nnpc joint operating agreement

Joint Operating Agreements (JOA) The JOA is the basic, standard agreement between the NNPC and the operators. This arrangement preserves the Contractual framework within which the Nigerian National Petroleum Corporation on behalf of the Nigerian government and the Multinational oil companies conduct Petroleum Operations in Nigeria. To this end, after sending a bill to the National Assembly and getting it passed, government has set up the Niger Delta Development Commission (NDDC) with a board of its own. The JOA governs the relationship between the parties, including budget approval and supervision, crude oil lifting and sale in proportion to equity, and funding by the partners. ​Tax Oil: This is to offset actual Tax, Royalty and Concession Rental due and payable /deductible in full in the year. The remainder is then shared between the national oil company (NOC) of the oil-producing country and the company in a predetermined proportion. ties are to share in the cost of operations. [23] The strike was called off on 24 May 2015. Fifty per cent of future JOAs should be IJVs, similar to the NLNG model. In Nigeria, the concession granted to Shell in 1938 was in respect of the entire mainland of Nigeria. ‘Operation’ involves designating one of the licensees as operator, who shall be responsible for conducting the day-to-day operations subject to the supervision of the JOC. There is less certainty concerning the existence – or non-existence – of an ‘inherent’ right on the part of the operator to modify the nature of the operation as originally approved by the parties.[11]. the joint operating agreement • a joint operating agreement (joa) is usually entered into after period of negotiation among the participants. “The corporation based its action on section 2.4.1 of the Joint Operating Agreement (JOA).” The Nigerian National Petroleum Corporation (NNPC) has taken over some of the oil blocks which the Shell Petroleum Development Company (SPDC) is divesting. Provisions should be made in the JOA to protect the operator from having to bear the burden of funding the default. agreement ... been transferred to the Nigerian National Petroleum Corporation (NNPC) ... 1984 Agreement consolidating NNPC/Shell joint venture. It usually had exclusive ownership of the oil and gas and was free to dispose of them as it deemed fit. The contractor bears al costs of exploration and production without s. uch costs being reimburseable if no find is made in the acreage. The three oil giants are operating in Nigeria under a joint venture arrangement with NNPC, in the NNPC/SPDC/TOTAL/NAOC joint venture. The other partners in this JV are Shell Petroleum Development Company (30%), NNPC (55%,) and Total E&P Nigeria (10%). [6] Jimena Marvan, ‘The changing shape of a Joint Venture/Partnership Agreement and how you can effectively prepare for its evolving structure within your terms: A Case Study from Mexico’ www.oilandgas.com/strategy-manager accessed 14 May 2013. The ‘institutional link’ between the operator and the non-operator is the Joint Operating Committee (JOC/OPCOM) on which all the parties to the JOA sit.[10]. There should also be a comprehensive review of the JOAs at least every three to five years. United Kingdom, Tel: +44 (0)20 7842 0090 [17] M Taylor and Sally Tyne, Taylor and Windsor on Joint Operating Agreements (2nd ed, Longman 1992) p 48. They directed employees of NPDC, a subsidiary of the NNPC, to indefinitely shut down their locations and all oil production facilities nationwide on 20 May 2015 in a bid to force the minister and the federal government to reverse the transfer of operatorship of oil mining licences (OMLs) 42, 40 and 30. It sets the guidelines /modalities for running the operations. [8] Therefore, the JOA is a contract between two or more parties. [17] However, dissenters could decide to participate in the sole risk operation at any time, thereby converting the sole risk operation to a joint operation. This is important in order to prevent unnecessary interference with the contract by the Minister of Petroleum. In addition to the above, the operator can also carry out sole risk operations. For the National Petroleum Investment Management Services (NAPIMS), which executes joint operations and other exploration and production activities for NNPC and oversees the federation’s interest in the joint operating agreements in 2017, total revenue stood … These concessions had certain characteristics. It is common in the oil industry to have a JV between the host country and the international oil company. Through participation, the host country’s objectives are potentially capable of fulfilment, although its effectiveness depends on the way it is implemented. concessions, production sharing contracts (PSCs) and JOAs; the JOA’s challenges, benefits and burdens; and. opt for and carry on sole risk operations. In a standard PSC, the company bears all the risks of exploration and is often in charge of the operations and management of the contract area. The federal government often defaults on payment of cash calls because of the need to develop other areas of the economy. (i) the right of the Federal Government to take natural gas produced with crude oil by the licensee or lessee free of cost at a flare or at an agreed cost and without payment of royalty; (ii) the obligation of the licensee or lessee to obtain the approval of the Federal Government as to the price at which natural gas produced by the licensee or lessee (and not taken by the Federal Government) is sold; and, (iii) a requirement for the payment by the licensee or lessee of royalty on natural gas produced and sold.’