by Oludamola Awobokun & Lateef Bamidele
We are well into the second year of implementation of the Petroleum Industry Act 2021 (“Act”), and regulatory activities within the walls of the two regulators – the Nigerian Upstream Petroleum Regulatory Commission (“Commission”) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (“Authority”) (jointly referred to as the “Regulators”) have accelerated.
In our newsletter titled Implementing the Petroleum Industry Act 2021: One Year After, we considered some of the implementation activities that were undertaken within a year of the passage of the Act. In another newsletter, titled Critical Deadlines in the Petroleum Industry Act 2021, we examined some of the possible factors that may impact compliance with the relevant timelines for certain regulatory activities under the Act. As we approach another critical milestone in the implementation of the Act, this newsletter seeks to provide new implementation updates as well as key timelines that the industry must be aware of.
RECENT IMPLEMENTATION DEVELOPMENTS
Regulations Development
In the first newsletter referenced above, we noted that the Regulators had released a total of 25 draft regulations by the 1st year anniversary of the Act, on which stakeholders’ consultation were being held in phases. Since then, 13 additional draft regulations have been released by the Regulators (5 Regulations from the Commission and 8 Regulations from the Authority) for comments and recommendations from the industry. Further to this, the total number of draft regulations that have been issued by the Regulators are now 38. We note that the Authority is yet to approve and issue final versions of any of its draft regulations, while the Commission has approved 5 of its draft regulations which have been published in the national gazette.
| NEW COMMISSION’S DRAFT REGULATIONS | NEW AUTHORITY’S DRAFT REGULATIONS | COMMISSION’S APPROVED REGULATIONS |
| 1. Domestic Crude Oil Supply Obligation Regulations 2. Nigerian Upstream Petroleum Measurement Regulations 3. Nigerian Upstream Petroleum Advance Cargo Declaration Regulations 4. Nigeria Significant Oil and Gas Discovery Regulations 5. Gas Flaring and Venting (Prevention of Waste and Pollution) Regulations | 1. Gas Trading and Settlement Regulations 2. Hydrocarbon Processing and Refining Facility Regulations 3. Midstream and Downstream Dispute Resolution Regulations 4. Midstream and Downstream Penalties and Enforcement Mechanism Regulations 5. Midstream Gas Flare Regulations 6. National Strategic Stock Regulations 7. Terminal and Bulk Storages Regulations 8. Gas Distribution System Regulation. | 1. Nigeria Upstream Petroleum Host Community Development Regulations 2022 2. Conversion and Renewal (Licences and Leases) Regulations 2022 3. Petroleum Royalty Regulations 2022 4. Domestic Gas Delivery Regulations 2022 5. Petroleum Licensing Round Regulations 2022 |
Commencement of 2022 Mini-Bid Round For 7 Deep Offshore Oil Assets under the Act
The Commission in December 2022, announced the commencement of a Mini Bid Round for new crude oil exploration and drilling activities in 7 offshore blocks covering 6,700 km2 in water depths of 1,150m to 3,100m. The Mini-Bid Round being the first in a series of bid rounds aimed at developing prospective petroleum basins was declared by the Commission in furtherance of the improved regulatory and fiscal framework of the Act.[1]
The Commission has published a portal for the Mini Bid Round to provide detailed guidelines of the process, including the registration and prequalification requirements for the potential applicants. A pre-bid conference organized by the Commission was held on Monday 16 January 2022, to provide a platform for potential applicants to seek clarifications regarding the bid process. Click here to see the public notice issued by the Commission. Companies who are looking to expand or diversify their operations into the Nigerian upstream petroleum operations are enjoined to make use of this opportunity. It is hoped that the success of the Mini Bid Round will deliver the much-needed value to the nation as well as the investors while exploring offshore hydrocarbon resources in a sustainable manner to help Nigeria fulfill its goal of achieving net zero by 2060.
The Commission Issues Notice for Submission of Details of Beneficial Ownership
As part of its technical function to maintain registers under the Act,[1]the Commission, in a public notice dated 26 December 2022 which was published on 29 December 2022, directed the holders of participating interests in oil and gas exploration or production licences, leases, or contracts to provide their ownership information including the relevant information of entities with significant control over the licensees and lessees.
According to the Commission, a “person with significant control” refers to any person:
- directly or indirectly holding at least 5% of the shares or interest in a relevant person;
- directly or indirectly holding at least 5% of the voting rights in a relevant person;
- directly or indirectly holding the right to appoint or remove a majority of the directors or partners in a relevant person;
- otherwise having the right to exercise or actually exercising significant influence or control over a relevant person; or
- having the right to exercise, or actually exercising significant influence or control over the activities of a trust or firm, whether or not it is a legal entity, but would itself satisfy any of the first four conditions above if it were an individual.
Current holders of participating interests have been directed to complete and submit the Beneficial Ownership Declaration Form within 7 days of the notice. The Commission also noted that entities applying for participating interests in the future would be required to complete the Beneficial Ownership Declaration Form for submission along with their application. Given the period within which the notice was published, and the information required by each holder to complete the declaration form, the 7 days’ timeline for compliance with the directive is unattainable. The Commission should therefore consider extending the timeline until such time as will be practical for the industry to comply with the directive. This will ensure the provision of accurate and sufficient information to the Commission to enable it fulfil its obligation in maintaining registers as contained in Section 7 (f) of the Act.
KEY REGULATORY TICK TOCK AHEAD OF THE 18 MONTHS’ MILESTONE
The Act provides for certain activities to be undertaken within a defined set of timelines some of which have already passed. See our previous newsletter on Critical Deadlines in the Petroleum Industry Act 2021 published at the first anniversary of the Act.
