The Petroleum Industry Act (“PIA”) 2021 which was signed into law in August 2021 effectively repealed the Petroleum Industry Act 2004 The new PIA established the Nigerian Upstream Petroleum Regulatory Commission (“NUPRC”) which replaced the Department of Petroleum Resources (“DPR”) , the agency formerly responsible for compliance in the petroleum industry. The NUPRC is responsible for the regulation of the upstream petroleum operations i.e., operations involved in the exploration and production of crude oil and natural gases including technical, operational, and commercial activities in the sector.
This thought leadership piece is mainly descriptive as it seeks to review the various types of licenses under the PIA and undertake a comparative analysis of the PIA 2021 vis-à-vis PIA 2004.
The administration of licenses in the upstream petroleum operations sector is one of the key roles that fall within the purview of the NUPRC. Under the new PIA, the applicable licenses for the upstream petroleum sector in Nigeria include;
- The Petroleum Exploration License (PEL): This is a license granted to qualified applicants to carry out petroleum exploration operations on a non-exclusive basis. The license is valid for three (3) years and may be renewed for another three (3) years subject to fulfillment of prescribed conditions in the Act.
- Petroleum Prospecting License (PPL): This is a license granted to qualified applicants to drill exploration and appraisal wells and undertake corresponding test production on an exclusive basis In addition, a PPL holder may carry out petroleum exploration operations on a non-exclusive basis. A holder of this license shall however not be granted an extension except in some circumstances. A PPL for onshore and shallow water acreages shall be for a period of not more than six (6) years comprising of an initial exploration period of three (3) years and an optional extension period of three (3) years while for deep offshore and frontier acreages, it shall be for a duration of not more than ten (10) years comprising of an initial exploration period of five (5) years and an optional extension period of five (5) years. Also, the area provided for in a petroleum prospective license shall not exceed;
- 350 square kilometers for any onshore or shallow water acreages
- 1,000 square kilometers for any deep offshore acreages
- 1,500 square kilometers for any frontier acreages
- Petroleum Mining Lease (PML): This License is granted to qualified applicants to win, work, carry away, dispose of crude oil, condensate, and natural gas on an exclusive basis, drill exploration appraisal wells, and carry out the related test production on an exclusive basis; it may also be granted to carry out petroleum exploration operations on a non-exclusive basis. A petroleum mining lease shall be for a period of twenty (20) years which term shall include the development period. Where a development period for a petroleum mining lease is not stipulated, the development period shall be for a period of five (5) years for an onshore lease and seven (7) years for a lease in shallow water or deep offshore or a lease in a frontier acreage. Also, a lessee of a petroleum mining lease may, not less than twelve (12) months before the expiration of the lease, apply in writing to the Commission for a renewal. It is important to note that a PML that ceases to produce in paying quantities for a period of not less than one hundred and eighty (180) days may, except for unforeseeable circumstances, or any other reason acceptable to the Commission, be revoked by the Commission.
Some of the key highlights of the PIA 2021 include renaming the upstream licenses by replacing the word ‘oil’ with the word ‘petroleum while simultaneously dividing the Nigerian Petroleum Industry into the upstream sector on one hand and the midstream and downstream sector on the other hand. The current PIA also provides that, the minister shall have powers to grant and revoke licenses upon the recommendation of the Commission, as opposed to the former Act which gave the minister exclusive powers to grant or revoke these licenses. This encourages a more transparent and unbiased decision-making process in granting and revoking these licenses as opposed to what was obtained under the previous PIA regime. It is important to note that licenses or leases under the PIA are solely granted to companies duly incorporated under the Companies and Allied Matters Act as such, no individual can be granted a license. Under the old Act regime, these licenses or leases could be granted to a citizen of Nigeria or a company duly incorporated in Nigeria meaning that individuals could apply to be granted this license but this is not the present case. This provision enables a more credible standard in the petroleum industry because companies duly incorporated under the Companies and Allied Matters Act would usually have passed through thorough documentation processes to attain an incorporated status thereby providing evidence of its proper registration and viability. It is important to note that where a person intends to operate in more than one stream in the petroleum sector e.g., upstream and midstream/downstream, separate companies must be incorporated for each stream. However, for companies with PMLs, no stamp duties and capital gains tax shall be levied by the government on such segregation Furthermore, engaging in upstream petroleum activities without a valid license is a criminal offence.
In conclusion, the new PIA creates a more organized administration of licenses in the petroleum industry which encourages transparency. The new Act doesn’t seem to apply to holders of licenses acquired under the old Act except for some specific mandatory terms. However, there is a provision for conversion from the old licenses to the new licenses. There is a need for companies that undertake upstream, midstream, and downstream operations to restructure their licenses to align with the newly established authorities.
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Author: Ariteshoma Etete, Junior Associate, Centurion Law Group, Nigeria.