. It does not involve a complete transfer of the land but it signifies the owner giving permission to the company that wants to work upon the land. The operator has the following rights if a non-operator fails to honour its obligations to pay its bills under the JOA: The capital intensive nature of exploration and production activities requires robust default provisions designed to achieve: These relate to the long-term protection of the parties’ rights and interests in the JV. [13] 1991 Nigeria JOA executed by NNPC and the IOCs (names withheld because of the duty of confidentiality). [22] Section 35 of the Petroleum Act, Cap P10, L.F.N 2004. Amending the law is cumbersome but as a contract it can be easily amended and subject to abuse. Fax: +44 (0)20 7842 0091, Public and Professional Interest Division, Anti-Corruption Strategy for the Legal Profession, International Human Rights Fact-Finding Guidelines. The operator is designated the Service Contractor and he provides all the funds required for exploration and production works, a feature which this arrangement shares with the PSC. A JOA will cover many aspects of the partners' investment and is generally designed to last for the lifetime of the investment, from exploration through to production. Joint Operating Agreements (JOA) The JOA is the basic, standard agreement between the NNPC and the operators. The Production Sharing Contract (PSC) was widely introduced in 1993 to address some of the issues faced by the Joint Operating Agreement (JOA) and also to provide a suitable agreement structure for encouraging foreign investment in offshore acreage. The paper examines the Joint Operating Agreement (JOA) with a view to ascertaining the purposes of sole risk and non-consent clauses in JOA and their incompatibility or otherwise with the joint objectives of the agreement. The Joint Operating Agreement (JOA) is a participation agreement that enables the federal government, represented by the Nigerian National Petroleum Corporation (NNPC), to actively participate in the Nigerian petroleum industry. The whole or any part of the re-entry penalty shall be paid in cash in the currency in which the sole risk costs have been incurred or in kind or both as may be mutually agreed by the parties. Under the wording of the JOA, the operator appears to have tremendous control, since they are given the authority to ‘conduct and direct and have full control of all operations on the contract area’. Information gathered that the revocation of the operating licence of Shell by the president was in line with the Joint Operating Agreement (JOA) signed by the joint venture partners. The JOA is the basic, standard agreement between the NNPC and the operators. Each JOA is built on the presumption that the burden of financial operations shall be shared. This broad general grant of authority is also subject to the further limitation that such operations shall be conducted ‘as permitted and required by, and within the limits of this agreement’. The Nigeria government has always had anticipate the global oil and gas industry by ensuring a dynamic approach to drawing up rules and fiscal regimes which make the industry one of the most competitive and investor friendly throughout the world. This step is expected to ensure amity in the region and thereby offers a positive response to the problems which had often disrupted industry operations in the area.​. The company is usually given rights only in respect of crude oil and sometimes natural gas. It is different from the MOU. the responsibilities of the parties to the contract; and. The development of these contractual agreements is a reflection of the readiness of the Nigerian government to respond to trends in he global oil and gas industry as well as tackle inherent problems emanating in old arrangements. Section 35 provides: ‘If he considers it to be in the public interest, the Minister may impose on a licence or lease to which this Schedule applies special terms and conditions not inconsistent with this Act including (without prejudice to the generality of the foregoing) terms and conditions as to –, (a) participation by the Federal Government in the venture to which the licence or lease relates, on terms to be negotiated between the Minister and the applicant for the licence or lease; and, (b) special provisions applying to any natural gas discovered, which provisions shall include-. The aim of the JOA is to enable the federal government to exercise control over its natural resources and to obtain maximum economic returns from the petroleum industry in the course of its participation. Following the election and payment as aforesaid, such operations shall be carried out as joint operations.’, The operator is required to pay bills promptly, and then request the appropriate portion of such charges from the non-operators on the basis specified in an accounting procedure which is attached as an exhibit to the JOA.