Notable Provisions of The Upstream Unitization Regulations of Nigeria

This article is the first in a series of articles on the upstream Nigerian Oil and Gas sector, with a focus on the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) Regulations on unitization, specifically its :-

– Objectives

– Application Scope

– Hydrocarbon Discovery Notifications

– Joint Development Agreements

– Determination of Straddling Reserves.

What are the objectives of the regulations?

– The regulations are to establish rules, principles and procedures for the implementation of initiation of oil and gas from a petroleum reservoir that extends beyond the boundaries of a license or lease area to which another license or lease relates.

What is the application scope of these regulations?

– The regulations apply to licenses and leases granted under the Petroleum Industry Act, whose petroleum reservoir extends beyond the boundaries of its license or lease area, to which a different person is the licensee or lessee and a declaration of commercial discovery has been made.

What are the preliminary activities to oil discovery under the regulations?

– A licensee or lessee may in carrying out geophysical activities involving the acquisition of geophysical data within its license or lease boundary, stretch across the boundary, into any adjourning license or lease area to a distance of not more than 2 kilometers.

– The acquisition of geological data pursuant to these regulations shall be with prior approval of the NUPRC and notification to the licensee or lessee of the adjoining license or lease area.

– A licensee or lessee shall process and interpret any geophysical, geotechnical and geological data acquired pursuant to this regulation and may make available to a licensee or lessee of adjourning license or lease area the processed data or any interpretation of the data.

– A licensee or lessee shall map all geological traps in its license or lease area considered to straddle one or more adjourning license or lease boundaries with the knowledge of any other party.

What are the provisions of the regulations on notification of hydrocarbon discoveries?

– A licensee or lessee who identifies a petroleum reservoir in a geological trap in its license or lease area, which appears to straddle one or more adjoining licenses or leases, shall notify the NUPRC of such discovery within  2 weeks of well suspension or abandonment.

– The notification referred to above shall be followed by a full report within 60 days, stating certain required information for each straddling petroleum reservoir.

– Where a petroleum reservoir referred to above extends into an area which is part of a license or a lease issued to a different licensee or lessee, the licensee or lessee shall notify such other licensee or lessee in writing of the extension.

– The NUPRC shall, in writing, notify the licensees or lessees of the adjoining licensee or lessees identified in the report that the reservoir extends to their license or lease area.

What do the regulations say on the determination of straddling reserves?

– The NUPRC shall require a licensee or lessee into whose license or lease area a reservoir extends to confirm if the reservoir straddles.

– A licensee or lessee may provide confirmation required by –

a). carrying out exploratory activities, including drilling a confirmatory well , or 

b). providing a rebuttal based on existing information available to the licensee or lessee. 

– Where the licensee or lessee carry out exploratory activities, including drilling a confirmatory well and the result does not confirm that the reservoir straddles, the NUPRC shall declare the reservoir as not straddling.

– Where the result confirms that the reservoir straddles, the NUPRC shall direct the parties to enter into a unitisation agreement.

What do the regulations say on joint development agreements?

– Where NUPRC directs the joint development of a reservoir pursuant to these regulations , the NUPRC shall require the licensee or lessee to do the following –

a). enter into a pre-unitisation agreement (PUA) prior to executing a unitisation agreement, and

b). execute a unitisation agreement for the joint development of the reservoir.

– Notwithstanding the provisions of subregulation (a) above, the parties may execute a unitisation & unit operating agreement (UUOA) where the straddling reservoir is a Brown-Brown.

– The agreements under this regulation shall be subject to the approval of the NUPRC before the execution of the agreement by the parties.

Section II

This article will be looking at the provisions of the NUPRC regulations on unitization regarding the topics of :-

– Extension to areas not covered by a license or lease

– Time-frames for the execution of joint development agreements

–  Petroleum production before the execution of a pre-unitisation agreement

– The appointment of independent consultants.

What are the provisions of the regulations extending to areas not covered by a license or lease?

– Where a petroleum reservoir extends beyond the boundary of a license or lease into an adjacent area which is not covered by a license or lease and the licensee or lessee has made a declaration of a commercial discovery in relation to such reservoir,the NUPRC may –

a). require the licensee or lessee to make an application for the extension to cover the license or lease area and the commission may approve the application, where the applicant fulfills conditions prescribed by the NUPRC, or

b). conduct a bold exercise pursuant to the Petroleum Industry Act for the area not covered by a license or lease that the reservoir straddles.

What do the regulations say on declarations pursuant to a pre-unitisation agreement?

– The parties to a joint appraisal programme under a pre-unitisation agreement may make a declaration of commercial discovery pursuant to Section 78(8) of the Petroleum Industry Act.

– Where the declaration mentioned above is made, the parties may apply to the NUPRC for approval that a unit agreement is not required and submit proposals for separate field development plans.

What is the timeframe for the execution of joint development agreements?

– The parties to a pre-unitisation agreement, shall have a minimum period of 12 months to conclude and execute the agreement from the time the NUPRC directs the parties to jointly develop the reservoir as a unit.

– The initiation agreement shall have a minimum period of 12 months to conclude and execute the unitisation and unit operating agreement from the time NUPRC directs.

What do the regulations say on petroleum production before the execution of a pre-unitisation agreement?

– Where one or more parties to a pre-unitisation agreement are engaged in independent production of petroleum from their respective area before the decision to unitise the reservoirs from the area, the parties shall continue producing from their respective areas until the execution of pre-unitisation agreement.

– Notwithstanding the above, the NUPRC may order the termination of such operations until there is a pre-unitisation agreement where the commission is of the opinion that the operations may negatively affect the optimal recovery of petroleum reservoirs or the rights of other licensees or lessees.

What do the regulations say on the appointment of independent consultants?

– The NUPRC may issue a directive in writing to the licensees or lessees to jointly appoint an independent consultant to develop terms and conditions of the unit agreement, where the licensees or lessees are unable to reach an agreement within the time prescribed in these regulations.

– The terms and conditions for the appointment of consultants shall be as may be determined by NUPRC.

What are the provisions of the regulations on the modification of unit agreements?

– The parties to a unit agreement may modify the agreement, subject to the approval of the NUPRC.