The 18 months and 24 months deadlines set out in the Act for the completion of other regulatory activities is fast approaching (i.e., February 15, 2023 and August 15, 2023 respectively). While most of these regulatory activities are to be undertaken by the licensees and lessees, there are a few activities that the Regulators are required to perform within these timelines. The activities are highlighted in the table below alongside their respective timelines.
| S/N | REGULATORY ISSUE | RESPONSIBLE PARTY | REGULATORY DEADLINE | REGULATORY ACTIVITIES TO BE UNDERTAKEN |
| 1. | Transfer of assets and liabilities to NNPC Limited | Minister of Petroleum and Minister of Finance | February 15 2023 | Following the incorporation of the NNPC Limited, the Ministers of Petroleum Resources and Finance are required to determine the assets, interests, and liabilities of the old NNPC which shall be transferred to NNPC Limited. |
| 2. | Framework for settlement of NNPC’ assets and liabilities not transferred to NNPC Limited | Minister of Petroleum, Minister of Finance and Attorney General of the Federation. | August 15 2023 | If there are liabilities of NNPC not deemed valuable to be transferred to NNPC Limited, such liabilities will be left with the NNPC and subsequently transferred to the Federal Government. The Responsible Party are required to develop a framework for settlement of such liabilities. |
| 3. | Voluntary Conversion of OPLs & OMLs to PPLs & PMLs | Licensees and Lessees | February 15 2023 | By the deadline, holders of OPLs and OMLs must have: decided as to whether or not to convert to PPLs and PMLs and benefit from the new fiscal frameworkentered into a conversion contract if they chose to convert |
| 4. | Conversion of Marginal Fields to PPLs & PMLs | Marginal Field Holders and New Awardees under the 2020 Marginal Fields Bid Round | February 15 2023 | By the deadline: holders of producing marginal fields are required to have obtained a petroleum mining lease for their marginal fields; andholders of non-producing marginal fields are required to have obtained a petroleum prospecting licence for their marginal field; this applies to the winners of the 2020 Marginal Fields Bid Round. |
| 5. | Segregation of Operations | Upstream Licensees and Lessees who are involved in Midstream and Downstream Operations | February 15 2023 | The PIA has delineated petroleum operations across the upstream, midstream and downstream value chain and operators with activities across the value chain are required to incorporate new entities to carry out such operations. |
| 6. | Midstream and Downstream Licences | Midstream and Downstream Petroleum and Gas Operators | February 15 2023 | Owners of existing midstream and downstream petroleum and gas operations must apply for appropriate licenses and permits from the Authority. |
| 7. | Review & modification of existing tariffs | Authority | August 15 2023 | The Authority must review, confirm or modify all existing industry tariffs for both crude oil and gas. |
| 8. | Approval of Regulations and Guidelines | Commission and Authority | Immediate | Most of the regulatory activities to be undertaken ahead of the deadlines rely on the issuance of subsidiary legislations by the regulators. The Commission and the Authority as a matter of urgency should begin to finalise the draft regulations for industry use. For instance, the Authority must issue Licensing regulations ahead of the deadline for the application of midstream and downstream licences. |
[1] Section 7 (f) (ii) of the Act
OTHER ROUTINE REGULATORY ISSUES UNDER THE ACT
As the deadline for the conclusion of voluntary conversion approaches, and subject to the issuance of relevant regulations by the Regulators, licensees who may have applied for conversion will begin to pay attention to routine regulatory compliance issues that will accompany their new licenses. Some of the key compliance issues are highlighted below.
| S/N | REGULATORY ISSUE | RESPONSIBLE PARTY | REGULATORY TIMELINE | REGULATORY ACTIVITIES TO BE UNDERTAKEN |
| 1. | Annual Work programme | Licensees and Lessees | Annual | Submission of annual work commitment and status report to the Commission. |
| 2. | Record of Fiscal Obligations | Licensees and Lessees | Within 6 months of each calendar year | Provide a yearly summary of royalties, fees, taxes, profit oil shares and other payments to Government to the Commission and the Minister of Finance through the Accountant-General of the Federation. |
| 3. | Data repository | Licensees and Lessees | At all times – no specific timeline provided in the Act and the National Data Repository Regulation, 2020. | Provide geophysical, geological, geochemical or other technical petroleum data obtained to the National Petroleum Data Repository of the Commission. |
| 4. | Contribution to Environmental Remediation Fund (ERF) | Licensees and Lessees | Annual | Assess your environmental liability annually and increase financial contribution to the ERF subject to the satisfaction of the Commission or Authority, as the case may be. |
| 5. | Domestic Obligations | Licensees and Lessees | Annual | Comply with the Domestic crude supply and Domestic gas delivery obligations as prescribed by the Commission at the beginning of every year. |
| 6. | Host Community | Licensees and Lessees | Not later than 31st May of each year | Submit annual report of the activities of the host communities’ development trust accompanied by its audited account to the Commission or Authority, as the case may be. |
| 7. | Profit and Loss Account | Licensees and Lessees | Annual – Within 5 months of the end of an accounting period | Prepare and deliver accounting returns to the Federal Inland Revenue Service. |
CONCLUDING REMARKS
The stakeholders are beginning to wake up to the realization that the Act remains the anchor of the petroleum industry for the foreseeable future. As the clock ticks for the implementations required, every stakeholder just as the Regulators must ensure that they are reviewing their operations to enjoy the improved frameworks contained in the Act. While the Regulators are required to expedite regulatory activities such as issuance of regulations and guidelines for industry guidance, it is those small and quality steps by each stakeholder that will galvanize the industry and restore it to its pride of place before the ship of energy transition fully docks at the shore.
[1] Section 73 of the Act empowers the Commission to put fields on offer based on a fair, transparent and competitive bidding process.