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Summary of the Petroleum Industry Bill in Nigeria - Section 5

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Summary of the Petroleum Industry Bill in Nigeria

The PETROLEUM INDUSTRY BILL 2012 is a 223 page document with 362 sections and 5 schedules. The Bill is divided into 9 parts, which propose to cover the entire spectrum of the oil and gas industry. This topic seeks to summarize the Bill with respect to its 9 parts.

Part VI – Indigenous Petroleum Companies

The Bill defines Indigenous Petroleum Companies (“IPCs”) as those petroleum companies in which:

* 51% or more of its shares are beneficially owned directly or indirectly by Nigerians (this aligns with the percentage shareholding required under the Nigerian Content Act and is a shift from previous PIB drafts some of which adopted 55% or 60% shareholding);
* Meets the requirements of any guidelines or regulations issued by the Inspectorate or Agency; and
* Is accredited as such by the Agency.The wording suggests that these three conditions are cumulative. It should be noted however that a company listed on any stock exchange in Nigeria with a majority of Nigerian directors is deemed to qualify as an IPC.

Part VI applies specifically to OPLs/OMLs currently held by IPCs and provides for certain benefits for those IPCs as follows:

* Exclusion of state participation in IPCs with less than twenty five thousand barrels of oil per day aggregate production;
* IPCs with the above stated production level will be allowed to produce up to the technical allowable limit and are therefore not subject any OPEC quota related restrictions;
* Minister to issue regulations/guidelines to increase IPC participation and set targets for:
* Indigenous petroleum reserves;
* Production personnel content and measurable parameters for determining level of indigenous participation which shall be subject to periodic review for continuous increase in indigenous participation.Unlike previous drafts of the Bill, there are no preferential fiscal terms or access to acreage by IPCs.

Part VII – Health, Safety & Environment

Unlike the Petroleum Act which vests powers to make regulations regarding the environment on the Minister, the Bill vests such powers on the Agency or the Inspectorate (in consultation with the Ministry of Environment) depending on whether the matter relates to the upstream or downstream sector of the industry.

However, the Bill further provides that licensees are required to comply with all environmental health and safety laws, regulations, guidelines or directives as may be issued by the Ministry of Environment, the Minister, the Inspectorate or the Agency.

It should also be noted that that fines to be paid for violation of these provisions are to be prescribed by the Inspectorate and the Agency in consultation with the Minister.

Obligations of licensees under Part VII of the Bill include:

* Adopting the principle of sustainable development in operations;
* Utilisation of good oil field practices;
* Rehabilitation of environment affected by operations provided that the licensee shall not be responsible for rehabilitation where the damage to the environment is as a result of acts of sabotage to petroleum facilities. Disputes regarding ascertainment of cause of damage shall be referred to the Agency which shall be the final arbiter of such dispute.The Agency is also responsible for issuing guidelines on rates of compensation (referred to as fair and adequate compensation) to be paid by upstream petroleum licensees to land owners or legitimate occupiers of the licensed or leased lands.

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