PERCHSTONE & GRAEYS ANNIVERSSARY WORKSHOP EXTENT OF MINISTERIAL POWERS IN THE ISSUANCE AND REVOCATION OF OIL RIGHTS GBENGA BIOBAKU Gbenga Biobaku & Co. 14B, keffi Street SW Ikoyi Lagos

Gbenga Biobaku Introduction: My objective in this presentation is to discuss the extent of ministerial powers in the issuance and revocation of upstream petroleum rights. In this regard we will examine the following: Issuance of Oil Prospecting Licences (OPLS) Issuance of Oil Mining Leases (OMLs) Issuance of a second OML pursuant to the oil prospecting licences (conversion to Oil Mining Leases) Regulations 2004 Renewal of Oil Mining Leases Revocation of OPLs and OMLs Relinquishment and surrender of OPLs and OMLs.

Gbenga Biobaku Issuance of Oil Prospecting Licences (OPLs): Framework for issue of OPLs – discretionary allocation Vs competitive bidding. Conditions for the issue of OPLs: -Licensee must be a company incorporated in Nigeria under the Companies and Allied Matters Act -other conditions as outlined in section 1 of the Petroleum (Drilling and Production) Regulations -other conditions may be specified in the guidelines regulating the bidding round or tender process Interpretation by the Courts: -FGN Vs Zebra Energy Limited -Oil and Gas Nigeria Limited Vs FGN The OPL confers on the Licensee the exclusive right to explore and prospect for petroleum within the licence area and the right to carry away and dispose of Petroleum won during prospecting operations, subject to the fulfillment of the obligations imposed under the Petroleum Act and the Petroleum Profits Tax Act.

Gbenga Biobaku Issuance of Oil Mining Leases: An oil mining lease may be granted only to the holder of an oil prospecting licence who has: (a)satisfied all the conditions imposed on the licence or otherwise imposed on him by the Petroleum Act; and (b)discovered oil in commercial quantities. -For the purposes of the Act, oil shall b be deemed to have been discovered in commercial quantities by the holder of an oil prospecting licence if the Minister, upon evidence adduced by the Licensee, is satisfied that the Licensee is capable of producing at least 10,000 barrels per day of crude oil from the licensedarea. Other conditions as specified in section 1 of the Petroleum (Drilling and Production) Regulations The Lessee of an oil mining lease shall have the exclusive right within the leased area to conduct exploration and prospecting operations and to win, get, work, store, carry away, transport, export or otherwise treat petroleum discovered in or under the leased area.

Gbenga Biobaku Issuance of a second OML pursuant to the Oil Prospecting Licences (conversion to Oil Mining Leases) Regulations: The holder of an OPL which is eligible for conversion to an OML may apply for and be granted an additional OML from the same contract area upon satisfaction, in the Minister’s opinion of certain terms and conditions specified in the Regulations, some of the conditions are as follows: -The quantum of the level of prospectivity and operational activity so far undertaken by the licence holder is sufficient justification for the grant of an additional mining lease. -the licence holder and the contractor to the licence holder shall each have demonstrated sufficient financial and technical capacity to justify the grant of the second oil mining lease. Is the discretion of the Minister absolute? The Minister is expected to base his decisions on reasons arising from true facts. He is also expected to act fairly, justly and in good faith in the interest of peace, order and good government.

Gbenga Biobaku Revocation of OPLs and OMLs: The Minister has powers to revoke OPLs and OMLs only on specified grounds – some of the grounds are as follows: -if a licensee or lessee becomes controlled directly or indirectly by a citizen or a company incorporated in any country which is (a) a country other than the Licensee or Lessee’s country of origin and (b) a country the laws of which do not permit citizens of Nigeria or Nigerian Companies to acquire, hold and operate petroleum concessions on conditions which in the opinion of the Minister are reasonably comparable with the conditions upon which such concessions are granted to subjects of that country. -Licensee or Lessee is not conducting operations (i) continuously, (ii) in a vigorous and businesslike manner in accordance with the basic work programme approved for the Licensee or Lessee; and (iii) in accordance with good oil field practice. -Licensee or Lessee has failed to comply with any provision of the Petroleum Act or other applicable regulations. -Licensee or Lessee has failed to pay the concession rentals or royalties -Licensee or Lessee has failed to furnish such reports on his operations as the Minister may lawfully require.

Gbenga Biobaku Procedure for Revocation: The Minister is required to inform the Licensee or Lessee of the grounds on which revocation is contemplated and shall invite the Licensee or Lessee to make any explanations if he so desires. If the Minister is satisfied with the explanation, he may invite the Licensee or Lessee to rectify the matter complained of within a specified period. If (a) the Licensee or Lessee makes no explanation or no sufficient explanation or (b) does not rectify the matter complained of within the specified period, the Minister may revoke the OPL or OML. Interpretation by the Courts: -Oil and Gas Nigeria Limited Vs FGN.

Gbenga Biobaku Renewal, Relinquishment and Surrender of OPLs and OMLs: An OML holder is entitled to a renewal of the OML upon fulfillment of the obligations of the OML. Paragraph 13(1) of the first schedule to the Petroleum Act provides as follows: -The lessee of an oil mining lease shall be entitled to apply in wiring to the Minister, not less than twelve months before the expiration of the lease, for a renewal of the lease either in respect of the whole of the leased area or any particular part thereof; and the renewal shall be granted if the lessee has paid all rent and royalties due and hasotherwise performed all his obligations under the lease. An OML holder is required to relinquish one half of the area of the OML ten years after the grant of an OML. There is no similar provision on relinquishment in respect of an OPL.. An OPL or OML holder is entitled to surrender the OPL or the OML or any part thereof by notice in writing to the Minister.

Gbenga Biobaku Conclusions