Notable Provisions of the Upstream Licensing Round Regulations of Nigeria

The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) released a new set of regulations on licensing rounds in the Nigerian Upstream Oil and Gas sector. This article will be looking at the provisions of the regulations regarding :

– Their objectives

– Their application scope

– Grants of licenses or leases to winning bidders

– Licensing rounds

– Publication of licensing rounds.

What are the objectives of these regulations?

– The objective of these regulations is to provide a seamless procedure and regulatory framework for conducting a fair, transparent and competitive bidding process for the grant of petroleum prospecting license and petroleum mining lease.

What is the application scope of these regulations?

– These regulations shall apply to bid rounds for the grant of petroleum prospecting license and petroleum mining lease pursuant to the Petroleum Industry Act.

What do the regulations say on the grant of licenses or leases to winning bidders?

– Except as provided under Sections 71(5) & 74(3) of the Petroleum Industry Act, a petroleum prospecting license or a petroleum mining lease shall only be granted to the winning bidder based on a bidding process which shall –

a). be fair, transparent and competitive, and

b). comply with the provisions of the Petroleum Industry Act, these regulations and other regulations or guidelines issued by NUPRC.

What are the provisions of the regulations regarding the development and publication of a licensing round plan?

– Prior to the commencement of any bid exercise, the NUPRC shall establish and publish the licensing round plan on its website.

What do the regulations say regarding licensing rounds?

– The licensing round shall be fair, open, competitive and based on criteria in conformity with the provisions of Section 73(1) of the Petroleum Industry Act.

What are the provisions of the regulations on the publication of licensing rounds?

– The NUPRC shall, before the commencement of a licensing round –

a). Issue a press statement and publish the commencement of the proposed licensing round on its website, 2 national newspapers and 2 international financial newspapers as may be determined by the NUPRC.

b). Issue and publish licensing round guidelines.

c). Open a data room, which shall be accessible by the NUPRC.

What are the notable licensing round guidelines contained in the regulations? 

– In addition to the provisions of Section 75 of the Petroleum Industry Act, the licensing round guidelines shall contain –

a). The authorized calendar of events.

b). The procedure for engagement with bid participants and stakeholders.

c). The provisions relating to pre-qualification of participants.

d). The provisions relating to participation by consortia.

e). The nature of companies that cannot participate in the bidding process.

f). The procedure for submitting and opening bid proposals.

g). The nature and amount of the work commitment guaranteed by the participant.

h). The confidentiality agreement to be signed for access to the data room.

i). The procedure for modification of the licensing round guidelines.

j). Any other information required by the NUPRC.

Section II

This article talks about provisions of the NUPRC licensing round regulations on topics such as :

– The procedure for engagement with bid participants and stakeholders

– Pre-qualification of participants

– Companies that cannot participate in a bidding process

– The opening of bid proposals.

What is the procedure for the engagement with bid participants and stakeholders as contained in the regulations?

– The licensing round guidelines shall provide for the engagement with participants and the general public throughout the licensing round process.

– The process of engagement shall be through notifications published by the NUPRC on its website stating the place and date of such engagements.

– The NUPRC shall entertain questions and provide clarifications in such engagement sessions.

– The NUPRC shall publish the clarifications referred to in the first paragraph above to provide further guidance to participants in the licensing round process.

What do the regulations say about the pre-qualification of participants?

– An applicant shall satisfy the legal, financial and technical to qualify for participation in the licensing round process.

– Where an applicant is a consortium –

a). all members of the consortium shall satisfy the legal and financial requirements, and

b). at least one member of the consortium designated as the operator, shall satisfy the 3 categories of criteria specified in paragraph 1 above.

– An application for pre-qualification shall be accompanied by the payment of a few as prescribed in the licensing round guidelines issued by NUPRC.

– A company or consortium of companies shall not participate in a licensing round unless it has been first been pre-qualified.

– The financial criteria required to pre-qualify shall include such financial information as may be prescribed in the licensing round guidelines issued by the NUPRC.

– Where the license or lease includes the obligation to drill one or more exploration wells drilled previously as an operator which shall as a minimum be the number established in the licensing round guidelines for a pre-qualified operator.

Which companies cannot participate in a bidding process under the regulations?

