The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu(“Minister of State”), has recently revealed plans by the Federal Government of Nigeria (the “FGN”) to reclaim dormant oil fields from international oil companies. The Minister of State, who was speaking at the recent Nigeria Petroleum International Summit which held on 30 January 2019, expressed his dissatisfaction over the number of inactive oil fields in the portfolio of international oil companies operating in Nigeria and the need to see the contribution of indigenous operators to national oil production grow from 11% (eleven per cent) to approximately 30% (thirty per cent) over the next couple of years.
Although the Minister of State did not disclose the methodology that will be adopted by the FGN in the reclamation of the dormant oil fields, our view is that any action by the FGN must necessarily be in accordance with applicable laws, particularly the provisions of Section 44(1) of the Constitution of the Federal Republic of Nigeria, 1999 (as amended), which sets out the mandatory requirements to be complied with in respect of compulsory acquisition of property.
In any event, a likely scenario is for the President to exercise his powers under Paragraph 17(2) of the First Schedule to the Petroleum Act, Cap P10 Laws of the Federation of Nigeria, 2004, which provides as follows: “The President may cause the farmout of a marginal field if the marginal field has been left unattended for a period of not less than ten years from the date of the first discovery of the marginal field”. (Our underlining and emphasis.)
According to Paragraph 17(4) of the First Schedule to the Petroleum Act, a “farmout” is an agreement between the holder of an oil mining lease and a third party which permits the third party to explore, prospect, win, work and carry away any petroleum encountered in a specified area during the validity of the lease, while a “marginal field” is any field the President may, from time to time, identify as a marginal field.
The reclamation of dormant oil fields would be a welcome development because it would aid the objective of the FGN to increase Nigeria’s oil revenue and the development of Nigerian capacity in the oil and gas industry. However, it is important for the FGN to conduct the process in compliance with applicable laws to prevent a situation where the reclamation may be frustrated by avoidable litigation.
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