PETROLEUM CONTRACT TAKINGINTO CONSIDERTION NIGERIAN

COMMUNITIES

BY

ENYINNAYA UWAEZUOKE

April 2007

INTRODUCTION

Nigeria is a country whose economy now depends

or revolves around its petroleum resources. It is

currently the sixth largest exporter of petroleum

product among all Organization of Petroleum

Exporting Countries (OPEC). These natural endowments

which had placed its name in a conspicuous place of

pride among the world community have been the major

sources its foreign exchange earning and the engine

room that drives its train of development.

The abundance of such natural resources has been

the ground for conflicts in its Niger Delta region12.1

2 A term used to refer to the nine oil producing states in Nigeria comprising of , Akwa Ibom, Cross Rivers, Rivers, Delta, Bayelsa and Edo States of the South-South Geo-Political region, Imo and Abia States of the South East Geo Political region and Ondo State or south West geo political region

These conflicts have resulted to a lot of insecurity

in this region and a gradual crippling of economic

activities in the oil industry in this region as

well as other economic actives. There is a marked

antagonism of the expatriates engaged by the oil and

gas industries in this region. The expatriate

community has for a period of close to a decade now

borne the brunt of the displeasure of the Nigerian

communities in which they work. The result being

that most oil exploration companies have had to

relocate their operational headquarters to the

states in Nigeria outside the Niger Delta region.

A passing look at the reasons for these

agitations usually will raise questions concerning

the basis for the participation of the oil companies

in oil exploration in Nigeria. While the agitation

raise issues which are germane to the continued

exploration of petroleum in that region3 this work

will be concerned with the contractual basis of

petroleum exploration in Nigeria; and how these

contracts affect the various Nigerian communities.

The relationship between the Nigerian communities

and the entities engaged in oil exploration is a

symbiotic one, it is granted as a result that

conflicts are usually anticipated or are bound to

occur; it is also envisaged that such conflicts can

be provided for by contract where the parties are

free to contract. The current contracts applicable

in Nigeria will be analyzed with a view to ascertain

if the adequately address the grey areas which has

been the bases of friction and persistent conflict.

It may also be that the enabling laws regulating the

oil and gas industry in Nigeria contributes to the

re-occurrence of conflicts or more appropriately

3 These are issues like environmental degradation, Transfer of technology local content among others.

empowers a party while disempowering the other

party. To this ends an in-depth look on the enabling

laws as it addresses such issues/concepts as

“Ownership” in the oil and gas industry in Nigeria.

Nigeria operates a Federal constitution which

established three tiers of Government at various

levels. The roles of these tiers of Government in

petroleum contracts will be analyzed while useful

opinions and suggestion will be proffered.

CHAPTER ONE

HISTORICAL BACKGROUND OF OIL EXPLORATION IN NIGERIA

It all began at Oloibiri, Bayelsa State, South-

South Nigeria in 1956. Crude oil was found in

commercial quantities4 and was a herald of good times

in the years ahead. This was the foothold for oil

exploration to spread to other parts of the country,

currently covering nine states in three of the six

geo-political zones. For over fifty years now that

exploration have been going on in Nigeria, it has

reaped a huge amount of financial returns, but for

the communities where the exploration activities are

going on, the story is not the same.

At the time of the discovering at Oloibiri, the

applicable law as the MINERAL OILS ACT OF 19145

which defined “Mineral oils” to include bitumen,

asphalt and all other bituminous substances with the4 In Nigeria this means when the petroleum inspectorate is Satisfied that oil well struck is capable of producing at least 10,000 barrels of crude oil per day.5 Cap. 12 laws 2 Nigeria 1958

exception of coal6 . This law had since been repealed

by the PETROLEUM ACT of 1969 and with it the

operative word and its meaning. Section 15 petroleum

Act7 defined petroleum as.

“Mineral oil (or any related

hydrocarbon) or natural gas as it

exists in its natural state in strata,

and does not include coal or bituminous

shades or other stratified deposits

from which oil can be extracted by

destructive distillation.

