30 DAYS BRAINSTORM ON DR. AYODELE ONI’S BOOK TITLED “UNDERSTANDING PETROLEUM (OIL AND GAS) TRANSACTIONS AND THE NIGERIAN MARKET”

30 DAYS BRAINSTORM ON DR. AYODELE ONI’S BOOK TITLED “UNDERSTANDING PETROLEUM (OIL AND GAS) TRANSACTIONS AND THE NIGERIAN MARKET”

THE UPSTREAM PETROLEUM AGREEMENTS
Last week, we vividly discussed the structures and compositions of the Petroleum Industry as contained in this book by Dr. Ayodele Oni. And while we were at that, the upstream sector of Petroleum Industry was brought up and constructively canvassed, the agreements for enforceability of its activities were also clearly listed. These agreements is also known as the Petroleum Exploration and Production Agreements.


Usually, before a private investor can carry out the exploration and production of oil in a territory in Nigeria, it is expected that he obtains the consent of the host government. This consent could take the form of the following:

CONCESSION (VALID LICENSE): For an individual or oil companies to carry out the exploration and production of crude oil, a valid licence must be obtained. Without this, any act of exploration and production would be illegal. Concession was the first grants of rights to oil production and the Federal Government had the authority to grant it in accordance with the provisions of the Petroleum Ordinance 1889 and the Mineral Regulation Ordinance 1907.
However, these ordinances were replaced by the Petroleum Act of 1969. The Petroleum Act empowers the Minister of Petroleum Resources to grant the Oil Exploration Licence (OEL) for exploration of crude oil within the area granted. Also, the Minister of Petroleum Resources grants an Oil Prospecting Licence (OPL) to prospect for Petroleum and Oil Mining Lease (OML) to search for, work and dispose petroleum.

PRODUCTION SHARING CONTRACT(PSC): This is an arrangement between the Nigerian National Petroleum Corporation (NNPC) and exploration and production companies as Contractors. Here, NNPC appoints the contractor and gives him the exclusive right to conduct petroleum explorations and production in the contract area. It is the sole duty of the contractor to fund the Petroleum operations and he bears the lose alone.

JOINT VENTURE CONTRACT (JVC): This is an agreement which foreign oil companies or contractors enter into with a designated state – the Nigerian National Petroleum Corporation (NNPC) for joint production of Petroleum and sharing the risks and rewards. In Nigeria, joint ventures is usually operated by foreign oil companies in partnership with NNPC on behalf the Federal Government. Here, NNPC usually have major interest in the joint venture.

RISK SERVICE CONTRACT(RSC): This is an agreement whereby an oil company is engaged by the government entity as a contractor to infuse the entire risk capital for exploration and production of petroleum. If contractor fails to make any discovery of oil reservoir, the contract is frustrated without any obligation on any of the parties. If the contractor is successful in oil exploration of commercial quantities, he is entitled to remuneration for the services. He has no title to the oil produced.

Note that the above expositions of the Upstream Petroleum arrangements are just summarization and do not cover the complete analysis. Also, the Upstream sector has other arrangements like the Strategic Alliance Agreements and the Farm-out of a Marginal Field. All these have been enunciated in this book by Dr. Ayodele Oni


Adaeze Okonkwo is a 400 Level law student of Ebonyi State University Abakaliki . She has an unbridled passion for Oil & Gas in Nigeria.

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