Fresh directive stresses minister’s power in oil asset sale by firms

The minister of Petroleum Resources will henceforth have a say in all divestments of assets in the upstream sector of the nation’s oil and gas industry by any operator.

Consequently, any divestments in the sector must comply strictly with the extant provisions of the law which require the prior consent of the minister before the assignment of any right, power or interest in a prospecting licence or oil mining lease.

Industry watchers say this move seems aimed at putting a halt to situations such as the one that has led to a  face-off between Chevron Nigeria limited and Brittania –U, an indigenous oil company, over a bid for Oil Mining Licenses (OMLs) 52,53, and 55 that has now become a subject of  litigation.

The directive requiring the minister’s consent in such deals was contained in a letter with reference number P1/160/Avol/.10,  dated December 20,  2013 signed by George Osahon, director of the Department of Petroleum Resources (DPR) and sent to all oil companies operating in the upstream sector.

The letter further stated that companies should note that under the paragraphs 14,15, and 16 of the first schedule of the Petroleum Act, the minister reserves the right to impose a fee or a premium, or both, before granting consent.

It further drew the attention of operators to the fact that the consent of the minister may only be granted where the minister is satisfied that-

”The proposed assignee is of good reputation, or is a member of a group of companies of good reputation, or is owned by a company or companies of good reputation;

“There is likely to be available to the proposed assignees, sufficient technical knowledge, experience and financial resources to work the license or lease which is being assigned; and

“The proposed assignee is in all other respects acceptable to the Federal Government.

“To comply with the above provisions, companies divesting their assets are required to subject all the pre-qualified participants in any such exercise to prior evaluation and due diligence by government, through the Department of Petroleum Resources (DPR)”.

The letter stated that the government evaluation exercise would seek to establish the technical competence and financial capability of the pre –qualified companies, and that such companies are not otherwise unacceptable to government, in accordance with the provision of the Petroleum Act.

The  DPR director said that government has expressed concern  over the manner in which companies in the upstream sector are going about divesting their interests, especially in the various Joint Venture(JV) arrangements with the Nigerian National Petroleum Corporation (NNPC).

The letter stated that government’s concerns stem from the following, that “The divestments are being carried out in a way that is contrary to the provision of the Petroleum Act 1969 ( as amended), which  requires that prior consent of the  minister of Petroleum Resources is obtained before the assignment of any right, power or interest in an oil prospecting license or oil mining lease”.

Failing to obtain the prior consent of the minister before consummation of any deal, as required by law, would mean that the divesting parties have flagrantly contravened the provisions of the Petroleum Act.

The letter further stated that “In virtually every case, the divesting parties apply to the minister for consent, after the transaction has been consummated, thereby presenting government with a fait accompli”.

This approach, it claimed, puts undue pressure on the minister and the Department  of Petroleum Resource (DPR) machinery, making it more difficult to carry out the required due diligence.

But reacting to this development, Emi Membere-Otaji, managing director of Elshcon Nigeria  Limited, said that since these oil fields are going concerns, it makes sense that full disclosure and acceptance of the new buyers be gotten, but that too much bureaucracy should not be part of  the  baggage.

He stated further that the oil majors and the Nigerian National Petroleum Corporation (NNPC) are joint venture partners in oil blocs.

“While the oil majors are operators, the NNPC is a senior partner. Therefore it is only expected that the oil majors need to liaise with the government, through the NNPC, by following all business protocols, if and when they are divesting.

Speaking in the same vein, Seye Fadahunsi, executive director, Pillar Oil, said   the steps taken by the government were reasonable, as the role of the government is critical to business transactions in the industry.

With this development, the power of the minister of petroleum resources is further strengthened over the control of activities in the industry.

One of the reasons that the Petroleum Industry Bill (PIB) has run into trouble, is the sweeping powers given the petroleum minister in the bill.

Some said government must have come out with this policy because of the current face-off between Chevron and Brittania- U, over the assets that Chevron put on offer, in which Brittania –U was adjudged to have offered the highest bid but has not been given the asset.

Nigerian oil giant, Chevron Nigeria Limited, had put on offer  the three oil blocs for which Brittania –U  one of the participating companies offered to pay  about $1.6 billion for  40 per cent  of the assets  put on offer.

But when Chevron refused to communicate to the company, after it was alleged that Chevron had acknowledged that Brittania-U was the highest bidder in the deal, the company decided to head to Federal High Court and obtained a court injunction against Chevron and others, in respect of the divestment.

The injunction was not only against Chevron, but was also against Seplat Development Corporation, Chevron USA Inc, BNP Paris Security, and one Hemant Petal, all of which are involved in the transaction of the assets Oil Mining Lease OMLs 52, 53, and 55.