It can be gleaned from this definition that the term

petroleum in Nigeria includes and covers ‘Natural

gas’. The implication of this is that by including

natural gas in the definition of petroleum, a grant

of petroleum exploration and/or production rights

under the Act carries with it the rights to explore,

6 Section 27 Cap 350 Laws of the federation of Nigeria 1990

produce, carry away and dispose of the crude oil and

both associated and free gas produced from the area

covered by the grant. It was based on this premise

that a call was made for separate leases for natural

gas as the protocols to harness this resources and

market same is different from those of petroleum8 .

Other terms defined by section 15 of the

petroleum Act are ‘explore’ and prospect” as

follows’.

‘explore’, in relation to petroleum, means to

make a preliminary search by surface

geological and geo physical methods,

including aerial surveys but excluding drilling

below 91.44 metres”

‘prospect’, in relation to petroleum, means

search for by all geological and geophysical

methods, including drilling and seismic

operations”

8 Martin Mr. Olisa: “Nigerian petroleum law and practice” (1997) Jonia Ventures (Lagos) 7.

a. OWNERSHIP OF PETROLEUM

In Nigeria the ownership of its petroleum

resources is vested in the Nigerian nation and under

the management and control of the Federal Government

only and to the execution of the State Government

and Local government area councils9 this is as

against what is obtained in other jurisdictions.

Where private, state or provincial and Federal

ownership of oil and gas resources exist10

The vesting of the ownership of petroleum

resources on the Federal Government of Nigeria is

backed by the provisions of the Constitution of the

Federal Republic of Nigeria (CFRN) 1999 which

provides as follows

“… the entire property in and control of all

minerals, mineral oils and natural gas in,

under or upon any land in Nigeria or in,

under or upon the territorial waters and the

9 The state governments and local government Area council are the second and Third tier of Government. 10 United States and Canada.

Exclusive Economic Zone of Nigeria shall vest

in the Government of the federal shall be

managed in such manner as may be

prescribed the National Assembly11.”

This provision put paid the fact of ownership of

petroleum in Nigeria and vest all such interest in

the government of the federation. The constitution

did not define the extent of Exclusive Economic Zone

of Nigeria but by virtue of Section 1 of the

Exclusive Economic Zone Act12 sets the seaward limit

of Nigeria’s jurisdiction over the exploitation of

the natural resources at 200 nautical miles from the

external limit of the territorial waters of

Nigeria13.

Also the petroleum Act also asserts the

sovereignty of Nigeria and its unlimited ownership,

11 See Section 44 (3) CFRN 199912 Cap. 116 Laws of the federation of Nigeria 199013 This is the limit set by Articles 55, 57 respectively of the United Nations convention on the law of the sea, see also ATTORNEY GENERAL FEDERATION V. ATTORNEY GENERAL ABIA & 35ORS (2002) 10 NSCQR 163 @ 203 per OGUNDARE JSC

control and jurisdiction over all petroleum within,

upon or underlying all lands in Nigeria and the

seabed and subsoil of Nigeria’s territorial waters

and her continental shelf14. The continental shelf

is:

the seabed and subsoil of those submarine

areas adjacent to the coast of Nigeria, the

surface of which lies at a depth no greater

than two hundred metres (or where its

natural resources are capable of exploitation

at any depth) below the surface of the sea,

excluding so much of those areas as lies

below the territorial waters of Nigeria15.

Furthermore the Exclusive Economic Zone Act

(EEZA) Cap. 116 vest on Nigeria the sovereign and

exclusive right to exploit natural resources of the

seabed, the subsoil and superjacent waters of the

Exclusive Economic Zone. This area is measured in

terms as expressed by section 1 of the Act which

14 See Section 1 petroleum Act 15 See Section 15 (1) petroleum Act. also, A.G. Federation vs. A. G. Abia & 35ors op. cit. per Ogundare JSC pg. 207.

incorporated the provisions of the 1982 United

Nations Convention on the Law of the sea and as was

stated in A.G. federation vs. A.G. Abia & 35 ors.

(Supra).

