which provides thus;

‘‘The entire ownership and control of all petroleum in, under or upon any lands to which this section applies shall be vested in the state…’’

In a similar vein, resolution 1803 provides thus;

‘‘The right of peoples and nations to permanent sovereignty over their natural resources must be exercised in the interest of their national development and the well being of the people of the state concerned…’’

It has been established above that the ownership of the mineral resources in Nigeria is vested in the federal government. However, rights over these resources can be acquired by oil companies. The oil rights which may be granted by the Minister of Petroleum resources include the Oil Exploration license (OEL), Oil Prospecting license (OPL), Oil Mining lease (OML). It is important to further note that a licensee or lessee is not authorized to enter land which is sacred (like the Amadioha evil forest in the east, the Ovia Shrine or the ‘land of the dead’ in certain parts of Nigeria) until a written permission is obtained from the Minister and fair and reasonable compensation has been paid to the persons concerned[3]

However, the assignment of an OPL or OML without the prior consent of the Minister of Petroleum resources is prohibited under paragraph 14 of schedule 1 of the Act. Under paragraph 15, the prescribed fee shall be paid on an application for an assignment under paragraph 14 and the Minister’s consent for the assignment may be given on payment of such other fee or such premium or both and upon such terms as the Minister may decide. Interestingly, the Minister may however waive payment of that other fee or that premium, or both, if he is satisfied that the assignment is to be made to a company in a group of which the assignor is a member and is to be made for the purpose of re-organization in order to achieve greater efficiency and to acquire resources for more effective petroleum operations.

The Minister shall not give his consent to an assignment unless he is satisfied that[4];

a.The proposed assignee is of good reputation, or is a member of a group of companies of good reputation

b.There is likely to be available to the proposed assignee (from its own resources or through other companies in the group of which it is a member or otherwise sufficient technical knowledge and experience and sufficient financial resources to enable it effectively to carry out a program satisfactory to the Minister in respect to the operations under the licence or lease which is to be assigned and

c.The proposed assignee is in all other respects acceptable to the federal government.

Professor Lawrence Atsegbua argued that the restriction on the assignment of OPLs or OMLs does not apply, for example where a change in ownership of the company occurs. Put differently, it is not an assignment for one company to acquire the equity shares of another company. This is in view of the clear distinction between assignment and acquisition. An assignment is the act of transferring to another all or part of one’s property…, interest or rights[5] while an acquisition is the act of becoming the owners of certain property; the act by which one acquires or procures the property in anything.

Respectfully, I beg to disagree. The cardinal rule of interpreting statute that in constructing statutes and written instruments, words must be understood in their literal and ordinary sense (that is the literal rule of interpretation) unless this would lead to some absurdity or inconsistency with the rest of the instruments[6], thus in order to prevent absurdity or inconsistency, the word ‘assignment’ must be given its widest meaning to include ‘acquisition’. In the case of Tarzoor V. Avine & Ors (2011) LPELR-5029(CA) it was held thus;

"In the interpretation of statutes the Courts of this Country have always been guided by the "golden rule" of statutory interpretation. Under this rule, a Court is required to interprete the words of a statute by attaching to all such words their literal, ordinary and natural meaning except where such an interpretation will defeat the purpose of the legislation or engender mischief or manifest absurdity." Per GUMEL, J.C.A. (P. 15, paras. A-C)

The Department of Petroleum Resources, in consonance with the above argument, does not differentiate between transfer by ‘assignment’ of licences or leases and the ‘acquisition’ of the equity shares in the operating company whether involving a change of control of the lessee or licensee country of origin[7].

It follows that it may be concluded that although an ‘acquisition’ is not the same as an ‘assignment’ in law, the Department of Petroleum Resources in practice treats an acquisition of equity shares in the same way as an assignment.

It behoves of us to now consider the legal effect of an assignment which does not comply with the requirements of the assignment provision. There have been several conflicting court decisions on the effect of an assignment of contractual rights made in contravention of a clause prohibiting or restricting assignment.

The court in Shaw and Company v. Moss Empires and Bastow[8] the court held thus;

A prohibition could no more operate to invalidate the assignment than I could interfere with the laws of gravitation.

In Hodder and Tolley Limited v. Cornes[9], a New Zealand court, per Salmond J. held thus;

A chose in action which is in its own nature assignable cannot be made inalienable by a contractual undertaking not to assign it.

In contrast, the court in Helstan Securities limited v. Hertfoldshire Country Council[10], the court, per Johnson J. held thus;

There is no reason why the parties to an agreement may not contract to give its subject matter the quality of unassignability.

It is the writer’s view that the position in Heltan Securities is most appropriate in light of the long standing and trite principle of freedom of contract as recently re-emphasised in Atiba Iyalamu Savings & Loans Ltd V. Suberu & Anor (2018) LPELR-44069(SC) where the Supreme court of Nigeria held thus;

it is no duty of the Court to make contracts for the parties, and that as a rule parties make their own contracts and intend thereby to be governed by the contract.

Trietel[11] supports the Heltan position when he stated that;

If a contract provides that the rights arising under it shall not be assigned, a purported assignment of such rights is ineffective, in the sense that it does not give the assignee any rights against the debtor

The decision in Shaw v. Moss[12] stands for the proposition that where the benefits (not the burden) in a contract is assigned even in the presence of a clause prohibiting assignment, such assignment may be binding as a contract between the assignor and assignee. The above argument is in tandem with the underlining principle guiding assignments of choses in action[13] and also in consonance with Treitel’s conclusion on the matter[14].

