oil prospecting license in Nigeria
Permits & CertificatesApril 11, 2023

In this post, we explained the procedure for oil prospecting license in Nigeria. The conditions and requirements for Process Oil Mining Lease and others. For consultancy services in Nigerian oil & gas industry, Aziza Nigeria is the leading and well experienced team to work with.

An Oil Prospecting license is granted by the Federal Government to a Company or Joint Venture to prospect for petroleum resources. This license is granted to the licensee to conduct extensive exploration activities, remove and dispose of commercially feasible petroleum discovered during prospecting operations.

A prospecting license is granted for a period of time not exceeding five years to be determined by the Minister of Petroleum if after the limited time it was granted, the company has not discovered or performed its obligation, the license will be relinquished back to the Nigerian government. There are different licenses or approvals required to participate in the Nigeria upstream sector.

Read: Upstream Consultant Services

 

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”).

 

Requirements to Oil/ 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: Oil/ Petroleum Exploration License (PEL)

 

Steps before NUPRC will issue PEL:

  1. 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.
  2. The commission will issue and publish licensing round guidelines on its Website, and
  3. open a data room, which shall be accessible by bid participants.
  4. the procedure for engagement with bid participants and stakeholders ;
  5. the provisions relating to pre-qualification of participants ;
  6. the nature of companies that cannot participate in the bidding process
  7. the procedure for submitting and opening bid proposals
  8. the nature and amount of the work commitment guarantee by the participant
  9. etc

Renewal of an Oil Mining Lease or Conversion

  1. An application shall be made to the Commission for renewal of an oil mining lease or conversion under these regulations in the following manner:
    i. In the case of a production sharing contract the application shall be made by the concessionaire.
    ii. In the case of indigenous Nigerian companies on a sole risk basis for which the government has not backed in, the application shall be made by the concessionaire(s) which include assignees.
    iii. In the case of a joint venture, the application shall be made jointly by the concessionaire(s).
    iv. In the case of marginal fields, the application shall be made jointly by the awardee(s).

 

Read: Local Content Registration in Nigeria

 

  1. In the case of a renewal of an oil mining lease granted to Nigerian companies on a sole risk basis for which the government has successfully backed in, the application shall be made and signed jointly by the concessionaire(s).
  2. In the case of an oil mining lease, an application for renewal shall be made to the Commission by the lessee(s) pursuant to section 303(1) of the Act and these regulations.

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.

 

The Procedure for Oil Prospecting License (OPL) in Nigeria

1. Bidding: Only the holder of a concession can engages in petroleum prospecting in Nigeria. Concessions are allocated to operators based on an open competitive bidding process. The Government awards oil exploration and prospecting license through competitive bidding known as licensing rounds. The company must produce evidence of financial capacity that must not be less than the US $10,000,000 (Ten Million Dollars), which is about N1, 000,000,000.00 (One Billion Naira)

 

Read: NCEC Certificate Registration

 

Oil companies compete in international licensing rounds to be allowed to explore a geographical basin. Interested companies submit to the government detailed proposal bids for prospecting; this bid sets out the commitment of the company concerning the commitment of the amount to be invested to explore the area and bear the entire cost of the operation and a commitment on the type and amount of work to be carried out by the company.

Bidding Guidelines for OPL

  • The Department of Petroleum Resources will advertise all blocks available for bidding in the National Dailies and Magazines; international publications approved by the government and dedicated websites for bidding rounds.
  • Interested investors will be required to pay the sum of US $10,000 for a bid processing fee.
  • The bidders will be required to provide details of their shareholding structure, names of directors, track record in the oil and gas sector, audited financial statements, partnership or collaborations with indigenous firms and financial resources to bid and pay for oil acreages
  • After this stage, investors will pay the US $15,000 each for data mining fees to enable them to gain access to the relevant data on acreages that will be placed on the offers.
  • Investors will also avail information on the size of the fields, seismic surveys and past appraisals conducted among other information.
  • The department of petroleum resources will commence a technical evaluation on the bids submitted and where investors fail to meet the criteria, they will be dropped while investors that have passed the technical evaluation process will be invited to submit their commercial bids in a process that will be opened to the public
  • Finally, oil acreages will be given to the highest bidders who will be given a timeline to pay for the acreages.

Read: Company/ Business Registration Service

 

Procedure for application for the Grant of OPL

  • The applicant is expected to pay a non-refundable fee of US $10,000 per block.
  • The applicant will also pay the annual rent of $10 per sq km, and provide the following documents:
  • Certificate of incorporation of the company
  • Evidence of financial standing to the tune of US $10,000,000 or N1,000,000,000.00
  • Evidence of the applicants’ technical knowledge in oil prospecting.
  • Evidence of detailed environmental policies referencing environmental impact assessment analyses
  • Evidence of payment of all necessary fees

Where the minister is satisfied with the information provided, it will permit the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) to grant the permit. Upon the grant of the Oil Prospecting License, there are certain obligations to be performed by the holder of the license, which includes; the holder upon grant is expected to start the geographical investigation within six months of the grant on the area leased. The holder of the OPL license is also required to train Nigerians on the act of drilling and production of crude oil; the holder also has financial obligations to pay rents and loyalties as stipulated by the Petroleum Profit Tax Act.

Converting OPL to Oil Mining License

The laws that guide the oil prospecting activities in Nigeria are many. We have highlighted a few of them below:

  • The Petroleum Act: this is the principal statute that governs petroleum operations in Nigeria. Any company or investor with the intention to operate in the oil industry can do so with the authorization granted by the Minister of Petroleum Resources. The Petroleum Act has its subsidiary legislation including the Petroleum (Drilling and Production) Regulations among others.
  • The Nigerian National Petroleum Corporation (NNPC) Act: The Act established the NNPC to participate in petroleum operations on behalf of the federal government.
  • The Petroleum Profit Tax Act: this act governs the financial activities of companies engaged in oil operations in Nigeria. It imposes a tax on profits made from the operations. The Act subject exploration and production companies to pay the rate of 85% of their assessable profits to the government.

Read: Business Registration in Nigeria as Foreigner

 

To acquire an interest in an oil field, a company must first acquire licenses which are granted subject to the approval of the Minister for Petroleum Resources. The Oil Prospecting License is granted for the purpose of exploiting petroleum found in commercial quantity. Before it can be granted, the applicant must satisfy and fulfil some conditions stipulated by the Minister.

Upon the fulfilment of the conditions set out by the Minister, the holder of the OPL License after discovering oil in commercial quantity and satisfies the Minister that it can produce a minimum of 10,000 barrels of oil per day, can apply for the license to be converted to an Oil Mining Lease, which will enable the company to produce and dispose of petroleum discovered for a long period of 20 years subject to renewal. An OPL holder cannot extend its scope of operations beyond the area covered by its license. This means that the holder cannot produce and dispose of petroleum until it converts its current license to an OML.

Aziza Nigeria remain your No. 1/ well experienced Oil & Gas Consultant Firm in Nigeria. Contact for your Oil & Gas businesses in Nigeria.