Tag Archives: Oil and Gas

NNPC Reforms: Review of Production Sharing Contracts between the NNPC and IOCs

The Nigerian National Petroleum Corporation (NNPC) has disclosed that it would renegotiate the fiscal terms of existing Production Sharing Contracts (PSCs) entered into with international oil companies (IOCs).

The review is aimed at bringing the PSCs in line with present day realities in the global oil and gas industry.

Production Sharing Contract (PSC)

In a PSC, the NNPC engages a competent contractor usually an International Oil Company (IOC) to carry out petroleum operations on NNPC’s wholly held acreage. The contractor undertakes the initial exploration risks and recovers his costs if and when oil is discovered in commercial quantities and extracted.

Primary Legal Regime regulating Production Sharing Contracts

DEEP OFFSHORE AND INLAND BASIN PRODCUTION SHARING CONTRACTS DECREE NO 9 1999 ACT. CAP. D3. LFN 2004.

This is in addition to the individual contracts signed with the individual companies.

History of production sharing contracts

Indonesia pioneered the first PSC in 1966 through Permina, the state oil company. The contract system was evolved due to the imbalance in the traditional concessionary system regarding Government Take.

Possible issues to be looked at in a Review of NNPC’s PSCs with IOCs

In reviewing a PSC, it might be wise to use a basic checklist that covers issues like; who are the Parties to the contract? What exactly, is the subject of the PSC? Is there a renegotiation clause? What are the triggers and have the conditions been fulfilled?

Amazing Fiscal Incentives

In 1993, Nigeria entered into deep water drilling and awarded over 20 oil blocks in the deep water to various IOC’s.

Nigeria was not very familiar with deep-water drilling and its possible yield. Thus the fiscal terms for deep offshore in Nigeria were unbelievably generous to point of occasioning loss to our national treasury. The PSC had an unbelievable graduated rate of royalty payment dependent on water depth.

The rates are as follows:

  • 205-500 meters water depth: 12%
  • 501-800 meters water depth: 8%
  • 801-1,000 meters water depth: 4%
  • Above 1,000 meters water depth: 0%

Considering the fact that these rates regulate deep water drilling, it was not particularly prudent on Nigeria’s part to have based the royalty rates on drilling depth, ignoring indices like production levels, oil prices etc. Even more alarming is the fact that deep offshore reserves are more prolific than land based reserves.

Interestingly, it was reported in 2005, that Oil and gas production began in the 200,000 barrels per day capacity Bonga field, Nigeria’s first deep-water development in water depths of over 1,000 metres.

It was also reported that Erha deep-water development, including the Erha field and Erha North satellite field, was completed in 2006.The fields are located approximately 97km offshore Nigeria, in water depths ranging from 1,000m to 1,200m.!

It was also reported that the Agbami-2 appraisal well was drilled in 4,800ft of water to a total depth of 15,683ft.

The Egina field lies within the block Oil Mining Lease OML 130 and covers an area of around 500 square miles. It is situated at a water depth of ranging from 1400m to 1,750m.

Thus it can be easily deduced that Bonga and the above mentioned deep water fields fall under the 1000 metre royalty rate of 0 (zero) percent!

The petroleum tax payable under the PSC arrangement was fixed at 50% flat rate of chargeable profits for the duration of the production sharing contracts against the rate of 85%, prescribed by the Petroleum Profit Tax Act operable in the Joint Venture arrangement.

Like every major energy contract, the PSC’s that Nigeria signed contains possible renegotiation clauses in case the project dynamics change for better or worse. In Nigeria’s case the project dynamics have changed for better, Deep water fields have proven to be quite prolific, a fact the IOC’s based on their vast deep water experience may have known from the world go.

Production Sharing: The PSC provides for how the International Oil Company (IOC)/contractor will recover his costs, the allowable percentage of recovery and how production will be shared. Common items found in PSCs are royalty oil, cost (recovery) oil and profit oil.

Tax: The PSC states the taxes that the International Oil Company (IOC)/contractor would be subjected to. 

Enforcement of Abandonment/Decommissioning clauses

The PSC provides for a Decommissioning clause for each Development Area. This is quite commendable as the IOC is under obligation to properly clean up after operations.

Contractual Terms and Environmental Protection

There is a possibility that basic contract review and negotiation can help stem the tide of pollution and environmental degradation… by making sure we negotiate and include clauses that enact stringent conditions for environmental protection.

Contract terms are very important because they determine how much Nigeria as a producing country earns from it natural resources; and they can strengthen the regulatory power of government to enforce environmental, health and other standards, if standard legal and regulatory systems are not well established…

Agreed damages clause for pollution

There might be a need to insert a clause stipulating the minimum fine for every barrel spilled, especially after a certain period of grace.

