Electronic copy available at: http://ssrn.com/abstract=2673020

i

THE REGULATION OF THE PETROLEUM INDUSTRY IN NIGERIA: AN ASSESSMENT

EDOABASI UDO*

A Research Project 2014. *Contact: Email: yourethebest16th@yahoo.com, Telephone: +2348187019206,

+2348039795959

Electronic copy available at: http://ssrn.com/abstract=2673020

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ABSTRACT

The oil and gas sector remains central to the Nigerian economy and accounts for about 95% of the country's exports. The country’s proven oil reserves stand at about 37.2 billion barrels (the largest in Africa and the 11th largest in the world); this is in addition to over 187 trillion cubic feet of proven natural gas reserves (the largest in Africa and the seventh largest in the world)1. The petroleum industry is thus the lifeblood of the Nigerian economy, official records from the budget office of the Federal Republic of Nigeria shows that the petroleum industry accounted for about 29.1% of GDP and 78% of total government revenues through fiscal year 20122. Behind these statistics however, is an industry fraught with corruption, environmental pollution, under-utilization and wastages, inadequate manpower, inefficiency, lack of transparency, capital flights, monetary divestments, etcetera. This project therefore examines the nation’s petroleum industry and covers a multi-jurisdictional comparison on issues relating to ownership and the management structure of the industry’s key ingredients, regulatory compliance, taxation, guidelines on health, safety, environmental management and sustainable development, as well as the interest of oil bearing communities. To attain the objective of this research, spotlight will be made on the relevant domestic laws and international conventions on exploration, development and disposition of oil and gas resources. The project also covers a review of international best practices on the subject matter.

1 Practical Law (a Thomson Reuters Legal Solution), ‘Oil and Gas Regulation in Nigeria: Overview’ (01 May 2014) < http://uk.practicallaw.com/5-523-4794?q=*&qp=&qo=&qe=> accessed 06 June 2014.

2 Samuel Diminas, ‘An Analysis of the Nigerian Petroleum Industry Bill’ (2012) Vol. 1.

Electronic copy available at: http://ssrn.com/abstract=2673020

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TABLE OF CONTENTS

Title Page i

Abstract ii

Table of Contents iii

Table of Statutes x

International Conventions and Treaties xiv

Table of Cases xv

Abbreviations xvii

CHAPTER ONE – INTRODUCTION 1

1.1 Background of the Study 1

1.2 Statement of the Problem 2

1.3 Purpose of the Study 3

1.4 Significance of the Study 4

1.5 Research Questions 4

1.6 Scope of the Study 5

1.7 Research Methodology 6

1.8 Definition of Terms 6

1.9 Literature Review 8

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CHAPTER TWO: OWNERSHIP REGIMES OF PETROLEUM RESOURCES IN

NIGERIA- 14

2.1 Introduction 14

2.2. Pre and Post - Independence Era 14

2.2.1 Pre Independence Era 15

2.2.2 Post - Independence Era 18

2.3 Access to Land in Nigeria 24

2.4 Legal and Contractual Frameworks for Petroleum Resources

Development 25

2.4.1 The concession 26

2.4.2 The joint venture 27

2.4.3 The production sharing contract 27

2.4.4 Risk Service Contracts 28

2.4.5 Indigenous Operations – Sole Risk Contracts 28

2.4.6 Marginal Fields 29

2.5 Conclusion 30

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CHAPTER THREE: THE REGULATION OF THE PETROLEUM INDUSTRY IN

NIGERIA: AN ASSESSMENT 31

3.1 Introduction 31

3.2 The Governing Laws and Subsidiary Legislations 32

3.2.1 Constitution of the Federal Republic of Nigeria 1999 33

3.2.2 Associated Gas Reinjection Act 1979 (as amended in 1985) 34

3.2.3 Deep Offshore and Inland Basin Production Sharing Contract Act

1999 35

3.2.4 Deep Water Block Allocation to Companies (Backing Rights)

Regulations 2003 35

3.2.5 Environmental Impact Assessment Act 1992 36

3.2.6 Minerals Oil (Safety) Regulation 1963 37

3.2.7 National Oil Spills Detection and Response Agency (NOSDRA) Act

2006 37

3.2.8 Nigeria Extractive Industries Transparency Initiative (NEITI) Act

2007 38

3.2.9 Nigeria National Petroleum Corporation (NNPC) Act 1977 39

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3.2.10 Nigerian Oil and Gas Industry Content Development Act

2010 40

3.2.11 Oil and Gas Export Free Zone Act 41

3.2.12 Oil in Navigable Waters Act 1968 42

3.2.13 Oil Pipeline Act 1956 as amended in 1965 42

3.2.14 Petroleum Act 1969 (as amended) 44

3.2.15 Petroleum (Drilling and Production) Regulation 1969 with

amendments in 1973, 1979, 1995 and 1996 45

3.2.16 Petroleum Production and Distribution (Anti-Sabotage) Act

- 46

3.2.17 Petroleum Profit Tax Act (PPTA) 1959 with amendments in

1967, 1970, 1973 and 1979 47

3.2.18 Petroleum Technology Development Fund Act 1973 49

3.3 Derivation Principle and the Doctrine of Resource Control 50

3.3.1 The Allocation of Revenue 52

3.3.2 The Allocation of Revenue (Abolition of Dichotomy in the Application of

the Principle of Derivation) Act 2004 54

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3.3.3 Supreme Court’s Decision in AG. Fed. v. AG. Abia State & Ors (2002) 6

