2020/11: Nigeria: Overview Of Oil And Gas Regulations In Nigeria

There are various laws regulating oil and gas in Nigeria. The principals among these laws are the 1999 Constitution of Nigeria (as amended) and the Petroleum Act, which vested ownership and control of oil found anywhere in Nigeria in the Federal Government. This includes oil located within any land in Nigeria, under its territorial waters, continental shelf or within its exclusive economic zone.

The government participation in the oil & gas industry is through the National Oil Company, the Nigerian National Petroleum Corporation (NNPC).

Nigeria has several legislations, regulations and directives regulating various aspects of the oil industry. The Petroleum Industry Bill (PIB) pending before the National Assembly aims to harmonize all the legislations and significantly restructures the industry, particularly the functions of the various regulatory agencies, intending to eliminate overlaps. The draft law, among other objectives, aims to:

• Make sweeping reforms by repealing laws like the Petroleum Act 1969.
• Create new institutions to govern the operations of the industry, incorporation, and privatization of the Nigerian National Petroleum Corporation (NNPC).
• Transform the existing unincorporated joint ventures between the multinational oil companies and the NNPC into incorporated joint ventures.

In an attempt to secure the passage of the bill, the government has divided the bill and intends to pass it in phases. The first one is the Petroleum Industry Governance Bill. The aims of the bill are to:

• Establish a framework for the creation of commercially oriented and profit-driven petroleum entities.
• Ensure value is added and the international best practice of the petroleum industry is adopted.
• Promote transparency in administering petroleum resources
• Create an environment that allows petroleum industry operation

The upstream sector, the most active sector of the Nigerian petroleum industry, is largely export-focused and until recently dominated exclusively by international oil companies. The Nigerian government’s marginal fields licensing regime and its local content development drive have led to increased participation of indigenous oil companies in the petroleum industry.

The Constitution vests ownership of mineral resources, including oil and gas, exclusively in the federal government and further confers on the federal government the exclusive power to make laws and regulations for the governance of the industry.

Apart from the 1999 Constitution, other legislations impacting, governing, and regulating the oil & gas sector in Nigeria are as follows:

1. The Petroleum Act and the Schedules and Regulations made under it: the laws provide the framework for the licensing of oil and gas companies to engage in activities connected with the exploration, production, and transportation of crude oil;
2. The Petroleum Profits Tax Act: it provides the framework under which the federal government obtains revenue from oil and gas operations by way of signature bonuses, royalties, and taxes;
3. The Deep Offshore and Inland Basin Production Sharing Contracts Act: this Act gives incentives to oil and gas companies operating in the Deep Offshore and Inland Basin areas under Production Sharing Contracts (PSCs).
4. The Nigerian National Petroleum Corporation Act: the Act establishes the NNPC and empowering it to participate directly in petroleum operations on behalf of the federal government;
5. The Environmental Impact Assessment (EIA) Act – providing the framework for assessing the impact of oil and gas projects on the environment;
6. The Federal Inland Revenue Service (FIRS) Establishment Act 2007 – detailing the statutory powers of the FIRS to collect all taxes, fees, levies, royalties, rents, signature bonuses, penalties for gas flaring, depot fees, including fees for oil prospecting licenses, oil mining licenses, etc.;
7. The Education Tax Act – it provides for the imposition of annual taxes of 2 percent of assessable profits on oil and gas companies for the development of Nigeria’s educational sector;
8. The Niger Delta Development Commission (Establishment) Act – it mandates the payment to the Commission by oil and gas companies of 3 percent of their annual budgets for the development of the Niger Delta areas where oil and gas are exploited;
9. The Nigerian Oil and Gas Industry Content Development Act 2010: it provides a framework for promoting the participation of Nigerians in the oil and gas industry and laying down the minimum thresholds for local contents utilized in the sector;
10. The Nigerian Extractive Industries Transparency Initiative Act 2007: it provides the framework for transparency and accountability by imposing reporting and disclosure obligations on all oil and gas companies upon requirement by NEITI of revenue due to or paid to the federal government;
11. National Oil Spill Detection and Response Agency (Establishment) Act: it establishes the National Oil Spill Detection and Response Agency (NOSDRA), which coordinates and implements the National Oil spill Contingency Plan (NOSCP) for Nigeria.
12. The Oil Pipelines Act; and

