Legal And Regulatory Requirements for Participation in the Upstream Oil & Gas Sector in Nigeria!

As highlighted in part 1 of this discourse, the upstream sector in Nigerian oil and gas industry, refers to activities connected to exploration, exploitation, drilling and refining of crude oil. As with most endeavors, there are legal and regulatory requirements imposed by law, for players in the upstream sector. We shall in this edition highlight some salient regulatory compliance, before the commencement of operations to wit:

Incorporation of a Nigerian Company: The first step to legally operate in the upstream sector of the oil industry is the incorporation of a company with the Corporate Affairs Commission. This requirement applies both to locals and foreigners. Section 2(2) of the Petroleum Act makes incorporation, a condition for participation in this sector.

Application For License: Section 3(3) of the Petroleum Act, makes it a mandatory to obtain requisite license from the Minister of Petroleum, before commencement of operation. There are three types of licenses in this regard: Oil Exploration License (OEL), Oil Prospecting License (OPL) and Oil Mining Lease (OML).

(a) OEL: The Oil Exploration License is a non-exclusive license, issued to a Company for a period of One year subject to a renewal, to enable it explore for petroleum in the licensed area, The OEL does not confer any right per se, but it could be a prelude for the award of other exclusive licenses.

(b)  OPL: The Oil Prospective license when granted, gives the licensee exclusive right, to explore and prospect for petroleum over the area granted. It also confers on it, the right to take away and dispose of petroleum won, during the process of prospecting, subject to payment of requisite tax and compliance with laid down procedure by law. An OPL is usually granted for a period of 5(five) years for onshore and 10years respectively for Deep-inland or Offshore areas.

(c) OML: An Oil Mining Lease is granted to a holder of an Oil Prospecting License(OPL), which had discovered oil in commercial quantity to the tune of 10,000 barrels per day. An OML grants to the holder, the exclusive right to search for, work and dispose of petroleum won in the area, for a period of twenty years, subject to profit-sharing with the government, payment of tax and fulfillment of other conditions imposed by law.

Environmental Impact Assessment: Section 2(2) of the Environmental Impact Assessment Act, imposes an obligation on the Oil Company, to apply to the designated agency, to conduct an assessment of the possible impact of its operations on the environment. Upon conclusion of that assessment, a certificate is issued to the Company before the commencement of operation.

Submission of Local Content Plan:  By virtue of sections 7 & 8 of the Nigerian Oil & Gas Content Act, 2016 (amended in 2015), every Company bidding for any license in the Oil and gas sector, is under a legal duty to submit a Nigerian Content Plan to the Local Content Board and obtain Certificate of Authorization. The essence of this is to promote the involvement of Nigerians in the activities in the oil sector.

The oil & gas sector is a booming sector and presents an opportunity for growth and development of businesses and offers huge returns on investment. Feel free to send a dm, should you require some more details on this subject matter. Thank you for reading!!