55

3.4 The Petroleum Industry Bill 57

3.5 Natural Gas Development and the Nigerian Gas Master Plan 61

3.6 International Conventions and Treaties 63

3.6.1 Agenda 21 63

3.6.2 General Assembly Resolution of 1962 (Permanent Sovereignty over

Natural Resources) 65

3.6.3 1982 Law of the Sea Convention 66

3.6.4 1972 Stockholm Declaration 68

3.6.5 1992 Biodiversity Convention 70

3.6.6 1992 Climate Change Convention 70

3.6.7 1992 London Dumping Convention 71

3.6.8 1992 Rio Declaration 72

3.7 Conclusion 73

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CHAPTER FOUR: THE UTILIZATION OF PETROLEUM RESOURCES:

MATTERS ARISING 75

4.1 Introduction 75

4.2 Mechanisms for Sustainable Development in the Petroleum Industry

76

4.2.1 Sustainable Development of Petroleum in Nigeria 79

4.2.2 The Case Study of Shell and the Ogoni on Sustainable Development

81

4.2.3 United Nations Sustainable Energy For All (UN SEFA 82

4.3 The Impacts of Oil and Natural Gas Operations on the Environment

84

4.3.1 Causes of Oil and Gas Pollution 87

4.3.2 Environmental Regulation in Nigeria 90

4.4 The Interest of Host Communities 92

4.5 Emerging Trends in the Petroleum Industry 97

4.5.1 Privatization 97

4.5.2 Local Content Development 98

4.5.3 Endowments: The Sovereign Wealth Fund 102

4.5.3.1 The Nigerian Sovereign Wealth Fund 105

4.5.3.2 The Alaska Permanent Fund Corporation 105

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4.6 Experiences with Petroleum Resources in other Jurisdictions

107

4.6.1 Public Control of Resources 107

4.6.2 Private Control of Resources: 108

4.6.3 Australia 109

4.6.4 The United States 111

4.6.5 United Arab Emirates 112

4.7 Conclusion 117

CHAPTER FIVE – Summary, Findings, Conclusions, Recommendations

119

5.1 Summary 119

5.2 Conclusions 124

5.3 Recommendations 125

BIBLIOGRAPHY 130

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TABLE OF

Abu Dhabi Petroleum Resources Conservation Law

Algerian Constitution

Angolan Constitution

Allocation of Revenue (Abolition of Dichotomy in the Application of the Principle of Derivation) Act 2004 Cap. A15, Laws of the Federation of Nigeria 2010.

Associated Gas Reinjection Act 1979 (as amended in 1985), Cap. A25, Laws of the Federation of Nigeria 2010.

Botswanan Constitution

Commonwealth Offshore Petroleum and Greenhouse Gas Storage Act (of Australia) 2006

Constitution of the Federal Republic of Nigeria 1999 (as amended)

Constitution of the United States

Constitution of the United States’ States of Alaska

Deep Offshore and Inland Basin Production Sharing Contract Act 1999

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Deep Water Block Allocation to Companies (Backing Rights) Regulations 2003

Federal Environmental Law of the UAE

Environmental Impact Assessment Act of 1992 (EIA Act) Cap. E12, Laws of the Federation of Nigeria 2010.

Mineral Leasing Act of the United States 1920.

Mineral Leasing Act for Acquired Lands (of the United States) of 1947

Minerals Oil (Safety) Regulation 1963.

Nambian Constitution

Nigerian National Petroleum Corporation Act, Cap N123 Laws of the Federation of Nigeria, 2010.

Nigerian Oil and Gas Industry Content Development Act 2010, Cap. N124, Laws of the Federation of Nigeria 2010.

National Oil Spills Detection and Response Agency (NOSDRA) Act 2006 Cap. N157, Laws of the Federation of Nigeria 2010.

Nigeria Extractive Industries Transparency Initiative (NEITI) Act 2007, Cap. N159, Laws of the Federation of Nigeria 2010.

Nigeria Sovereign Investment Authority Act 2012

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Oil and Gas Export Free Zone Act Cap. O5, Laws of the Federation of Nigeria 2010.

Oil in Navigable Waters Act 1968 Cap. O6, Laws of the Federation of Nigeria 2010.

Oil Pipeline Act 1956 as amended in 1965 Cap. O7, Laws of the Federation of Nigeria 2010.

Petroleum Act 1969 (as amended) Cap. P10, Laws of the Federation of Nigeria 2010.

Petroleum (Drilling and Production) Regulation 1969 with amendments in 1973, 1979, 1995 and 1996.

Petroleum Marketing Practices Act

Petroleum Production and Distribution (Anti-Sabotage) Act Cap. P12, Laws of the Federation of Nigeria 2010.