Regulations & Guidelines

The legal framework regulating the oil sector in Nigeria is based on several laws. The Federal Ministry of Petroleum Resources has primary responsibility for policy direction and exercises supervisory oversight over the industry. The Minister of Petroleum Resources (the Minister) issues regulations, guidelines, and directives pursuant to the Petroleum Act and other enabling laws.

OIL & GAS REGULATORY AGENCIES IN NIGERIA

(1) Nigerian National Petroleum Corporation (NNPC): NNPC was established in 1977 to have the sole authority over the petroleum activities in Nigeria. NNPC is involved in exploration, production, transportation, processing of oil, refining, and marketing of crude oil through its subsidiaries. These subsidiaries include National Petroleum Investment Management Services (NAPIMS), Petroleum Products Marketing Companies (PPMC), Nigerian Petroleum Development Company (NPDC), The Nigerian Petrochemical Companies in Kaduna and Warri, and The Refineries (2 in Port Harcourt) one each in Warri and Kaduna.

(2) Department of Petroleum Resources (DPR): The Department of Petroleum Resources (DPR) is responsible for the day-to-day monitoring of the petroleum industry and for supervising all petroleum industry operations such as:

• Monitors the operations of oil companies,
• Sets and enforces environmental standards.
• Collects royalty and rents.
• Supervises and ensures compliance with oil industry regulations.
• Issues licenses and permits.
• Ensures the protection of all oil and gas investments.

The government participates in oil and gas operations through the Nigerian National Petroleum Corporation by adopting various contractual models for the development of oil and gas resources (such as concession agreements, traditional joint venture agreements, service contracts, production sharing contracts, and sole-risk contracts).

(3) Nigerian Content Development & Monitoring Board (NCDMB): The primary duty of the NCDMB is to promote local investment and participation in the oil & gas sector. Consequently, the NCDMB registers and monitors companies participating in the upstream sector to ensure such a company has the requisite indigenous participation under the Act.

(4) National Oil Spill Detection & Response Agency (NOSDRA): NOSDRA is the government agency responsible for monitoring and control of oil spills in Nigeria. The functions of the Agency include the surveillance and ensure compliance with all existing environmental legislation and the detection of oil spills in the petroleum sector. As part of its duties, the Agency receives reports of oil spillages and coordinate oil spill response activities.

(5) Federal Inland Revenue Service (FIRS): is responsible for the administration of both the Petroleum Profit Tax Act and Company Income Tax Act

(6) The Central Bank of Nigeria: The proceeds from the sale of crude oil paid in foreign currency are paid into Federal Government designated bank overseas and transferred into the Federation Account in the Central Bank of Nigeria.

FISCAL AGREEMENT SIGNED IN THE NIGERIA OIL & GAS INDUSTRY

Fiscal agreements are set of agreement that governs the relationship between the government and parties involved in Exploration and Production of oil and gas in Nigeria. This agreement also determines risk, obligations, chargeable tax, and how the economic benefits derived are to be structured. In Nigeria, an investor may choose to operate under any of this agreement. They are:

1. Joint Venture Contract (JVC)
2. Profit Sharing Contract (PSC)
3. Sole Contract (SC)
4. Sole Risk Operator

In conclusion, several laws are regulating the oil and gas industry in Nigeria. This is because the oil & gas is very critical to the Nigerian economy; the earnings from oil & gas export is up to 90% of the total export earnings of the government. The most recent and reforming legislation is the Nigerian Oil and Gas Industry Content Development Act 2010 that mandates the compulsory participation of Nigerian citizens in the upstream sector.