[19]. rofit Oil: The balance after deduction of Tax Oil and Cost Oil, which is, o be shared between the NNPC and the contractor in an agreed. The Nigerian National Petroleum Corporation has signed a novation agreement with Nigerian Agip Oil Company on Oil Mining lease 60,61,62 and 63. The revised MOU stated, stated interalia: ?It is the intention of parties to this Memorandum to encourage investment in the petroleum industry and maintain cost efficiency.? Concession is one of the main interests that can be created. Concession is one of the main interests that can be created. on the NNPC Crude which it lifts under the MOU. Typically, the fee oil and gas estate is owned in several undivided fractional shares. Nigerian Petroleum Development Company, Benin City It is the agreement that hands over and transfers a certain interest in a property to another person. Article 2.4.2[13] provides: ‘In the event that the operator commits any material breach of, or fails to observe or perform, any material obligation on its part contained in this agreement the operator may also be removed by any of the non-operators holding participating interest of at least 60%, giving notice in writing to the operator.’, Article 2.2.1[14] vests significant authority in the operator on how joint operations should be consulted. It has been used for a long time in many parts of the world to transfer interests in land and resources from one party to the other. These agreements set out the respective rights of partners to the JV. When such default occurs, one or more of the non-defaulting parties have to step in to meet the defaulter’s share of the expenditure. It is now called by various names, such as licence or lease, but it is still the most widely used type of agreement. The Nigerian National Petroleum Corporation (NNPC) and International Oil Companies (IOC) have signed an agreement to exit the Joint Venture Cash-Call Arrangement. In the event of a commercial find, Contractor's costs are recouped in line with procedures enunciated in the contract. There is a need for national legislation or regulation on JOAs, spelling out: The powers conferred on the minister resulted in her having undue influence on the parties to the contract. These multi-national Exploration & Production companies are operating predominantly in the on-shore Niger Delta, coastal offshore areas and lately in the deepwaters. It sets the guidelines/modalities for running the operations. [5] Oil And Gas Operations: Rights And Obligations (The Nation Newspaper, 20 October 2015) p 32. As such, the right to explore, exploit, appraise and produce oil and gas is rarely exercised by a single entity. experienced companies that have decided to undertake a high risk or Since most major decisions involving undertaking a new operation, or terminating an existing one, are subject to other express agreement provisions, the JOA has the effect of giving the operator control over how operations are to be conducted on a day-to-day basis once approved, but not the ability, as a general rule, to determine which operations should be undertaken at the joint expense of the parties. Such a vote shall not be deemed effective until a written notice has been delivered to the operator by a non-operator, detailing the alleged default and that the operator has failed to cure the default. The operator for the joint operations is designated in the JOA. Generally, the state establishes the commercial, legal and fiscal framework within which the exploitation of the hydrocarbons takes place. These lessees then often assign undivided fractional shares of those oil and gas leases to third parties. Some of the highlights of the MOU are: To encourage unit cost efficiency, a tax inversion rate of 35% shall, ompany in its equity crude and a minimum of $1.25/ bbl after tax. Non-consent clauses are provisions included in JOAs to take into account the fact that although a proposal put forward to vote at the JOC/OPCOM might have received the requisite pass mark as spelt out in the JOA, a party might be so fundamentally opposed to the plan that it is unwise to require such a party to contribute (pro rata its participating interest in the venture) towards the funding of a project. It is different from the MOU. This is so as to have the two parties engage in the exploration and prospecting for oil in the country. These are legal arrangements in which crude oil is shared by the parties in prearranged proportions. When oil is discovered in commercial quantities, the company is entitled to recoup its investments from the crude oil produced from the contract area. The JOA can also be defined as the private agreement which 'splits' the joint and several liabilities imposed by the terms of the licence (as awarded by the relevant state) and regulates the relationship, obligations and rights between the JV partners. It is for this reason that the development of the Niger Delta area has been attracting the attention of the present democratic Dispensation. The above shall not relieve operator from exercising utmost diligence in accordance with good oil field practice in selecting, training and supervising its employees, contractors and agents.’. However, the burden of payment of cash calls has meant the federal government has not enjoyed the full benefits of the JOA. The declaration of PI is one of the essential provisions of the JOA. The state and the oil companies are normally the parties to these agreements. According to the NNPC, the proposed budget was to support the 2021 JV/PSC/SC forecasted production of 1.639mpbd of oil and condensate per day, and 6.532bn standard cubic feet of monetised gas per day. They give companies the opportunity to outlay their investment in multiple ventures and thus increase their chances of finding and exploiting oil and gas. With the shift, the companies were encouraged to embark on bullish exploration activities, which enable Nigeria's crude oil reserves to move from 18.0 billion barrels to 22billion barrels in 1992, barely a year after the policy decision was taken. recommendations regarding the JOA and Petroleum Act. Only the Agip Energy and Natural Resources (AENR) operates the SC in Nigeria. NNPC could assign their right to operate to any of the parties to the JOA and also take over operatorship when the need arises. The JOA is expected to represent an amalgam of the varying interests of the respective parties to the JOA. Recently, consent was given by the minister on transfer of operatorship to NECONDE in respect of the JOA between the Nigerian Petroleum Development Company (NPDC) and Neconde Energy. [7] M M Olisa, Nigerian Petroleum Law and Practice (Jonia Ventures Limited 1997), p 74. efficient remedies to compensate the non-defaulting parties (NDP) taking into account the actual stage of the project at the time of the default. ne of the partners is designated the operator, he NNPC reserves the right to become an operator. Major operators will be looking to rid themselves of their less productive assets: there is little incentive to stay as the petroleum lease (PL) is no longer an asset but a liability due to impending decommissioning costs. The Participation Agreement sets out the level of participation of each. The duration is normally for an initial period of 20 years. These clauses typically permit some members of the group to proceed with certain types of work without the dissenters. The partners involved in the joint venture are the NNPC with the ownership of 55% shares in the OML 11, Shell, Total and Agip, with the ownership of 30%, 15% and 5% respectively. rs are discussed and policy decisions are taken at. A modern concession is similar to the traditional concession in many ways. The area of coverage has also been reduced. A default situation arises when a party fails to meet its PI share of the expenditure made on behalf of the JV. The financial and technical challenges and risks of upstream operations compel oil and gas companies to spread the risks and to minimise costs. As an incentive for the risk taken, the contractor has the first option to purchase certain fixed quantity of crude oil produced from the SC area. Participation enables the host country to exercise more control on the operations of its industry. The IJV would fund the JV operations; the government can then enjoy the full benefits of the JOA by obtaining maximum economic returns while participating/exercising control over petroleum operations in Nigeria. This article will consider: Across the world, the activities of exploration, development, production and marketing of oil and gas, and their associated products, are conducted within the framework of host government laws and commercial contracts. [16] While parties to a JOA would ordinarily hope that all proposals put forward to JOC/OPCOM enjoy unanimous support (which will more likely lead to faster response from the parties in meeting cash calls), this is not always the case. Cost Oil: To reimburse the contractor for capital investments and operating costs. It is the agreement that hands over and transfers a certain interest in a property to another person. Article 2.2.1 provides: ‘The operator shall conduct all joint operations with utmost good faith and in a good and workmanlike manner in accordance with good industry practice and the applicable regulations shall apply to all operations hereunder.’, ‘The operator or its affiliate shall not be liable, beyond such liability accruing to its participating interest, for any loss or damage which results from joint operations unless such loss or damage results from gross negligence, and or wilful misconduct on the part of its directors or supervisory staff, provided, that under no circumstances shall the operator or its affiliates be liable to non-operator for reservoir damage or pollution or for any consequential losses or damages whatsoever or howsoever occurring including, but not limited to, lost production or lost profits. It makes for more effective technology transfer, since the host country is likely to become more familiar with the practical aspects of the petroleum industry. This review should address all the issues/challenges in the JOA, ensuring a synergy between the provisions of the amended petroleum laws and the JOA. [23] Leadership Newspaper of 19 May 2015; Vanguard of 19 May 2015. International Bar Association Yet, the MOU contained inherent mechanism for review in a way that both parties (NNPC and its Joint Venture partners) are left satisfied even when the dynamics of the economy such as inflation and exchange rates set in. In Nigeria, sole risk is provided for in Article 8. usenu.inifome@nnpcgroup.com. The operations can be handled by fewer employees and equipment thereby promoting greater efficiency. T… this is why in the companies reviewed the MOU to reflect prevailing economic realities.​. The interest is not n… For purposes hereof, ‘good cause’ means gross negligence or wilful misconduct, the material breach of or inability to meet the standards of operation contained in the contract, or a material failure or inability to perform its obligations under the agreement. It has been used for a long time in many parts of the world to transfer interests in land and resources from one party to the other. It is different from the MOU. In many cases it extended over the whole land in the nation. Where the PL is divested to smaller companies, they are more likely to go bankrupt than major companies. However, some pitfalls have been identified that need to be amended to enable the government to benefit optimally from the JOA. Section 35 of the Petroleum Act[3] provides for government participation in the oil and gas industry. 