Nigeria’s oil projects seen at risk over PIA timelines

More than one year after enactment, timelines in the Petroleum Industry Act (PIA) are seen to be hurting the oil and gas industry and creating uncertainties among players, legal energy experts have said.

After 20 years of dilly-dallying due to the politics of interest, the PIA finally became law when President Muhammadu Buhari signed it in August 2021, a development expected to promote transparency, good governance and accountability in Nigeria’s oil and gas sector.

But energy lawyers say timelines provided under the PIA have proven unrealistic, especially in critical actions for holders of oil mining leases (OMLs) and oil prospecting licences (OPLs) and awardees of marginal fields.

For instance, Section 92, Sub-section 4 of the PIA requires the conclusion of a conversion of an OPL to an OML contract either within 18 months from the effective date of the PIA, February 15, 2023; or at the expiration date of the OML or conversion of an OPL to an OML, whichever occurs earlier.

BusinessDay’s finding showed the Nigerian Upstream Petroleum Regulatory  (NUPRC) is yet to issue the final regulations or a draft of the conversion contract.

Adeoye Adefulu, a senior energy lawyer, and Oludamola Awobokun, an associate, energy practice at Odujinrin & Adefulu said the drafter of the PIA did not provide sufficient time for licence holders to fully consider the implications of conversion.

“The drafters of the PIA did not take into consideration that a number of the activities required the issuance of subsidiary legislation (regulations) or guidelines before they could be effected,” Adefulu and Awobokun said in a note seen by BusinessDay.

Data obtained from the PIA also showed operators of producing marginal fields are expected to convert the contracts of their assets to petroleum mining leases by February 15, 2023.

“Though timelines for conversion have been provided in the PIA, the Act is silent on the process of conversion of marginal fields and the activities required to be carried out by the awardees,” Adefulu and Awobokun said.

Concerning host communities, Section 236 (a – c) of the PIA requires oil companies to incorporate host communities’ development trust within 12 months from the effective date (i.e., any date between August 16, 2021, and August 15, 2022) for both existing OMLs and existing OPLs.

“To avoid delays in the process of incorporation, NUPRC and the CAC need to take a joint position on the content of the constitution for the host communities’ development trust,” Adefulu and Awobokun said.

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The PIA requires holders of subsisting leases, licences, or permits engaged in activities in midstream or downstream gas and petroleum liquids operations to apply to the NUPRC for such licence or permit within 18 months from the effective date.

According to the PIA, these include operating a gas transportation network, wholesale gas supply, liquefied natural gas plants, crude oil refinery, bulk storage of petroleum liquids and distribution of petroleum products amongst others.

“Given that the 18-month timeline for both licences and permits is February 2023 which is fast approaching, it is important that the NMDPRA issue regulations and guidelines to direct licensees and lessees in submitting the appropriate documentation to obtain approval,” Adefulu and Awobokun said.

They said the current timeline is not sufficient to perform the requirements for some of the post-PIA activities, as the performance of certain activities requires reliance on external parties.

In line with the provision of the PIA, President Buhari unveiled the new Nigerian National Petroleum Company (NNPC) last month, officially changing the oil firm from a wholly state-run entity to a commercial oil company, limited by shares.

The NNPC is expected to run like other state-owned entities like Saudi Aramco, owned partly by the Kingdom of Saudi Arabia and American oil investors, and PETRONAS Global, owned by Malaysia.

“Unlike its state-owned counterparts Saudi’s Aramco, the former NNPC had a structure that largely depended on government funding thus making it less competitive and less attractive to global investors, especially international oil companies who were uncomfortable doing business with the corporation due to fears of undue government influence, grotesque policies and unnecessary bureaucratic delays,” lawyers at Centurion Law Group said in a note.