AN APPRAISAL OF THE LEGAL REGULATIONS OF THE OIL AND GAS INDUSTRY IN NIGERIA (Part I) (How to Participate in the Upstream Sector)

INTRODUCTION:

The history of the discovery of oil in commercial quantity dates back to 1956, with discovery of oil in a town called “Oloibiri” in Ogbia Local Government Area, of present day Bayelsa State, in the Niger-Delta Area of Nigeria. Since then, the country has implanted itself as an oil producing country. According to the Nigerian National Petroleum Corporation (NNPC) sources, Nigeria ranks as African largest oil producing country and the sixth oil producing country in the world, with a target crude oil production of 2.5million barrels per day and an abundance of gas deposits.

Oil Production Activities in Nigeria:

Production activities in the oil sector in Nigeria, is modeled along the upstream and downstream model. The upstream sector deals with the exploration, drilling and production of oil and gas, and includes services such as rig operations, machinery rentals, chemical supply etc; while the downstream sector is the system that provides finished products such as refined petrol, kerosene, diesel etc to the final consumer. Petroleum Retail Outlets fall under the downstream category.

Ownership & Control of Oil & Gas Resources in Nigeria:

Section 44(3) of the 1999 Constitution of the Federal Republic of Nigeria (as amended), vests the ownership and control of oil resources in the Federal Government, when it provides thus:

“Notwithstanding the foregoing provisions of this section, the entire property in and control of all minerals, mineral oil and natural gas in under or upon any land in Nigeria…(ellipsis mine) shall vest in the Government of the Federation and shall be managed in such manner as may be prescribed by the National Assembly.”

The same provision is replicated in sections 1 of the Petroleum Act; sections 2 of the Exclusive Economic Zone Act, section 1 of the Minerals and Mining Act and other legislations. The implication of this in real term is that, it is the Federal Government of Nigeria that can enact laws to regulate the oil and gas sector in Nigeria.

Some Laws Regulating the Upstream Sector in the Oil & Gas Industry in Nigeria:

The 1999 Constitution: This is the grundnorm (supreme law) regulating most sectors of the economy and if any other law by virtue of section 1(3) is inconsistent with it, that other law becomes void to the extent of its inconsistency.

The Petroleum Act: This is the flagship legislation regulating the upstream and downstream oil and gas industry in Nigeria. It provides modalities for the acquisition of various oil licenses and regulates prospecting, exploration, marketing and other related activities in the sector.

Oil Pipelines Act: This regulates the construction and management of oil pipeline facilities, being the major medium for transportation of crude oil in the sector.

The Petroleum Profits Tax Act: It provides for the tax regime in the oil industry and creates certainty in this regard.

The Deep Offshore and Inland Basin Production Sharing Contract Act: This piece of legislation provides some incentives for oil producing companies operating in Nigeria, under the production sharing contract model.

The Nigerian Oil & Gas Industry Content Development Act: It contains provisions, geared at promoting the participation of Nigerians in the oil sector.

Associated Gas Re-injection Act: By virtue of this law, Oil companies operating in Nigeria, are expected to submit to the Minister of Petroleum, a program for re-injection of gas into their operation and to prevent gas flaring.

Regulations by the Minister of Petroleum: Section 9 of the Petroleum Act, vests in the Minister of Petroleum Resources, powers to make subsidiary legislation to regulate the oil sector in Nigeria. Pursuant to this power, some regulations have been enacted as follows: Nigerian Mineral Oil (Safety) Regulations, Petroleum (Drilling and Production) Regulations, and Petroleum Refining Regulations etc.

In concluding this segment, it would be apposite to state that the list of laws, highlighted above are not exhaustive as there are other specific legislations, regulating various sectors of the upstream oil industry in Nigeria. The beauty of it all is that the Country allows both citizens and non-citizens, to participate in this industry subject to compliance with laid down laws guiding its operation.

In part 2, I shall discuss the steps to participate in the upstream sector of the oil and gas industry in Nigeria. Happy reading!!