From the foregoing provisions of the

Constitution of the Federal Republic of Nigeria

1999, the petroleum Act and the Exclusive Economic

Zone Act it is only on the Federal Government that

the ownership is vested and to the exclusion of the

other tiers of government and notwithstanding their

proximity to the site or location of the mineral

oils or natural gas the cannot assert any legal

claim, sovereignty over such.

This fact have not addressed the issues of the

survival of the Nigerian nation nor has it set to

rest once and for all the issue of rights of the

state governments to participate in the share of the

revenue which accrues from the exploration of the

mineral oil. This has been a thorny issue between

the federal government and the oil producing states.

Between the various tiers of government16 the

disagreement have been in the area of revenue

allocation, the effects of oil operations on the

lands and waters in or adjoining the states, the

connection between oil and national and

international politics, the role of Nigeria’s

national oil entity, the rights and role of

Nigeria’s National Assembly and the role of the mass

media and pressure groups on the oil industry and

national benefits from oil and gas exploration17.

The Federal Government therefore is vested with

the rights to make and enforce laws to govern the

grant of petroleum rights, the development of

petroleum resources, the pricing of oil and gas,

their product and other matters relating to minerals

16 Especially the Federal Government and State Governments and sometimes including the multinational oil corporations 17 Martin M. Olisa op. cit. pg. 12.

oils and natural gas within the territory of Nigeria

including the seabed and subsoil of her territorial

waters18.

b. THE BASIS OF OIL CONTRACTS IN NIGERIA

Generally no person may undertake any activity

for the exploration or production of petroleum

without a formal written authorization of the

appropriate authority (government) that has

ownership of the petroleum resources in question.

This authorization is normally granted by the

government in the form of permits, license or

lease19. However, a holder of a license, lease or

concession will still need to obtain the consent of

the owners and persons who have the right of

occupancy over or a lawful occupier of the land

18 See item 39 of the exclusive legislative list of the Constitution of the Federal Republic of Nigeria 1999 see also Section 3 ExclusiveEconomic Act on the powers of Nigeria in this head which must guarantee freedom of navigation through the zone to ships of all nations. 19 In the middle East and North Africa it is called ‘concession’

described in his license, lease or concession before

entering into or making use of the land.

The petroleum Act permits the grant of two types

of licenses for production operations, while the

lease entities the lessee to conduct production

operations and related activities20. The grants and

i.Oil exploration license (OEL)

ii.Oil prospecting license (OPL)

iii. Oil mining lease

The licenses21 are each concerned with a

distinct stage of petroleum exploration while the

oil mining lease although does not exclude

exploration but also is mainly concerned with

development, production and transportation

operation.

20 See Section 2 petroleum Act.21 A license is a permission given by a competent authority to do an act which without such grant would be illegal and would amount to a trespass or tort. Such are issued on terms ranging from raising revenue, establishment of controls and maintenance of standards.

I. OIL EXPLORATION LICENCE (OEL)

This is normally a grant made to cover any

uncommitted blocks to an applicant that satisfies

the requirements of the petroleum Act. It is not

based on competitive bidding; the first to apply for

specified uncommitted block is issued a grant of oil

exploration if he is qualified. However, there is a

limited restriction based on citizenship for the

grant of an OEL. Only in favour of Nigerian citizens

and companies incorporated under the Companies and

Allied Matters Act Cap. 59 Laws of the Federation of

Nigeria 199022. The restriction does not extend to

the ownership of such companies; there is also no

legal requirement that Nigerian citizens must own

beneficially any equity shares in a company for it

to be granted any license or lease. The licensee is

expected to commence exploration activities not

later than three months after the grant. This means22 See Section 2 (2) petroleum Act.

he has the rights to conduct preliminary searches by

surface geological and geographical methods

including aerial surveys, but excluding drilling

below a depth of 91.44 metres23.

The life of an oil exploration license ends on

the 31st December of the year following the date of

the grant. It may be removed for a further period of

one year if the license

a. files a renewal application at least three

months before the exploration of the license

b. fulfilled, in respect of the license all of the

licensees obligations created by the petroleum

Act

c. satisfied the minister of petroleum with the

work done in the licensed area and with report

issued in that connection.

