A nation enjoys unfettered rights over the oil and gas deposits situated within its borders or located beneath itsContinental Shelf to the outer limit of its Exclusive Economic Zone, as determined in accordance with the Convention on the Continental Shelf held in Geneva, April 1958.

The right to deal with these natural resources with utmost economic benefit to the country confers legal ownership on the State. This, being the legal position in Scotland, England and Whales and Nigeria, it ordinarily means that ‘the subterranean minerals are owned by the proprietor of the overlying land’. In administering these resources, the State owners may adopt several approaches for exploitation, exploration and production of these resources, depending on their financial strength.

Although the involvement of States in the oil and gas business vary according to individual national concerns, sometimes, the States can directly be involved or indirectly get involved via a vehicle commonly known as the ‘State party’. In Norway, the Norwegian government can directly participate in the proceeds arising from oil and gas fields under the ‘State’s Direct Financial Interest’. This participation is decided at the time at which licences are awarded and it varies from field to field, according to the STATE’S PREFERENCES. This position is not dissimilar from what obtains in Russia. Infact, PSAs are awarded for a shorter term by the Federal Agency for Subsoil Use, and are only awarded for five years (onshore) and ten years (offshore) and may be extended on terms.

In Nigeria, the State grants her exclusive ownership rights to the ‘State Party’ known as Nigerian National Petroleum Corporation (NNPC) who then statutorily enters into Joint Venture agreements or Production Sharing contracts with IOCs who have won bids of oil blocks. This in essence means that the government via its responsible agency (The Department of Petroleum Resources) allocates the acreages which best suits the economic benefits expected in return. It does not matter whether or not the previous licence holders have held the blocks for 50 years, what is important is the fact that owners of these licences have complied with the purpose of grant of the licences; which is to accrue maximum economic benefit to the State. In some countries, long award of licences have been discouraged, in the stead such term of exploitation and exploration have been fragmented into shorter term of years upon which, extension of the licence is based on the maximum economic use of the natural resource for the benefit of the State.

THE NIGERIAN CIRC**STANCE.

 

In Nigeria, ownership of petroleum is vested in the Federal Government, on behalf of the people, and its sole responsibility is to maximise its use and only permit their exploitation and exploration under a statutory approval, in accordance with the Petroleum Act,1969.The Department of Petroleum Resources(as it is now) allocates acreages to operators in any such areas which have been identified as proven reserves or deemed to have potential for petroleum exploitation at the discretion of the Minister of Petroleum Resources or such other block which as the Minister may deem fit to award to IOCs. These licences are granted to IOCs with the aim of entering into either a Joint Venture arrangement or a Production Sharing contract arrangement with NNPC.

However, and only recently too, controversy pervaded the Nigerian oil industry as a result of the attention being given to the proposal by the Chinese National Offshore Oil Corporation’s (Otherwise known as CNOOC) application for the acquisition of a 49-per-cent interest in 23 oil blocks, some of which are currently held by major operating companies, subsisting and expired. CNOOC has made its interest known to the government in buying up to 6 billion barrels of oil, or 1/6 of the proven reserves in Nigeria. Speculation about the initial offer puts it at US$50 billion.

This Federal Government’s response to the CNOOC’s request sent a wrong signal to the existing operators of the oil industry. The offer which was made under the previous administration was not given a presidential nod because of its sensitive nature until it was revisited again under the present administration. Majority of the oil companies are displeased with this Federal consideration because of the possibility of losing 16 prolific oil mining leases (OMLs) held for over 40 years by the international oil companies (IOCs).This according to the Nigerian press has led to intense lobbying and intrigues to delay the passage of the Petroleum Industry Bill (PIB) currently at the National Assembly.

The legal position on the ownership of hydrocarbon is unambiguous, as all hydrocarbon resources in the subsoil, in interior waters and in the territorial sea, on the continental shelf and in the exclusive economic zone is typically the province of the State. In the exercise of the statutory powers, Section 2 of the 1969 Petroleum Act details the powers to grant exploration, prospecting and mining licenses to companies having satisfied the statutory requirements. This is unlike the position in the United Kingdom where such grants are viewed as a ‘purely administrative matter’; at the Minister’s discretion. There is nothing compelling the Minister to adopt a particular grid or block pattern. In cases of developing nations who do not have access to risk capital and lack the technical expertise to explore and develop the hydrocarbon resources located within their Shelves, the task of finding and extracting hydrocarbon is thrust upon the foreign oil companies who have the required capital for the activity. This usually comes at an agreement between the State and the foreign oil company. At times, it comes as a risk service contract. In other cases; it comes by the grant of a licence. It is important to clarify the point that hydrocarbon in situ is held by the state in trust for the people; its administration must emphatically be exercised in the best interest of these people.

Needless to say that before the government can solely open oil blocks for public bid, the issue of renewal of expired acreages must be settled. In otherwords, will the existing licence holders automatically have their licences renewed by virtue of just the pre-emptive rights? Or is the Government opening the bid for the competitive bidding rounds? There is no hard or fast rule to this, as the wordings of the Act is clear on it.

Section13(1)of the first Schedule states   that ‘The Lessee of an Oil Mining Lease shall be entitled to apply in writing to the Minister, not less than twelve months before the expiration of the lease….’. As can be seen therefore, it  appears there is a lacuna in the Petroleum Act provisions of 1969, as it does not state clearly what other reasons the Minister must consider other than the payment of ‘…all rent and royalties due and have otherwise performed all his obligation under the lease’.

However, for the IOCs to enjoy the pre-emptive rights, the government must consider as a matter of priority, the interest of the public and ensure that same is well protected. Other than the terse requirements provided for in Section 13 (1) to the First Schedule of the Petroleum Act, it is the author’s view that the Minister should equally ensure that a detailed work programme is submitted and approved for qualification to bid, the successful applicant has a sound financial strength, compliance with best environmental practices are met, latest exploitation, exploration and production technology equipments will be in use, decommissioning plans have been submitted and approved, technology transfer to indigenous companies have been put in place and a host of other factors which will be of economic benefit to the people. Equally, an a****sment of the immediate past term of allocation must be critically examined vis-a-vis the accrued benefit to the government and people of Nigeria. Where all of these are met, the Minister could ‘return’ the licences to their previous holders, and where the position is different, whoever merits the set criteria should be allocated these acreages because any activity carried out thereon must be in the utmost best interest of the people of Nigeria.