– The NUPRC may excluded a pre-qualified applicant from participation in the bid process, where the applicant –

a). is prohibited or banned from participation in the licensing round or any bidding process by the Federal Government or any of its agencies.

b). has previously presented false information or forged document.

c). has the same shareholders or are formed by the same persons as another company participating in the bid process for the same license or lease.

d). has obtained information relating to the bid process through unauthorized means.

e). fails to comply with applicable laws.

f). is indebted to government.

g). has an oil and gas asset not operated continuously and in a business-like manner. 

What is the procedure for submitting and opening bid proposals under the regulations?

– A bid process shall be –

a). Conducted on a date and in a place and at a time determined by NUPRC.

b). Published on the website of NUPRC not later than 30 days before the bid date.

– All bids shall be submitted both physically and electronically.

– Where submitted physically, it shall be a duly authorised representative of the bidder it by registered courier on or before the date and time, at a place specified by the NUPRC.

– The procedure for electronic submission of bids shall be as specified by NUPRC in the licensing round guidelines.

– A bid shall consist of a proposal in a sealed envelope and bid guarantee in another sealed envelope.

Section III

This article instalment deals with the provisions of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) Licensing Round Regulations on :

– Grounds for rejection of bids

– Confidentiality agreements for access to data rooms

– Licensing round guidelines amendment

– Participation in the bid process

– Signature bonuses.

What are the grounds for the rejection of bids?

– The NUPRC may reject a bud proposal during the opening of proposals or subsequently –

a). where the – 

i). commission determines the process that the companies should not have been permitted to participate in the bid process.

ii). bidder did not commit to the minimum work programme or minimum level of investment or both.

iii). bidder does not commit to the additional exploration well as required pursuant to the regulations.

iv). bidder presents incomplete or illegible information. 

v). bid proposal is conditional on being granted, or not beIN granted another block or any other condition.

vi). bid proposal is referential or related to other bid proposals that may be presented.

vii). bid proposal includes corrections or changes.

viii). bidder has presented false information during the licensing round.

What do the regulations say regarding confidentiality agreements for data room access?

– Prior to accessing the data room , all bidders shall execute a confidentiality agreement.

What are the provisions of the regulations on the amendment of the licensing round guidelines?

– The NUPRC may amend the licensing round guidelines at any time not later than 30 days before the due date of submission if bid, and such amendment shall be updated on the commission’s website.

– The bidder shall comply with amendment to the licensing round guidelines.

– Where an applicant is a qualified company or bidder, a subsequent change in qualification criteria shall not affect such qualification.

What are the provisions of the regulations on participation in the bid process?

– An applicant who has been pre-qualified to participate in the bid, shall pay a bid administration fee as may be prescribed in the licensing round guidelines.

– A bidder may participate in the bidding process either as an individual company or as a consortium.

– A pre-qualified bidder shall not participate in more than 1 consortium bidding for the same license or lease.

– A pre-qualified bidder shall not bid on the same license or lease as an individual pre-qualified bidder and as a member of a consortium.

What do the regulations say on applications for bid parameters?

– Pursuant to Section 74(2) of the Petroleum Industry Act, the application of the parameters for the determination of a winning bidder shall be prescribed in the regulations. 

– The bid parameter sha be any of the parameters specified in Section 74(2) of the Petroleum Industry Act.

What do the regulations say on signature bonuses?

– A signature bonus pursuant to S.74(2)(a)(I) of the Act shall be an amount offered upon the granting of the petroleum prospecting license or petroleum mining lease and the amount shall be quoted in US Dollars.

– The NUPRC may determine the minimum signature bonus to be paud into the Federation Account in line with the Petroleum Industry Act.

– Where 2 or more bidders offer the same signature bonus, the bidders shall be invited on the day following the bid date to offer an increase in the signature bonus in paragraph 1 above and the bidder offering the highest increase shall be the winning bidder. 

Section IV

This article focuses on the upstream Oil and Gas regulations on licensing rounds concerning :-

– Royalties

– Profit splits/profit oil splits

– Work Programme Commitment

– Combination of bid parameters.

What do the regulations say regarding royalties?