23 G. Etikerentse ‘Nigerian petroleum law’ Macmillan Publishers (1985) London pg. 25.

The size of the area applied for must be compact

and may not exceed 12,950 square kilometers (5000

square miles) and is required to be bounded by

straight lines running with South East and West

directions24.

II. OIL PROSPECTING LICENCE (OPL)

This is granted by the petroleum minister based

on the powers conferred on him by the petroleum Act.

The procedure for the grant of an OPL is similar to

that for the grant of an OEL. The area applied for

is expected to have boundaries of straight lines

running in North to South and East to West

directions and shall be a compact unit not exceeding

2,590 square kilometers (1000 square metres). It

gives the licensee exclusive right to explore and

prospect for petroleum within the area of the grant.

The petroleum Act also imposes a limited

restriction based on citizenship, which also means24 See foot note 7 supra pg. 17.

that only citizens of Nigeria and companies

incorporated in Nigeria under the Companies and

Allied Matter Act (CAMA) may be granted such

license. This does not mean that oil companies

incorporated in Nigeria but partly or wholly owned

by foreign nationals are disqualified. However, when

a company holding an oil prospecting license or

mining lease discovers oil in commercial quantities,

national participation becomes imperative25. The

vehicle for such national participation is the

Nigerian National Petroleum Corporation (NNPC). The

subject matters of the participation is the

operations and assets of the license company

including the oil mining leases from which

commercial productions has been achieved. The form

of operation is petroleum joint venture while the

current level of participation is 60 percent. There

25 This requirement is usually a term of the lease pursuant to the petroleum Act. See paragraph 34 the first schedule.

is no legal requirement that the shares of the

applicant must be listed on the Nigerian Stock

Exchange nor is there one that the license or lease

may not be granted to a company which is directly or

indirectly owned or controlled through equity

ownership or otherwise by a foreign government.

The Act is silent on the conceptual bases of

nationality, residence or domicile. Therefore a

Nigerian citizen would still be eligible for an OPL

even though he is neither resident nor domiciled in

Nigeria. On the other hand the eligibility of an

artificial person is premised on its incorporation

under CAMA for the incorporation without necessary

indicating the location of its beneficial owner, and

real control. Also most times the foreign content of

an applicant company; i.e. its seat of control, its

ownership, place of incorporation and the business

connections of its parent company; are most times

considered more important than nationality in

considering its eligibility for grant of an OEL or

OPL.

Some events between 1972 and 1990 gave rise to

the introduction of competitive bidding for

petroleum acreages. By Government Notice No 31126

all rights to explore for and produce mineral oils

and natural gas in all lands over which Nigeria has

ownership and control, except those areas comprised

in existing grants of petroleum rights but including

all areas subsequently surrendered, relinquished or

forfeited to the Federal Government by holders of

petroleum rights, were reserved by the Government

for the Nigerian National Oil Corporation which was

one of the two predecessors in interest of the

Nigerian National Petroleum Corporation.

The first competitive bidding for petroleum

acreage allocation in Nigeria took place between26 Official Gazette No 59. P. 284 Feb. 1972

October, 1990 and May, 1991. open acreage were

offered on the basis of competitive tenders and were

cut out into “Blocks” of regulation size of OPL

whose area is 2,590 square kilometers per block

located mostly in Nigeria’s frontier areas of Niger

Delta, Continental Shelf, Deep offshore and Chad

Basin27

(c) OIL MINING LEASE (OML)

A lease as against a license confers a more

enduring right and is more enduring. An oil mining

lease (OML) which is granted by the Minister of

Petroleum by virtue of the powers granted under the

Act empowers the lessee to exercise exclusive rights

“ … to search for, win, work, carry away and

dispose of all petroleum in, under or

throughout the lands described in the

schedule hereto…’28

27 See Government Notice No 596, Nigeria official Gazette No 38, Vol. 77, 7th June 1990. Also foot note 7 supra pg 21.28 See Form D of the Petroleum (Drilling and Production) Regulation.

