In this post, the explained the requirements and framework for Petroleum Exploration and Production License, Petroleum Prospecting License and Petroleum Mining Lease in Nigeria. History of Marginal Oilfields and awarded Marginal Oilfields in Nigeria. The regulatory authorities that saddled with the responsibility of regulating and issuing of the licenses/ permits you need to operate in the Nigerian oil and gas sector.
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In the Governance and Institutions Administration of Petroleum Industry Act (PIA) 2021 which was signed into law in August 2021, the issuing of permits and licenses in the upstream petroleum operations in Nigeria solely rested on the Nigerian Upstream Petroleum Regulatory Commission (“NUPRC”) which replaced the defunct “DPR”.
While the issuing of permits and licenses in the midstream and downstream operations in Nigeria the duty of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (“NMDPRA”).
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This means, regulations, issuing of permits and licenses for all upstream oil and gas business operations in Nigeria are from NUPRC while regulations, issuing of permits and licenses for all midstream and downstream oil and gas business operations in Nigeria are from NMDPRA.
What are upstream business operations?
The upstream segment of the oil and gas industry contains exploration activities, which include creating geological surveys and obtaining land rights, and production activities, which include onshore and offshore drilling.
NUPRC issues permits and licenses to services that involve exploration and production of crude oil and natural gases including technical, operational, and commercial activities in the sector, They regulate and issue licenses that covers UMR activities like Rig License, Hydraulic Workover License, Vessel license. They also in charge of haulage, storage, installation and maintenance, supplies services, Offshore/ Onshore Environmental/ Waste Management, Laboratory Services, Environmental Restoration, Incinerator and TDU, Pollution Control Services, etc licensing and permits.
The Petroleum Exploration License (PEL):
This is a license granted to qualified applicants to carry out petroleum exploration operations on a non-exclusive basis. The license is valid for three (3) years and may be renewed for another three (3) years subject to fulfillment of prescribed conditions in the Act.
Requirements to Petroleum Exploration License
(a) the company shall present evidence of the oil and gas fields operated, for a duration stipulated in the licensing round guidelines prior to the commencement date of the licensing round.
(b) the total level of daily net production to the operator, which shall as a minimum be equal to the number of fields and daily net production indicated in the licensing round guidelines to pre-qualify as operator, except where exempted under the licensing round guidelines.
(c) such other information as may be prescribed in the licensing round guidelines issued by the Commission.
Read: Upstream Consultant Services
Steps before NUPRC will issue PEL:
- The commission will issue a press statement and publish the commencement of the proposed licensing round on its Website, two national newspapers and two international financial newspapers as may be determined by the Commission.
- The commission will issue and publish licensing round guidelines on its Website, and
- open a data room, which shall be accessible by bid participants.
- the procedure for engagement with bid participants and stakeholders ;
- the provisions relating to pre-qualification of participants ;
- the nature of companies that cannot participate in the bidding process
- the procedure for submitting and opening bid proposals
- the nature and amount of the work commitment guarantee by the participant
- etc
Petroleum Prospecting License (PPL): This is a license granted to qualified applicants to drill exploration and appraisal wells and undertake corresponding test production on an exclusive basis by the Nigerian Upstream Petroleum Regulatory Commission (“NUPRC”).
In addition, a PPL holder may carry out petroleum exploration operations on a non-exclusive basis. A holder of this license shall however not be granted an extension except in some circumstances. A PPL for onshore and shallow water acreages shall be for a period of not more than six (6) years comprising of an initial exploration period of three (3) years and an optional extension period of three (3) years.
While for deep offshore and frontier acreages, it shall be for a duration of not more than ten (10) years comprising of an initial exploration period of five (5) years and an optional extension period of five (5) years.
Read: Nigeria Oil & Gas Local Content Registration
An oil prospecting licence may be converted to an oil mining lease in accordance with the Act prior to the termination or expiration of the licence. Where no such conversion occurs, the licence shall not be renewed or converted under the Act and these Regulations upon the termination or expiration thereof.
Marginal Oilfields in Nigeria
Marginal fields are smaller oil blocks developed by indigenous companies, which have remained unproduced for a period of over 10 years.
Prior to the enactment of PIA, fields were classified as marginal when they were not considered by licence holders for immediate development due to assumed marginal economics under prevailing conditions or left unattended for more than 10 years.
They also included assets that leaseholders considered for farm-out due to portfolio rationalisation or those, which the president may, from time to time, identify as such.
The marginal field was initiated in the 90s as a federal government programme intended to offer Nigerian indigenous oil and gas companies the opportunity to play more active part in the exploration and production segment of the petroleum sector by owning and operating oil blocks.
The defunct Department of Petroleum Resources (DPR) which transmuted into the current NUPRC in line with the provisions of the Petroleum Industry Act (PIA), had conducted the 2020 marginal fields bid round, the first since the 2003/2004 exercise, when 24 assets were put on offer.
The latest bid round began in June, 2020, and in May, 2021, 161 indigenous companies were shortlisted as successful bidders for the 57 marginal oilfields spanning land, swamp and offshore, put up for lease by the government.
Read: Oil & Gas Permits and Licenses
As at August 2022, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) says 17 marginal oilfields are currently producing out of 30 fields awarded since its inception in 1999.
The commission said, the recent marginal fields award was initiated to increase participation of indigenous companies in the upstream sector and build local content capacity.
It is also targeted at creating employment opportunities and encouraging increased capital inflow to the sector and create employment opportunities.
Awarded Marginal Oilfields
Since its inception, a total of 30 fields have been awarded, 17 currently producing.
A breakdown of the allocation of the fields to indigenous operators is as follows:
- Two (2) fields awarded in 1999
- In 2003/2004, twenty-four (24) fields awarded
- One (1) each in 2006 and 2007,
- Two (2) in 2010.
- In 2020, 57 Marginal Field Bid Round exercise was awarded to 49 investors.
The issuance of the Petroleum Prospecting License to new operators in 2020 has ushered in indigenous companies in the oil and gas prospecting in line with industry best practices and to take full advantage of the increasing crude price in the international market.
Petroleum Mining Lease (PML):
This License is granted to qualified applicants to win, work, carry away, dispose of crude oil, condensate, and natural gas on an exclusive basis, drill exploration appraisal wells, and carry out the related test production on an exclusive basis.
It may also be granted to carry out petroleum exploration operations on a non-exclusive basis. A petroleum mining lease shall be for a period of twenty (20) years which term shall include the development period.
Where a development period for a petroleum mining lease is not stipulated, the development period shall be for a period of five (5) years for an onshore lease and seven (7) years for a lease in shallow water or deep offshore or a lease in a frontier acreage.
Also, a lessee of a petroleum mining lease may, not less than twelve (12) months before the expiration of the lease, apply in writing to the Commission for a renewal. It is important to note that a PML that ceases to produce in paying quantities for a period of not less than one hundred and eighty (180) days may, except for unforeseeable circumstances, or any other reason acceptable to the Commission, be revoked by the Commission.
In conclusion, Petroleum Industry Act (PIA) 2021 has come to stay and many industry players believe that it will open up many good opportunities in the industry. It brought in new structures and authorities in obtaining upstream, midstream, and downstream operations permits and licenses in Nigeria. However, NUPRC is in charge of Nigeria Upstream Fees and Rents Regulations, Nigeria Royalty Regulations, Conversion and Renewal Regulations.
For consultancy services in Nigerian oil & gas industry, Aziza Nigeria is the leading and well experienced team to work with.