Petroleum Administration: NNPC PDF

PIA Immersion Chapter Two Petroleum Administration Dr . Timothy Okon PIA Immersion Petroleum Administration: Upstream PIA Immersion Petroleum Administration: Regulatory Administration • Independent Regulation with vertically integrated technical regulation and commercial regulation within up...

PIA Immersion Chapter Two Petroleum Administration Dr . Timothy Okon PIA Immersion Petroleum Administration: Upstream PIA Immersion Petroleum Administration: Regulatory Administration • Independent Regulation with vertically integrated technical regulation and commercial regulation within upstream, midstream and downstream value chain • Except for award of licenses and leases, decision making on administrative matters terminate at the regulatory level • PIA 2021 completes the dismemberment of the NNPC Act of 1977 MPR NNPC Act 1977 DPR PPPRA Dept of Gas Commercial Reg NOC(NNPC) Commercial Ops PIA Immersion Petroleum Administration: PIA for Value Chain Integration and Optimization Upstream Midstream Downstream Licensing regime Deregulation Feed stock supply Attractiveness Infrastructure development Open Access Security of Supply Infrastructure development Domestication of value Competitive Pricing Licensing Barriers to entry Modern Acreage Management Gas flaring Environmental control Efficiency & cost excellence underpinned by transparency, accountability and governance realignment PIA Immersion Petroleum Administration: Key Elements of Administration Redefined Upstream Licence, Size and nomenclature Robust midstream licensing regime Domestic gas delivery Obligation Voluntary conversion of Oil Mining Leases Drill or Drop strategy Domestic crude supply obligation Framework for third party access Deep Rights and deep play exploration Midstream Infrastructure Fund Frontier Exploration Fund Redefined marginal fields concept Stricter rules on environmental compliance PIA Immersion Petroleum Administration: Key Elements of Administration Redefined mandatory and voluntary relinquishments Significant crude oil or gas discovery midstream infrastructure development Rights of Participation Redefined work program execution Elaborate revocation mechanism Redefined relinquishment obligations Frontier basin development Optimized Framework forAssignment of interest Framework for National Strategic Stock Time controlled decision making and default approval PIA Immersion Petroleum Administration: Upstream Key Issues; Acreage award Discretionary award discontinued  Model and model license to accompany bid rounds Strategic bilateral considerations Transparent and competitive bidding process Petroleum Prospecting License + Petroleum Mining Lease Change of nomenclature from Oil to Petroleum in the licensing name signifies Nigeria’s deliberate commitment to the exploration and production of both oil and gas resources PIA Immersion Petroleum Administration: Upstream Petroleum Licensing Regime Petroleum Prospecting License Explore Appraise 0-3yrs 0-6yrs 2-3yrs Petroleum Exploration License  Right to acquire geological and geophysical data  Speculative based surveys  No right to drill exploration wells  Duration of 3 + 3 years Petroleum Mining Lease Decommission & Abandon Produce Develop 15 yrs. 4-5yrs Petroleum Prospecting License     Right to prospect and explore Drill exploration and appraisal wells Right to production test and win volumes Duration of 6 years (3+3) onshore and shallow water + 10 years (5+5) for deep offshore and frontier area Petroleum Mining Lease     Right to win and carry away produce volumes of oil and gas Right to drill development and production wells Duration of minimum of 20 years for all terrains Must secure Field development plan approval for grant. PIA Immersion Petroleum Administration: Exploration Commitments Commercial Discovery Appraisal Field Development Plan  Discovery within initial or optional exploration period must be conveyed to Commission within 180 days of the discovery  Commission must act within 60 days of submission of appraisal programme  Submission within two years of commercial declaration  Request for appraisal must be submitted within one year of the discovery to merit an appraisal  Upon grant of appraisal, declare commerciality  Commission must act within 60 days of request otherwise deemed approved.  Declare interest to progress or relinquish  Failure to respond within 180 days of the submission the plan is deemed approved.  Once approved, modifications must be with approvals.  