Model PSC for Non-Associated Gas

The scheduled review might be a good opportunity to develop a model Production Sharing Contract for Non-Associated Gas fields. Which in turn might help kick start the much awaited natural gas revolution.

NNPC images

The funding arrangement is beneficial for an NOC participating in the project. The good thing is that even after production begins and the NOC is required to finance the project payments are made from crude oil production rather than cash. However the PSC’s did not make adequate provisions for times when oil prices rise. Thus governmental take did not rise in proportion to oil price. 

Curbing Artificial Expenses

The IOC may decide to slow down the pace of production, be wasteful or extravagant in its exploitation especially when the operator knows his expenses would be fully met by the crude produced. Such behaviour is also called gold plating.

Social Normative Norms in Oil Pollution?

Lax enforcement of the law in the area of environmental degradation eventually results in whiplashes and hostility from the host communities targeted at the International Oil Company.

Conclusion

Renegotiating a Production Sharing Contract requires legal knowledge, foresight and common sense. The number of model clauses successfully incorporated modified in the renegotiated Production Sharing Contract depends largely upon negotiating power of the parties involved. Even so, the information contained in this piece will enlighten the Government and International Oil Company (IOC)/contractor as to some possible alternatives, and possibly foster frank discussion between the Government and the Oil Company.

Olufola Wusu Esq. © 2015

fola@megathoslaw.com

Olufola Wusu is noted for his “dynamic practice” and “commercial acumen”. He is praised for his “first-rate skills” in assisting clients…

@OlufolaWusu_IP

Olufola Wusu is a Commercial, Oil and Gas and IP Lawyer based in Lagos.

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NLNG panics as US, Australia enter gas market

Punch newspaper recently reported thus: “NLNG panics as US, Australia enter gas market” http://www.punchng.com/business/business-economy/nlng-panics-as-us-australia-enter-gas-market/

Its this analyst’s opinion that this might be the perfect opportunity for Nigeria LNG Limited and Nigeria to rethink its commercial strategy on gas and LNG use.

It may no longer be appropriate for LNG to be entirely export centred.

We may need to continue with the export of LNG while pushing for domestic use/African use of LNG/Natural Gas.

We should also consider LNG storage tanks for rainy days and to make our production mix more nimble, Floating LNG  may just be the way forward. Thankfully Shell has shown the way via its Prelude FLNG in Browse Basin, Australia.

Brass LNG may consider using Floating LNG, it should be cheaper as it does not require land and all the attendant costs like compensation and community relations.

All over the world traditional fossil fuels like petrol and diesel are being replaced with natural gas as it is seen as a cleaner and cheaper alternative.

In America LNG/Natural Gas provides :

a. 76% of the residential and commercial sectors’ energy needs

b. 40% of the industrial sector’s energy needs

c. 18% of electricity generation

d. 3% of the transportation sector’s energy needs
Over 110,000 transit buses, taxi cabs, package delivery trucks and other vehicles operating in the U.S. are fueled with clean-burning natural gas, according to the Natural Gas Vehicle Association.
Heavy duty trucks, trains and ships now run on LNG as it affords them the opportunity to store more fuel using less space!

Japan is pushing LNG for its transportation needs, it intends to use LNG  for its buses, trucks and ships while dumping diesel.

There are so many innovative uses of LNG Nigeria that Nigeria may freely adopt. Going by the huge sums of money spent on subsidy and importation of petrol and diesel I dare say that there is a ready market for gas utilisation in Nigeria. Either way the dwindling prices of LNG and the entry of bigger and nimble players offering lower prices into the global LNG market may just be the incentive needed to jump start the natural gas revolution in Nigeria.

There is no point spending money on importing petrol and diesel when we have so much Gas!!!

Olufola Wusu

I work with companies seeking to invest in Nigeria. I solve legal problems and help monetise I.P. & Oil and Gas .

Listed in the prestigious directory of “Who is Who Legal” Nigeria.

http://whoswholegal.com/profiles/65712/0/wusu/olufola-wusu/

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Intellectual property rights and oil field service industry

Intellectual property rights and oil field service industry

 

IT is commendable that the Federal Government through the Nigerian National Petroleum Corporation (NNPC) decided to award nearly half of the 2012/2013 crude oil lifting contracts worth approximately $60 billion to Nigerian companies…

by Olufola Oluseun Wusu

 

Intellectual property rights and oil field service industry.