83 of 21 June 1985 concerning liable companies and limited liability partnerships (the Companies Act) Section 1-1 fourth paragraph. Joint Operating Agreements (JOAs) In 1971, the first JOA was executed in Nigeria. [21] P Roberts, ‘Fault-lines in the Joint Operating Agreement: Forfeiture’ (2008) 274I.E.L.R. The JOA is indeed one of the most important agreements in the development of oil and gas resources. Parts of the highlights of the JV Contract are: arty in running the affairs of the company. London, EC4A 4AD [9] N Etteh, ‘Joint Operating Agreements: Which Issues are Likely to be the Most Sensitive to the Parties and How Can a Good Contract Design Limit the Damage from Such Disputes?’ p 2 www.themixoilandwater.com accessed 9 July 2014. It said that the agreement covered Shell's 30 per cent interest in oil mining leases (OMLs) 4, 38 and 41, covering approximately 2,650 square kilometres in the north-western Niger Delta. The federal government should start with 50 per cent of future JOAs structured as IJVs and increase the percentage in future until all JOAs are IJVs. In 1991, a Memorandum of Understanding (MOU) was signed between the Nigerian National Petroleum Corporation (NNPC), representing the Federal Government of Nigeria on one hand and the Operation Companies (OPCOS) - Shell, Mobil, Chevron, Agip, Elf, and Pan Ocean on the other. The partnership is contracted through a Joint Operating Agreements (JOA) which is a basic, standard agreement between the NNPC and Total in Nigeria. Unlike the concession, ownership of petroleum discovered remains vested in the state or its NOC and the contractor does not acquire title to its share of the petroleum until the oil reaches a mutually agreed point. Petroleum remains at all times the property of the state in almost all agreements of this nature. Figure 1 shows that the NNPC holds 60% in all the joint ventures except the venture operated by Shell, in which NNPC holds 55%. The JOA provide a set of rules for the conduct of operations under the PL. strengthening of NNPC by assisting in establishing the first formal Joint Operating Agreement for upstream oil operations in Nigeria, strengthening NNPC's ability to market condensate, and reviewing NNPC's rolling five-year corporate plans and commercialization program. The PSC is today the toast of Nigerian Petroleum industry. the right of the NOC/its subsidiaries to be the operator except where it decides that any of the parties should be the operator under the JOA. This contract enables government to participate[22] in the petroleum industry in the form of a JV with other companies. Joint Venture Activi​ties NNPC upstream operations are in joint partnerships with the major oil companies. The JV Ops is an off-shoot of the JOA (Joint Operating Agreement) between NNPC (representing the Nigerian Government) and the Multi-National Oil Majors operating in Nigeria. certainty in the event of sustained default in order to allow the JV to continue despite a partner defaulting; and. The most important duty of all parties to a JOA is to provide funds when they are requested under a cash call. The synergistic nature of a JV further allows participants to enjoy the financial standing of their partners and facilitates the merging of skills and expertise. It is on the premise of the above section 35 of the Petroleum Act[4] that the JOA is executed between the federal government, represented by NNPC, and licensees/lessees. It enables cost savings as all parties to the JOA bear the cost of operations in accordance with their PI. All rights and liabilities arising in connection with the PL will be shared between the licensees in proportion to their PI. The Agreement determines ownership of Production facilities assets e.t.c. In Nigeria, oil and gas exploration and production contracts could be in the form of concessions (now abolished), the JOA, a service contract (SC) or a production sharing contract (PSC). In line wit h the provisions of the joint operating. 4th Floor, 10 St Bride Street For instance, the PSC is a responsible for some of the fears expressed over the JV more so as the nation was opening the Frontier areas such as the Inland basins and Deep/ Ultra Deep Waters.​. They were in respect of very large areas of land of the host country. Under the SC, exploration and development costs are paid in installments over a period of time and the contractor has no title to the crude oil produced, although he may be allowed the option to accept reimbursement and remuneration in oil. These owners then execute oil and gas leases to multiple lessees, who then own the associated leasehold estate in undivided fractional shares. Act No. There are four different types of Petroleum Arrangements operating in the Nigerian Oil and Gas Industry. That major policy shift was also to ensure for the company a minimum profit margin of $2.30/bbl; after tax and royalties on the company's equity crude. An operator may be removed only for ‘good cause’ by the affirmative vote of a majority interest (based on ownership) of non-operators, after excluding the voting interest of the operator. While it contains the basic understanding on the joint Venture, the MOU is a response to the specifics of fiscal incentives. In most countries, the state claims title to the hydrocarbons within its territory. In return, the company paid specified costs and taxes. It is also an arrangement whereby the oil company receives the exclusive right to explore for petroleum and, if petroleum is discovered, to produce, market and transport it. It sets the guidelines /modalities for running the operations. 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