Submission of phased field development plan created PIA Immersion Petroleum Administration: Significant Gas or Oil Discovery More complex gas development Not more than 10 year retention period to be determined by the Commission Longer Arrangements for commerciality Significant Gas discovery FDP or Relinquish at end of term Technical or commercial constraints to development Not more than 10 year retention period to be determined by the Commission Arrangements for commerciality Significant Oil discovery FDP or Relinquish at end of term PIA Immersion Petroleum Administration: Petroleum Licence Relinquishment Existing OPLs and OMLs Converted OPLs and OMLs  Petroleum Act provisions of  All areas of non-interest during initial 50% relinquishment upon and optional exploration periods conversion of an Oil Prospecting License to Oil Mining Lease  Appraisal areas retained applies  Producing field retained  Additional 50% relinquishment 10 years into the life of an Oil  Discovery retained Mining Lease applies  Retention area of up to 40% of initial size  Extra retention beyond 40% allowed under tight drill or drop framework New Petroleum Prospecting License and Petroleum Mining Leases  Migration to optional exploration period dependent upon fulfilling minimum work programme of drilling one exploration well at the initial period  50% size relinquishment 10 years into life of a Petroleum Mining lease  At grant of Petroleum Mining Lease all areas of non-interest must be relinquished  All relinquished areas must be contiguous and not disaggregated PIA Immersion Petroleum Administration: Assignment or Transfer of Interests Assignment or transfer • • • • Shares and other instruments Control of board Control of voting right Holding company & trustee arrangements • • • • • License right Lease right Economic interest Participating interest Contractor rights Consent • control creation of a security interest • Any refusal must be given with reasons and non response by the Minister in 60 days qualifies for default approval Explicit recognition of the rights to create security PIA Immersion Petroleum Administration: Revocation of License or Interests Assignment without consent; Does not exhibit good oilfield practice; Fails to pay fees, rents or royalties when due; Does not comply with applicable laws, regulations and the conditions of the license Is controlled by a citizen of a country which does not permit Nigerian citizens or companies to hold and operate petroleum concessions Fails to comply with Host Community provisions Involvement in corrupt and fraudulent practices Interrupts production for 18consecutive days Fails to fulfil the terms of field development plan approval Declaration of insolvency or liquidation Failure on environmental obligations False representation Failure to comply to DGDO or DCSO Revocation of interest of a defaulting party prescribed and subsequent takeover of interest by nondefaulting parties. PIA Immersion Petroleum Administration: Key Upstream Issues Administration of revoked producing leases Right of Participation  Interim operator must be appointed by the  Government reserved the right to Minister within 30 days of revocation by participate up to 50% through recommendation of Commission. NNPC Limited to be included at time of grant of license.  Interim operator shall be on service fee basis for a period to be determine by the  Government shall participate post Commission. discovery stage.  Interest of defaulting party can be taken over  Exploration cost shall not by non-defaulting parties. be borne.  Commission can include the asset under interim operation in a bid round for grant  Share of development and of new PML to replace the revoked PML. production cost to be agreed and borne. Conversion Contract Regime  Applicable to existing holders of Oil Prospecting License and Oil Mining Leases.  Termination of outstanding arbitration and court cases in respect of the license or lease.  Stabilizations provided by NNPC seized to exist.  Generous fiscal terms offered in lieu.  All fiscal incentive under PPTAwould cease to apply PIA Immersion Petroleum Administration: Marginal Fields No declaration of a marginal field from the effective date Marginal fields prior to 1.1.2021 to continue to enjoy marginal field terms 7 years fallow qualifies for a marginal field for existing assets Once production reach 10kbd, applicable terrain fiscal terms applies List to be compiled by Commission and leaseholder to farm out within 24 months of the Effective date • Significant activity; or • Farm-out; or • Relinquish within 24 months of the effective date PIA Immersion Petroleum Administration: Unitization • Licensees are required to notify the Commission of any straddling accumulations. • License holders are required to enter into Unit DevelopmentAgreements. • Where licensees are unable to do so within a period of time determined by the Commission, the Commission may impose a unit development arrangement and impose an expert determination at the cost of the parties. PIA Immersion Petroleum Administration: Environmental Management Environmental Impact Assessment role Federal Ministry of Environment PostEnvironment al Impact Assessment roles  Commission  Authority Initial baseline Post Environmental impact Assessment Remediation Environmental Management Plan Environmental Remediation and Restoration Fund PIA Immersion Petroleum Administration: Decommissioning & Abandonment Decommissioning plan at FDP Stage Funds cash backed in escrow wit yearly report to regulator Abandonment Fund Oversight by Commission Access to fund by Commission in case of default PIA Immersion Petroleum Administration: Gas Flaring Flare elimination plan to be submitted within 12 months of the