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HYDRAULIC FRACTURING IN NIGERIA: PROS AND CONS

 

HYDRAULIC FRACTURING IN NIGERIA: PROS AND CONS

It has been reported in the news that out of the 388 acreages in the country, 173 had been allocated to 85 companies that are involved in the upstream business, while 215 were yet to be allocated to investors. It was also disclosed that 70 per cent of the 315 oil fields in these 173 acreages are producing oil and gas, while about 30 per cent of the fields are still going through exploration and appraisal stages.

Concerns about Hydraulic Fracturing Hydraulic fracturing is highly variable and unpredictable, and because drinking water supplies are extremely precious resources, numerous concerns have been raised.

Possible Legal Regime regulating Hydraulic fracturing…

Economic Pressure: Natural Gas Development

In Nigeria natural gas has become an important and extremely valuable fuel, Nigeria has approximately 184 trillion cubic feet (tcf) of gas reserves. Fracturing and the Environment Allegations of water quality impacts associated with hydraulic fracturing date back to at least the early 1990s, but hard evidence has gradually began to surface.

Regulating Hydraulic Fracturing… In this writer’s opinion, both Federal and State Environmental Protection Agencies should carry out comprehensive research in conjunction with civil society groups to ascertain and obtain credible evidence of environmental risks and possible economic benefits obtainable from fracking.  

Air Quality Protection

Concerns also have been raised over potential air impacts. Generally, natural gas contains significantly lower levels of greenhouse gases than coal and other fossil fuels, and therefore increased energy production with natural gas has the potential to significantly reduce GHG emissions. Air controls would be used to address the greenhouse gas (GHG) impacts of natural gas produced by fracking.

Hydraulic Fracturing Best Practices

It is common to use diesel in hydraulic fracturing fluids. This should be avoided, since diesel contains the carcinogen benzene, as well as other harmful chemicals such as naphthalene, toluene, ethyl benzene and xylene. It is technologically feasible to replace diesel with non-toxic additives such as plain water.

Possibility of Bans and Moratoriums

Despite movement toward reasonable regulation to address concerns related to hydraulic fracturing, there is still a strong movement, especially in the mid-Atlantic, toward banning all hydraulic fracturing. New York is the only U.S. state that has actually instituted any sort of ban or moratorium on fracking. Bulgaria and France have banned Hydraulic fracturing while in South Africa there is a moratorium on same.

Conclusion

The debate over hydraulic fracturing should commence sometime soon and should not be silenced, but it should remain based on fact, it should be focused on the protection that is already in place and what actually is being done to increase that protection or it will have failed to serve the public interest. In this writer’s opinion shedding light on the current status of facts should assist in that endeavour.

  Olufola Wusu Esq. © 2012

Counsel with Megathos Law Practice

Olufola Wusu is a Contract Review Specialist and Intellectual Property consultant

He can be reached at folawusu@yahoo.com for legal advice and more.

Legal Disclaimer by Olufola Wusu Esq

(1) No advice This note contains general information about [law and legal practice]. The information is not advice, and should not be treated as such. (2) No warranties The legal information on this article is provided without any representations or warranties, express or implied. We make no representations or warranties in relation to the legal information on this website. Without prejudice to the generality of the foregoing paragraph, we do not warrant that: (a) the legal information on this article will be constantly available, or available at all; or (b) the legal information on this article is complete, true, accurate, up-to-date, or non-misleading. (3) Professional assistance You must not rely on the information on this website as an alternative to legal advice from your lawyer or other professional legal services provider. If you have any specific questions about any legal matter you should consult your lawyer or other professional legal services provider. You should never delay seeking legal advice, disregard legal advice, or commence or discontinue any legal action because of information on this website.

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Oil and Gas Industry:Innovation/Intellectual Property based or a Commodity Market?

Introduction

The Occupy Nigeria demonstrations of the 1st of January 2012, the oil subsidy probe and the ensuing “entrapment gone awry” gives credence to the fact that the oil and gas industry is risky, political and very expensive. Furthermore, the industry is constantly being scrutinised by governments, numerous regulatory bodies, investors and ordinary citizens.

It’s also important because it energises every other industry in the world.

I guess you are thinking, there is enough money to go around in Oil and Gas Industry, so why bother with “innovation” i.e. Intellectual Property?

For starters, Oil and gas companies are expected to comply with the mantra, “cheaper, better and faster” i.e. more productivity, less cost to consumers, but it must still manage international politics and not mess up our environment.

Safety…

Innovation Management

Paradoxically the oil and gas industry probably has the best tools and capabilities covering operational efficiency and decision making.

 

Exploiting innovation

Innovative Contract Review and Environmental Protection

There is a possibility that contract review and negotiation can help stem the tide of pollution and environmental degradation…

The laws enumerated below make up the legal regime for the protection of Intellectual Property Rights in Nigeria.

