The Petroleum Industry Act was signed into law/assented to by President Mohammadu Buhari on the 16th of August,2021 and has since served as one of the most notable innovations introduced to the Nigerian Oil and Gas sector.
The Act was introduced mainly for the following reasons :-
– To provide a Regulatory framework umbrella for the Nigerian Petroleum Industry.
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– To encourage further private sector participation in the Petroleum sector.
– To create a more defined framework for Oil-host community development.
This has led to a very high demand for Professional guidance on the most relevant provisions of the law by virtually all stakeholders of the Petroleum Industry, a demand greatly increased by the fact that the Act has led to a sudden disruption in the way business is conducted in this sector at every level.
As a result, this article will try to explain in the most summarized manner possible, the most notable provisions of the Act on :-
– The New Regulatory Framework governing the Petroleum Industry.
– New provisions for increased private sector participation in the Petroleum Industry.
– Labour issues.
– The new Petroleum sector business licensees available.
– Provisions for Oil-rich host communities.
– The new Petroleum Industry Tax regimes in place.
What now makes up the Regulatory Framework governing the Petroleum sector under the Act?
The Regulatory Framework governing the Oil and Gas (Petroleum) sector under the Act consists of :-
– The Federal Minister of Petroleum
– The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) which is now in charge of regulating the Upstream Petroleum sector.
– The Nigerian Midstream & Downstream Petroleum Regulatory Authority (NMDPRA) which is in charge of regulating the Midstream & Downstream Petroleum sector.
– The Nigerian National Petroleum Corporation (NNPC) Limited, a company limited by shares and a replacement for the former Nigerian National Petroleum Corporation (NNPC) which was a Statutory Corporation owned by the Federal Government.
What this also means is that the following former Regulatory bodies have now been rendered defunct:
– The Department of Petroleum Resources (DPR).
– The Petroleum Products Pricing Regulatory Agency.
– The Petroleum Equalization Fund.
What are the new Upstream, Midstream & Downstream Business Licenses available in Nigeria under the Act?
The Act now provides for the following Business Licenses:-
Upstream Licences
– Petroleum Exploration Licenses (PELs) which are valid for 3 years and then renewable for a further 3 years similar to Oil Exploration Licenses (OELs) that existed under the previous Petroleum sector Regulatory Framework.
– Petroleum Prospecting Licenses (PPLs) which are similar to Oil Prospecting Licenses (OPLs) under the former Regulatory Framework and are initially valid for 3 years and possibly renewable for another 3 years for shallow water and onshore acreages while they are valid for 10 years when meant for Deep offshore & frontier acreages.
– Petroleum Mining Licenses (PMLs), similar to Oil Mining Licenses (OMLs) under the former Regulatory Framework and which are valid for a term of 20 years and conditionally renewable for another 20 years.
Midstream & Downstream Licenses
– Petroleum Products Transportation and wholesale licenses.
– Distribution licenses.
– Filling station licences.
– Cooking Gas Wholesale/Storage & Retail licenses.
What is the fate of former OMLs & OPLs that are yet to expire under the Act?
All former OPLs & OMLs will automatically be converted to PPLs & PMLs via license renewal upon expiration while currently subsisting OMLs & OPLs can be freely converted to PMLs & PPLs freely on certain conditions, one of them being that all pending Litigation and Arbitral suits concerning the operation of those licenses be ended first.
What does the Act say about Gas Flaring practices?
Gas flaring is deemed prohibited under the Act except in the following situations :
– Disaster prevention/mitigation.
– As a safety practice.
– With the prior exception approval of the NUPRC.
Are Environmental Impact Assessments (EIAs) required of Upstream Licensees under the Act?
Yes, they are. Chemicals are also not to be used for Upstream Operations except where applicable permits have been obtained.
What does the Act say about Labour issues?
Under the Act, all employees of all the former component Regulatory agencies in the Petroleum Industry have been transferred to the applicable inheritor agencies under the same terms by which they were initially employed under the old Regulatory Framework.
What does the Act say about Host Communities?
The Act provides that a settlor under a Joint Operating Agreement (JOC) must register a trust in favour of its host community. Compliance under this statutory ptovisiysill be the duty of an appointed operator where a group of settlors are involved. The Act also provides that a tax-exempt Host Community Development Trust fund be set up for each settlor to donate to out of its operational expenses. Settlor contributions are however deductible for hydrocarbon tax and company income tax purposes.
Who is a settlor?
A settlor is a holder of interest in a PPL, PML, or a holder of an interest in a Midstream license having its operations physically located in or near to any community.
What is the fiscal framework applicable under the Act?
The following cost implications are applicable under the Act :-
– Hydrocarbon taxes from Upstream Operations in the onshore and shallow water.
– License charges in converted PMLs & PPLs.
– Non-deductible expenses consisting of :
a). penalties & gas flare fees;
b). expenditure for Petroleum deposit information
– A cost price ratio limit of 65% of gross revenue for Tax deduction purposes.
– Company income taxes(for Upstream Petroleum companies).
– Hydrocarbon taxes will not be deductible due for the reason of Company Income Taxes.
Conclusion:- Understanding fully the procedures involved in Petroleum sector licensing procurement as well as Operational & fiscal regulations will require further Legal guidance as the Act are too vast to be accurately detailed in this write-up.