effective date Obligation to measure flares on lease holders Gas flare-out Penalties based on polluter pays principle Right to flare stack at no cost to Government Gas flare penalty ring fenced for utilization to fund to midstream gas infrastructure flare projects in the host community bearing the flares PIA Immersion Petroleum Administration: DGD and DCSO Mandate Domestic Gas Delivery Obligation Domestic Crude Supply Obligation OBJECTIVES • Development of gas for domestic utilization to fuel economic activities • Guaranteeing feedstock Supply to local refineries to support refining growth CONSIDERATIONS • • • • • • • • • • • Reduced royalty obligation Delivery of obligations to city gate Emphasis on low-cost gas Three tier sources defined Include sunset provisions Does not unfairly penalize under force majeure or failure of buyer to take gas or pay for gas No export projects for non-compliance DCSO by Commission to local refiners Supply to be commercially negotiated Dollar or Naira denomination In case of Naira, royalty to be payable by the supplier also in Naira PIA Immersion Petroleum Administration: Mid & Down-Stream PIA Immersion Petroleum Administration: Activities Requiring a License; Midstream & Downstream Gas Midstream        Gas processing Gas storage Pipeline gas transportation Operation of a transport network Terminal for export/import of gas Operation of a gas distribution network Market operator (Aggregator) Downstream  Retail trading of gas  Gas distribution  Construction of retail trading facilities  Bulk trading of gas PIA Immersion Petroleum Administration: Activities Requiring a License; Midstream & Downstream Liquids Midstream  Crude oil refining  Pipeline crude oil or petroleum products transportation   Bulk transportation of crude oil or petroleum products by rail, road and any other means of transportation Bulk storage of crude oil or petroleum products  Operation of a transportation network  Bulk sale of crude oil or petroleum products Downstream  Operation of any facility for the distribution or sale of petroleum products  Petroleum products storage depot  Distribution, marketing or retail trading of petroleum products  Petrochemical production  Terminal for export/import of petroleum products or crude oil PIA Immersion Petroleum Administration: Selected Midstream & Downstream Issues Separation of Licensed Activities Third Party Access Tariffs • Commission may require separation by • Management • Accounting • Legal entities • No transfer pricing • Commission consent required for acquiring interest in other licences • No bar on vertical integration • Provision for third party access to transportation and distribution facilities • Detailed rules to be developed by Commission and Authority • Network code for gas and petroleum liquids • Tariff methodology for monopoly infrastructure • Based on transparent pricing principles • Disaggregation of costs • Cost reflective • No discrimination • Tariffs to be developed by licensees based on tariff methodology • Licensees to be consulted in developing methodology PIA Immersion Petroleum Administration: Selected Midstream & Downstream Issues Deregulation of Petroleum Product Prices Transition plan to full market prices NNPC Limited to act as supplier of last resort for six months from effective date Federation to bear cost of service Competition Regulation Consumer Protection Public Service Obligation Gas Pricing Principles Protect against cartelisation Customer service codes Economic consideration Formula coded Foster the development of competitive markets Metering Emergencies Social development obligations Reference end product price Service charter Levy to be borne by consumers Emerging markets wit similar socioeconomic condition Invoices & dispute resolution Robust stakeholder engagement Cooperation between Commission, Authority and FCCPC PIA Immersion Petroleum Administration: Funding for the Authority • According to Section 47 (2)(c), the funding was reduced to 0.5% of the wholesale price of petroleum products sold in Nigeria, which shall be collected from wholesale customers. • This amount was reduced from 1%. • Section 31(d) provides that the Authority shall promote a competitive market for midstream and downstream petroleum operations • Amendment may need to be made to bring funding from 0.5% to 1.5%. • All funds to the Authority would still require appropriation. PIA Immersion Petroleum Administration: Selected Key Issues Transitional • OPL & OML to remain for non convertees • Applications to Authority within 24 months for all existing midstream & downstream licences Dispute Resolution • Power to resolve between licensee • Subject to • fair hearing • Existing dispute resolution mechanisms PIA Immersion Petroleum Administration: The Funds PIA Immersion Petroleum Administration: Frontier Exploration Fund (Section 9) Governance: Objectives: NNPC Limited Dedicated for the development of frontier acreages and utilise the funds to carry out exploration and development activities in the frontier acreages subject to appropriation by the National Assembly Structure: Funding Mechanism: An escrow account • 30% of NNPC Limited’s profit oil and profit gas as in the production sharing, profit sharing and risk service contracts. 