Copy Right Act, Cap. C 28 Laws of the Federation of Nigeria 2004

Patents and Designs Act, Cap P2, Laws of the Federation of Nigeria 2004; and

Trade Marks Act, Cap. T13 laws of the Federation of Nigeria 2004

 

Oily Intellectual Property;

Patents

A patent is a document issued, upon application by a government office (or a regional office acting for several countries), which describes an invention and creates a legal situation in which the patented invention can normally only be exploited (manufactured, used, sold, imported) with the authorization of the owner of the patent

Why Oil and Gas companies are yet to fall in love with Patents …

Is Innovation necessary?

How important is our competition?

What does IP have to do with Oil and Gas?

Trade secrets

A “trade secret” is defined as any product, operating formula, pattern, device or other compilation of information which is used in a business, which gets its economic value from being kept secret, and gives the business a competitive advantage.

 

Contractual Protection for Trade Secrets

Trade secrets are more appropriately protected by contract.

Commercialisation of Patents and Trade Secret

Patents are public documents which disclose information about the invention (technology) in exchange for state protection.

Copyrights

A copyright gives the holder of such copyright the exclusive right to control exploitation, production and adaptation of such a work for a certain period of time.

TRADEMARKS

The first barrel in any great oil and gas company is a good name. It should be registered as a trademark.

 

Oily IP Transactions

Formal accounting procedures for IP assets are fast evolving, but they are generally not on the balance sheet of the average companies that own them, and they are sometimes ignored by financial analysts.

            Conclusion

The upstream oil and gas industry has been described as a “knowledge industry” because of new technologies such as three-dimensional acoustical sounding, horizontal drilling, and deep offshore drilling.

Perhaps the National assembly should do well by including provisions on Intellectual Property and Hydraulic Fracturing in the long awaited Petroleum Industry Bill, which should help nudge the Industry in the right direction IP wise.

Olufola Wusu Esq. © 2012

Counsel with Megathos Law Practice

Olufola Wusu is a Contract Review Specialist and Intellectual Property consultant

He can be reached at folawusu@yahoo.com

Legal Disclaimer

by Olufola Wusu Esq

(1) No advice

This note contains general information about [law and legal practice]. The information is not advice, and should not be treated as such.

(2) No warranties

The legal information on this article is provided without any representations or warranties, express or implied. We make no representations or warranties in relation to the legal information on this website.

Without prejudice to the generality of the foregoing paragraph, we do not warrant that:

(a) the legal information on this article will be constantly available, or available at all; or

(b) the legal information on this article is complete, true, accurate, up-to-date, or non-misleading.

(3) Professional assistance

You must not rely on the information on this website as an alternative to legal advice from your lawyer or other professional legal services provider. If you have any specific questions about any legal matter you should consult your lawyer or other professional legal services provider. You should never delay seeking legal advice, disregard legal advice, or commence or discontinue any legal action because of information on this website.

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http://www.punchng.com/business/energy/saraki-seeks-amendment-to-nosdra-act/

Saraki seeks amendment to NOSDRA Act

 

Saraki seeks amendment to NOSDRA Act

MAY 17, 2012 BY SUCCESS NWOGU, ILORIN
The Chairman, Senate Committee on Ecology and Environment, Dr. Bukola Saraki, has said that there is the need to amend the National Oil Spill Detection and Response Agency (Establishment) Act 2006.

According to a statement on Wednesday from Saraki’s Special Assistant, Advocacy and Media, Mr. Bamikole Omishore, the Senator is seeking re-designation of the agency as ‘National Oil Pollution Management Agency.’

Saraki said the bill, which he was sponsoring in the Senate, sought to create a more proactive oil spill management and regulation system. He added that it also sought to punish severely irresponsible environmental degradation caused by oil and gas exploitation.

According to Saraki, the bill, if passed, will set out a firm penalty and elaborate compensation regime to compensate people, whose livelihoods and lives are adversely impacted by these spills.

He said, “When this amendment passes through and becomes law, it will equip the agency to hold polluters to internationally acceptable standards.”

Part of the bill reads, “There is established an agency to be known as the National Oil Pollution Management Agency (in this Act referred to as the agency)” with the responsibility to prevent, detect, minimise and respond to all oil spillages and pollution as well as gas flaring and leakages and other hazardous and obnoxious substances in the petroleum sector, coordinate private sector participation in oil pollution management, have access to the ‘Oil Spillage Liability Trust Fund’ as set up by law.”

 

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New technology companies need an intellectual property strategy – Oil & Gas Financial Journal

New technology companies need an intellectual property strategy – Oil & Gas Financial Journal.

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