Laws that regulate Nigeria’s troubled oil and gas sectors

The Oil and Gas sector is one of the most crucial sectors in the Nigerian economy. According to NBS 2022 Q2 data, the oil and gas sector accounted for 6.3% of the Nigerian economy with N19.8 trillion annual crude oil export earnings.

Despite being an industry that lays the proverbial Golden Egg,  the oil sector has come under scrutiny lately for the massive oil theft that is being perpetrated. It has come under fire also because of the comatose downstream sector for its inability to refine crude despite controlling four refineries. The industry is also at the centre of the oil subsidy regime.

Nigeria is one of the largest and oldest oil producers in Africa and there are various legislations that govern the  oil and gas sector in Nigeria which provides the framework for the licensing of oil and gas companies to engage in activities connected with the exploration, production, and transportation of crude oil.

The Nigerian government participates in the oil & gas industry through the Nigerian National Petroleum Corporation (NNPC) whose activities include exploration, production, refining, transportation, distribution, and supply of oil and gas products.

The two principal laws that regulate the sector in Nigeria are:

• The 1999 Constitution of Nigeria (as amended) and
• The Petroleum Act among other laws.

• The 1999 Constitution

Section 44(3) of the 1999 constitution and Section 1 of the petroleum Act 1969 vested ownership and control of oil found anywhere in Nigeria in the Federal Government. This also includes oil located within any land in Nigeria, under its territorial waters, continental shelf or within its exclusive economic zone.

The Petroleum Act is the first legislation that regulates the oil and gas sector in Nigeria. It provides the framework for the licensing of oil and gas companies to engage in activities connected with the exploration, production, and transportation of crude oil.

• Section 2(1) of the Act provides that only citizens or companies incorporated in Nigeria can validly partake in the oil and gas industry for activities such as oil exploration, drilling, storage, production, refining and transportation of the oil and gas.

The same section also provides for the powers of the Minister of Petroleum Resources and empowers the minister to grant and revoke licences.

• Section 9 of the Act also empowers the Minister to establish subsidiary regulations for the oil and gas sector

According to the petroleum Act, the Minister has the regulatory powers and responsibility of granting rights for the exploration, extraction, and production of oil and gas in Nigeria through the various types of Licenses.

The two major types of licenses issued by the Minister of Petroleum Resources include;

• the Oil Prospecting License (OPL), and
• the Marginal Field License and the Oil Mining Lease (OML).

 Section 25 to 26 of the Act provides for the procedures for the revocation of oil licenses by the minister.

• The Nigerian National Petroleum Corporation Act (NNPC Act), 2004

Section 1 of this  Act established the NNPC and empowers it to manage the interest of the oil and gas industry on behalf of the Federal Government.

NNPC’s overall responsibilities and functions are to drive Nigerian economic and technical advancement while leveraging the petroleum endowment of the country.

The Nigerian Oil and Gas Industry Contents Development Act 2010

• This Act was enacted by the National Assembly and Section 4 of this Act established the Nigerian Content Development and Monitoring Board (NCDMB) to guide, monitor, coordinate and implement the provisions of the Act.
• The Act provides a framework for promoting the participation of Nigerians in the oil and gas industry by promoting the indigenization of the nation’s oil and gas industries.
• Under this Act, Nigerian operators and indigenous companies are firstly considered in the award of oil blocks, oil field licenses, and projects awarded in the oil and gas industry subject to the fulfilment of conditions provided under section 3 of the Act.
• The Act mandates international oil & gas companies working through their subsidiaries in Nigeria to give up to 50% stake in their companies to Nigerian citizens in order to encourage the participation of Nigerians in the sector.
• Section 41(2) of the Act provides that “international or multinational companies working through their Nigerian subsidiaries shall demonstrate that a minimum of 50% (fifty percent) of the equipment deployed for execution of work are owned by the Nigerian subsidiaries”

 

• The Environmental Impact Assessment (EIA) Act of 1992

This Act provides the framework for assessment of the impact of oil and gas projects on the environment. According to the Act, natural gas production projects must comply with environmental impact assessment before coming on stream.

Section 1 of the Act outlines the goal and objectives of the Act. Which are;

• “To establish, before a decision is taken by a person, authority or corporate body or unincorporated body including the Government of the Federation, State or Local Government intending to undertake or authorize the undertaking of any activity, those matters that may likely or to a significant extent affect the environment or have an environmental effect of those activities which shall first be taken into account.
• “To promote the implementation of appropriate policy in all Federal lands, State or Federal Government areas, consistent with all laws and decision-making processes through which the goal and objective in paragraph (a) will be realized.
• “To encourage the development of procedures for information exchange, notification, and consultation between organs and persons when proposed, activities that are likely to have significant environmental effects and boundary or trans-state or on the environment of bordering towns and villages.”

 

• The petroleum profit tax Act

This act provides the framework under which the federal government obtains revenue from oil and gas operations by way of signature bonuses, royalties, and taxes.

• Part iii of the Act speaks on the imposition of tax and ascertainment of chargeable profits.
• Section 8 of the act states that “ There shall be levied upon the profit of each accounting period of any company engaged in petroleum operation during that period, a tax to be charged, assessed and payable in accordance with the provision of this act.”

What you should know

Other laws that govern the oil and gas sector in Nigeria include the Education Tax Act which provides imposition of annual taxes of 2% of assessable profits on oil and gas companies for the development of Nigeria’s educational sector.

While the Niger Delta Development Commission (Establishment) Act mandates the payment of 3% of oil and gas companies’ annual budgets for the development of the Niger Delta areas where oil and gas are exploited.

The Federal Inland Revenue Service (FIRS) Establishment Act 2007 also governs the oil and gas sector because it speaks on the powers of FIRS to collect taxes, fees, levies, royalties, rents, signature bonuses, penalties for gas flaring, depot fees, including fees for oil prospecting licenses and oil mining licenses.

The Petroleum Industry Bill (PIB) seeks to harmonize all the legislations and significantly restructure the industry by eliminating overlaps in the various functions of the regulatory agencies.

It also provides a legal, governance, regulatory and fiscal framework for the Nigerian Petroleum Industry and the development of Host Communities.

The bill also calls for the sale of shares in a reformed NNPC, the replacement of regulatory agencies, and the reduction of royalties.

Aside from the DPR, other oil and gas regulatory agencies in Nigeria include; the Nigerian National Petroleum Corporation (NNPC), Nigerian Content Development & Monitoring Board (NCDMB), National Oil Spill Detection & Response Agency (NOSDRA), Federal Inland Revenue Service (FIRS) and the Central Bank of Nigeria (CBN).

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