29 PIA Immersion Petroleum Administration: Midstream and Downstream Gas Infrastructure Fund (Section 52) Governance: Objectives: The Governing Council (a) increasing the domestic consumption of natural gas in Nigeria in projects which are financed in part by private investment ; (b) encouraging private investment through risk sharing by participating initially in selected high risk projects and in such other equity investments that encourage investment in midstream and downstream gas infrastructure ; and (c) reducing or eliminating gas flare. Structure: The Governing Council shall comprise: the Minister, who shall be the Chairman of the Council, representative of the Central Bank of Nigeria not below the rank of a director, representative of the Ministry of Finance not below the rank of a director , Authority Chief Executive, Executive Director Midstream and Downstream Gas Infrastructure Fund, three independent members, who shall be appointed by the President for a term of four years and may be reappointed for another four years and no more ; and Legal Adviser of the Authority who shall serve as the Secretary to the Governing Council. Funding Mechanism: • 0.5% of the wholesale price of petroleum products and natural gas sold in Nigeria, which shall be collected from wholesale customers and such levy shall be in addition to the levy provided for under section 47 (2) (c) ; • funds and grants accruing from multilateral agencies, bilateral institutions and related sources dedicated partly or wholly for the development of infrastructure for midstream and downstream gas operations in Nigeria • interest, if any, payable in respect of money in Fund • any other sum, freely donated or accruing to the Midstream and Fund for development of infrastructure in midstream gas operations . 30 PIA Immersion Petroleum Administration: Environmental Remediation Fund (Section 103) Governance: Objectives: The Commission or the Authority Rehabilitation or management of negative environmental impacts with respect to the licence or lease Where the Commission or Authority, as the case may be, is not satisfied with the assessment and financial contribution referred to in this section, the Commission or Authority, as the case may be, may appoint an independent assessor to conduct the assessment and determine the financial contribution. Structure: Funding Mechanism: A licensee or lessee shall, under subsections (1) and (2) assess its environmental liability annually and increase its financial contribution to the satisfaction of the Commission or Authority, as the case may be a licensee or lessee shall pay a prescribed financial contribution to an environmental remediation fund established by the Commission or Authority, as the case may be, 31 PIA Immersion Petroleum Administration: Decommissioning and Abandonment Fund (Section 233) Governance: Objectives: The Commission or the Authority The decommissioning and abandonment fund shall exclusively be used to pay for decommissioning and abandonment costs. Where a lessee or a licensee fails to comply with the decommissioning and abandonment plan, the decommissioning and abandonment fund shall be accessed by the Commission or Authority, as the case may be, to pay for the performance by a third party of such lessee’s or licensee’s obligations under section 232 of this Act Structure: Each lessee and licensee shall set up, maintain and manage a decommissioning and abandonment fund held by a financial institution that is not an affiliate of the lessee or licensee, in the form of an escrow account accessible by the Commission or the Authority Funding Mechanism: The decommissioning and abandonment plan shall establish the yearly amount to be contributed to the respective decommissioning and abandonment fund and the yearly amount shall be based on a reasonable estimate by the licensee or lessee of the applicable decommissioning and abandonment costs, projected forward on a nominal basis and divided by the estimated life of the facilities and the reasonable cost estimate shall be approved by the Commission or Authority, as the case may be. 32 PIA Immersion Petroleum Administration: Upstream Key Takeaways Petroleum Prospecting License Explore Appraise 0-3yrs 0-6yrs 2-3yrs Petroleum Exploration License  Right to acquire geological and geophysical data  Speculative based surveys  No right to drill exploration wells  Duration of 3 + 3 years Petroleum Mining Lease Decommission & Abandon Produce Develop 15 yrs. 4-5yrs Petroleum Prospecting License     Right to prospect and explore Drill exploration and appraisal wells Right to production test and win volumes Duration of 6 years (3+3) onshore and shallow water + 10 years (5+5) for deep offshore and frontier area Petroleum Mining Lease     Right to win and carry away produce volumes of oil and gas Right to drill development and production wells Duration of minimum of 20 years for all terrains Must secure Field development plan approval for grant.