Petroleum Profit Tax Act (PPTA) 1959 with amendments in 1967, 1970, 1973 and 1979. Cap. P13, Laws of the Federation of Nigeria 2010.

Petroleum Technology Development Fund Act 1973 Cap. P15, Laws of the Federation of Nigeria 2010.

Public Enterprises (Privatisation and Commercialisation) Act, 1999 Cap. P38, Laws of the Federation of Nigeria 2010.

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Texas Natural Resources Code

The UAE Federal Constitution

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INTERNATIONAL CONVENTIONS AND TREATIES

Climate Change Convention 1992

Convention on Biological Diversity, 31 ILM (1992) 822.

General Assembly Resolution of 1962 (Permanent Sovereignty over Natural Resources)

London Convention on the Prevention of Marine Pollution by the Dumping of wastes and Other Matter, 11 ILM (1972) 1302.

New York Arbitration Convention

Rio Declaration on the Environment and Development, 31 ILM (1992) 876.

Stockholm Declaration on the Human Environment, 1972.

United Nations Convention on the Law of the Sea, 10 December (1982), 21 ILM 1261.

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TABLE OF CASES

Attorney General of the Federation v. Attorney General of Abia State (2002) 6 N.W.L.R. (Part 764). 9, 44, 54

Famfa Oil Ltd v. A.G.F. & NNPC, Suit No. CCA/A/173/06 (unreported). 36

Federal Government of Nigeria v. Zebra Energy (2002) 18 N.W.L.R. (pt. 798) 162. 45

Gbemre v. SPDC, Suit No. FHC/B/CS/53/05 (unreported). 35

Gulf Oil Company (Nig.) Ltd v. F.B.I.R (1997) 7 N.W.L.R. Part 514 page 535 45

Nigerian AGIP Oil Company v. Kemmer (2001) 8 N.W.L.R. (pt. 716) 506. 43

Opuo v. N.N.P.C. (2001) 14 NWLR (pt. 734) 560. 7

Seleba v. Mobil Producing (Nigeria) Unlimited (2002) 12 N.W.L.R. (pt. 995) 643. 43

SPDC v. Burutu Local Government Council (1998) 9 N.W.L.R. (pt. 565) 318. 43

SPDC v. FBIR (1996) 8 N.W.L.R. (Part 466) SC. 11, 45

SPDC v. H.B.F.M C.S Ltd. (2002) 1 W.R.N. 37. 44

xvi

SPDC v. Isaiah (2001) 1 N.W.L.R. (pt. 723) 169. 44

Texaco Oversea Nigeria Petroleum Company v. F.B.I.R. (1997) 4 NWLR Part 501 page 566 CA. 51

xvii

ABBREVIATIONS

B/D Barrel per day

BCM Billion Cubic Meter

BP British Petroleum

CU. M Cubic Meters

CFT Cubic Feet

DPR Department of Petroleum Resources (Nigeria)

DSCE Dubai Supreme Council of Energy

E&P Exploration and Production

ECA Economic Commission for Africa

ECOWAS Economic Community of West African States

EEZ Exclusive Economic Zone

EIA Environmental Impact Assessment

EITI Extractive Industries Transparency Initiative

EMP Environmental Management Plan

FBIR Federal Board of Inland Revenue

FDI Foreign Direct Investment

FEPA Federal Environmental Protection Agency

GDP Gross Domestic Product

IOC International Oil Company (ies)

xviii

IOCs International Oil Companies

JV Joint Venture

LNG Liquefied Natural Gas

MNOCs Multinational Oil Companies

MOU Memorandum of Understanding

NDDC Niger Delta Development Commission

NEITI Nigeria Extractive Industries Transparency Initiative

NGOs Non-governmental Organizations

NNPC Nigeria National Petroleum Corporation

OEL Oil Exploration Licence

OGI Oil and Gas Industry

OML Oil Mining Lease

OMPADEC Oil Mineral Producing Areas Development Commission

OPEC Organization of Petroleum Exporting Countries

OPL Oil Prospecting License

PPP Public Private Partnership

PPTA Petroleum Profit Tax Act

PSA Production Sharing Agreement

PSC Production Sharing Contract

PTF Petroleum Trust Fund

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SPC Supreme Petroleum Council

TCF Trillion Cubic Feet

UAE United Arab Emirates

UN United Nations

UNCED United Nations Conference on Environment and Development

UNCLOS United Nations Convention on the Law of the Sea

UNCTD United Nations Conference on Trade and Development

UNDP United Nations Development Programme

UNEP United Nations Environment Programme

UNFCCC United Nations Framework Convention on Climate Change

UNGA United Nations General Assembly

US United States

JOURNAL ABBREVIATIONS

AJIL American Journal of International Law

JENRL Journal of Energy and Natural Resources Law

NRF Natural Resources Forum

NRJ Natural Resources Journal

NWLR Nigerian Weekly Law Report

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OGJ Oil and Gas Journal

UILR University of Ibadan Law Review

UNEP United Nations Environment Programme

World Dev. World Development

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