The following conclusions can be reached from the above thus[15];

a.A prohibition against assignment can be effective to prevent the assignee acquiring rights against other parties to the joint operating agreement (JOA). A purported assignment in breach of a prohibition might also render the assignor liable in damages for breach of contract to other parties to the JOA.

b.As between assignor and assignee notwithstanding a breach of a prohibition against assignment, a purported assignment is probably effective in equity so as to require that assignor to hold any benefits arising to it from the contract for the benefit of the assignee.

As stated earlier, all the mineral resources in Nigeria belong to the federal government. The big question has been about the right of the government to unilaterally acquire participating interest in an Oil Mining Lease (OML) already granted and for which all the required fees has been paid. The court was called upon to answer this question in the case of NNPC v. Famfa Oil Limited (2012) 17 NWLR p. 148

The facts of the case are quite interesting. On 5 May 1993 Famfa Oil limited applied for and was granted an Oil Prospecting License (OPL 216) by the Federal Government of Nigeria. Famfa then entered into Joint Venture agreements with Star Deep Water Petroleum Limited and Petrobras. The Joint Venture expended considerable costs to prospect for oil. However, on 23 March 2000 the Nigerian National Petroleum Corporation sought to compulsorily acquire 40% of Famfa’s interest in OPL 216, Famfa challenged this at the Federal High Court at that time and obtained an order of the Court declaring the purported acquisition to be illegal, null and void. The Court held that while the government may have a right to participate in an oil lease grant, it could do so only upon the grant of an Oil Mining Lease.

Famfa subsequently discovered oil in commercial quantities and applied to convert its OPL to an OML. Its application was granted on 13 December 2004. In July 2003, before the grant of the OML to Famfa, the Federal Government promulgated the Deep-Water Block Allocations to Companies (Back-In-Rights) Regulations. The Regulations applied to all deep-water blocks issued before the regulations came into force and also to others as may be issued from time to time. It also gave the Federal Government a right to participate in such OMLs by acquiring five-sixths of the allottee’s interest in the relevant oil prospecting licence and oil mining lease under such terms and conditions as may be determined, from time to time, by the Federal Government. The Federal Government’s right to do this was subject to it reserving such a right in the deep-water block allocation. Barely one month after the grant of the OML to Famfa, the government showed up again. Apparently relying on the earlier Federal High Court judgment and the Back in Rights Regulation (2003) it wrote to Famfa on 27 January 2005 and again on 18 April 2005 seeking to compulsorily acquire five sixths of Famfa’s equity interest and a 50% participating interest on the block. Famfa instituted action in the Federal High Court seeking declarations that the actions of the government in respect of the OML did not follow the law and were illegal null and void.

The Federal High Court disagreed with Famfa and dismissed its case. They appealed to the Court of Appeal which allowed the appeal. The Federal Government then appealed to the Supreme Court contending that the government had a right to participate in the OML. The Supreme Court in deciding the dispute, formulated one issue for determination: whether the acquisition of 50% interest in OML 127 by the Federal Government of Nigeria was done in compliance with the provisions of the law and the constitution.

The Supreme court held thus;

a.that where the government reserves a right to participate in an oil and gas venture, it is like any other right and is by no means absolute but subject to limitations imposed by law. Specifically, the government’s right is burdened by its duty to follow the relevant law and the constitution.

b.that by virtue of section 44 of the 1999 Nigerian Constitution, no movable property or interest in movable property shall be taken possession of compulsorily and no right over or interest in any such property shall be acquired except in a manner prescribed by law.

c.that the attempt by the Minister to participate in OML 127 without complying with the provisions of the Paragraph 35 of the First Schedule to the Petroleum Act offended the provisions of section 44 of the Constitution.

This position represents the extant position of the law.

In conclusion, the rights over oil resources in Nigeria is regulated by the extant laws and regulations. Although some of these laws, like the Petroleum Act are long due for review, new regulations like the Deep-Water Block Allocation to Companies (Back-in-Rights) Regulations 2003 which are made to allow certain actions by the DPR must be duly reviewed by the courts to check arbitrary tendencies as was done in the Famfa Oil case.

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[1] General Assembly Resolution 1803(XVII) of 14 December 1962

[2] The promulgation of the Petroleum Act was influenced by OPEC’s resolution XVI 90 of 24-25 June 1968. Although Nigeria had not joined OPEC at this time, the Act embodied the principle contained in the resolution.

[3] See G. Etikerentse, ‘‘ The Impact of the 1978 Land Use Act on Land Acquisition Compensation’’ (1984-1985) 3 O.G.L.T.R 72 and M. Kassim-Momodu. ‘‘The Impact of the Land Use Act on Petroleum Operations in Nigeria’’ (1990) 8No. 4 J.E.N.R.I. 291.

[4] Schedule 1, paragraph 16 of the Act.

[5] Black’s law dictionary 6th ed., (st. Paul, Minnessota:West Publishing Co. 1990) at 119

[6] APC v. AGBAJE & ORS(2015) LPELR-25668(CA)

[7] G. Oyebode, ‘ Government Regulation Approval Processes in Nigeria’ (1990) Energy Law, note 3 at 746

[8] (1908)25 TLR 190

[9] (1923)NZLR 876

[10] (1976) 3ALL ER, 262

[11] Law of contract, 7th ed (Sweet and Maxwell,1990) at 517

[12] ibid

[13] Hospital Serv. Corp. v. Pennsylvania Ins. Co., 101 R.I. 708, 709 (R.I. 1967); Gillespie v. De Witt, 53 N.C. App. 252, 262 (N.C. Ct. App. 1981);BEN ELECTRONIC CO. NIG. LTD v. ATS & SONS & ORS (2013) LPELR-20870(CA)

[14] Supra, note 45 at 517

[15] See Chitty on Contracts