The Federal Government of Nigeria (“FGN”) has issued new regulations titled: Oil Block Allocations to Companies (Back-in-Rights) Regulations, 2019 (the “New Back-in Regulations”). The New Back-in Regulations, which became effective on 26th February 2019, provide a legal framework for the participation of the FGN in oil blocks.
Prior to the issuance of the New Back-in Regulations, the FGN exercised its right to back into oil blocks pursuant to Paragraph 35 of the 1st schedule to the Petroleum Act and the provisions of the Deep Water Block Allocations to Companies (Back-in-Regulations) of the year 2003 (the “Old Back-in Regulations”). The New Back-in Regulations has now repealed the Old Back-in Regulations.
As the name implies, the Old Back-in Regulations only regulated FGN’s participation in deep water oil bocks – i.e. oil blocks located in water depth beyond 200 metres. There was no dedicated subsidiary legislation that regulated the FGN’s right to participate in oil blocks that do not qualify as deep-water oil blocks. The New Back-in Regulations now cover the participation of the FGN in oil blocks within all terrains in the oil and gas industry.
Some salient provisions of the New Back-in Regulations are as follows:
a. The FGN’s right may be exercised at three milestones in the life of an oil and gas block– (i) at commencement of a license, (ii) when the licence is being converted to a lease, or (iii) at renewal of either a licence or lease ;
b. FGN is allowed to acquire up to 5/6th of the interest of the applicant - which suggests that the FGN could acquire less than 5/6th of the interest, at its discretion;
c. There is a mandatory requirement for the FGN to negotiate the terms of the back-in – this is in line with the provision of Paragraph 35 of the 1st schedule to the Petroleum Act and the decision of the Supreme Court in the case of NNPC v. Famfa (2012) 17 NWLR (Pt. 1328) 148 (“Famfa’s Case”) regarding deep water blocks; and
d. Provides for costs recovery by the applicant – this also takes into consideration the position of the Supreme Court in the Famfa’s Case that in exercising its back-in right, the FGN must take into account the costs incurred by the applicant.
Indeed, the issuance of the New Back-in Regulations is a welcome development given the various legal issues identified under the Old Back-in Regulations – some of which have been subject of litigation in the past. It will however be interesting to see how the New Back-in Regulations will be applied in practice.
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