– A royalty pursuant to Section 74(2)(a)(ii) of the Petroleum Industry Act – 

a). shall be an additional royalty to the royalties contained in paragraph (2) of the seventh schedule to the Petroleum Industry Act and the additional royalty per centium shall apply to any volume of production,

b). may be a royalty per centum with up to 3 decimals.

– The NUPRC may determine the :-

a). minimum additional royalty acceptable under a bid proposal, and

b). maximum additional royalty under the bid proposal.

– Where 2 or more bidders offer the same additional royalty, such bidders shall be invited on the day following the bid date to offer a signature bonus in addition to the additional royalty mentioned in paragraph 1 & the bidder offering the highest signature bonus shall be the winning bidder.

What are the provisions of the regulations regarding profit split or profit oil splits?

– A profit split or profit oil split pursuant to Section 74(2) (a)(iii)  of the Petroleum Industry Act shall be an additional percentage profit oil  or profit oil split applicable to the entire sliding scale in the respective model contract and the additional profit split or profit oil split to government may be a per centum with up to 3 decimals.

– The NUPRC may determine the – 

a). minimum additional per centum acceptable under a bid proposal, and

b). maximum additional royalty under the bid proposal which maybr expressed as a function of the sliding scale under the model contract.

– Where 2 or more bidders offer the same additional royalty, such bidders shall be invited on the day following the bid date to offer a signature bonus in addition to the profit split or profit oil split I paragraph 1 of this provision, and the bidder offering the highest signature bonus shall be the winning bidder.

What is the work programme commitment provision stipulated by the regulations?

– Work programme parameter pursuant to Section 74(2)(a)(iv) of the Petroleum Industry Act sgall be an additional exploration well commitment except in the case of frontier basin where it may be additional geophysical work pursuant to Section 78(2) of the Petroleum Industry Act.

– The NUPRC may determinethe minimum number of additional exploration well acceptable under a bid proposal, which may be zero, one or any number of additional exploration wells to be executed to a minimum depth specified in the licensing round guidelines, and in the case of block, other than frontier acreages, it shall be in addition to the minimum exploration well commitment for the initial exploration period.

What do the guidelines say regarding the combination of bid parameters? 

– Where a combination of bid parameters applies pursuant to Section 74(2)(b) of the Act, the bid proposal shall contain the  :-

a). amounts for each of the parameters.

b). total points determined by the bidder pursuant to the methodology prescribed  in the guidelines issued by the NUPRC.

Section V

This final article instalment on the NUPRC licensing round regulations focus on its provisions concerning:

– The procedure prior to the granting of licenses and leases

– Grants of petroleum exploration license

– Situations of “No award” or cancellations of licensing rounds.

What is the procedure prior to the granting of a license or lease?

– The winning bidder shall, prior to the granting of the licence or lease, furnish the NUPRC with the offer letter issued pursuant to the regulations within the 90days from the issuance date, including:

a). The parent company guarantee

b). The work commitment guarantee

c). The applicable fee

d). Evidence of rent payment for the first year

e). The payment for the signature bonus, where applicable

f). The duly executed model contract pursuant to Section 85(3) of the Petroleum Industry Act

g). Such other matters or payments as maybe prescribed in the licensing round guidelines.

– Where the winning bidder is unable to unable to fulfill the conditions above 90 days, the bid shall be declared unsuccessful and NUPRC shall invite the reserve bidder to fulfill the conditions above with respect to the bid.

What is the provision of the regulations regarding the grant of a petroleum exploration license?

– The NUPRC may grant a petroleum exploration license to a qualified person with respect to the operations to be carried out under the license on such terms and conditions as it may determine in accordance with the Petroleum Industry Act.

What are the enabling factors for a decision of “No award” or the cancellation of a licensing round under the regulations?

– NUPRC may declare that there is no winning bidder where – 

a). No bid proposals have been presented.

b). None of the interested parties qualifies, or

c). All bid proposals have been rejected.

– NUPRC may cancel the licensing round for one, several or all blocks for any reason tje commission may determine and such reason shall be disclosed to the public.

What are the post-award requirements of the regulations?

– The licensee or lessee shall upon the award of the license or lease comply with the provisions of the Petroleum Industry Act, regulations or guidelines issued by the commission and Terms and Conditions in the license or lease.