Any dispute arising from the grant of an oil

mining lease or its nature is by the Act to be

resolved by arbitration29. So far no such issue has

arisen and no such action has been brought before

our courts as well. The only way left to ascertain

the intention of the parties is from the words of

the granting clause of the oil mining lease. It is

not clear the status of the lessee beneficiary of an

OML, that is whether his interest is similar to the

common law lease over land or not. The position in

other jurisdiction is not entirely in agreement that

such grants have one status30. The sum of it all is

that in Nigeria the grant of an oil mining lease

conveys to the lessee a license but not an interest

in land and it does not operate as a severance of

the mineral estate.

29 Section 11 petroleum Act and paragraph 11 of the first schedule.30 See Williams H.R and Meyers C.J., Oil and Gas Law New York: Matthew Bender and Company (1962) paragraph 201 pg 19; Summer, Oil and Gas Vol. 1, paragraph 152, pp 369 -374; Lewis and Thompson A. R., Canadian Oil and Gas Law (1960) paragraph 40 – 41 Martin M . Olisa op cit pg 24

The beneficiary of an OML is required to be

incorporated in Nigeria under CAMA. In practice most

of the beneficiaries of OML in Nigeria are co-owned

by the NNPC and one or more subsidiaries of foreign

owned international oil companies, with the foreign

applicant locally incorporating a subsiding.

The applicant for an OML must be holders of an

OPL and must to qualify comply with the provision of

the petroleum Act applicable to the OPL from which

the lease is derived together with all other terms

and conditions imposed on the license. The grant of

an OML is made at the discretion of the minister of

petroleum, meaning that although one may hold an OPL

and yet not get the ground owing to the discretion

allowed by the Act in favour of the minister. The

grant of an OPL and OML may be made subject to

national participation as a special term or

condition of the grant. In practice national

participation comes into being at the option of the

Government when the lessee attains a level of

commercial production satisfactory to the Department

of Petroleum Resources and the Minister considers

national participation to be in the public interest31

The maximum areas for an OML is 1295 square

kilometres (500 square miles) which must be straight

lines running north to south and east to west except

where the Department of Petroleum Resources

otherwise directs. There is no statutory limitation

as to the number and total area of OML or OPL which

one company may hold beneficially either directly or

indirectly. The rights therein may also be assigned

to a reputable assignee upon the licensee paying the

prescribed fee.

The maximum duration of an OML does not exceed

twenty years which is renewable upon approval by the

31 National participation is achieved not by share ownership but by part ownership by the OML and in the assets employed in the development of the OML. i.e. as a joint venture

minister, of the lessee’s northern renewal

application filed not less than twelve months before

the expiry date of the lease. The renewal may be for

the entire area of the concession or a part thereof.

Ten years after the grant of an OML, one half of

the concession area shall be relinquished and

surrendered to the grantor 32, but this provision

will not apply to a lease that have been renewed in

accordance with the provisions of paragraph 13 (1)

of the schedule to the petroleum Act.

The above analysis shows clearly that it is an

oil mining lease that confers the ultimate in

petroleum exploration and production, the OEL and

OPL being merely the means to the end; an OML. OML’s

are granted in Nigeria to cover (1) land and

territorial waters area (2) continental shelf area.33

THE LAND USE ACT IN RELATION TO OWNERSHIP OF LAND AND THINGS ON IT

32 See paragraph 12 (1) schedule 1 petroleum Act 33 the continental shelf area presumable cover the submarine area of the exclusive economic zone

The enactment of the Land Use Act on the 29th

March 1978 once and for all abridged the right that

goes with the ownership of land in Nigeria. The Act

vested on the Governor of a state all lands composed

in the territory of that state to be held in trust

and administered for the need and common benefit of

all Nigerians. This meant that the highest or best

title to or interest a person can have in land is

for a term of years. The combine reading of the

constitutional provisions34, the petroleum Act the

interest consignable is surface rights i.e. the

right to use, enjoyment and possession of the

surface, the mineral estate having thereby been

severed.

Consequently upon the grant of an OPL or OML the

beneficiary is under obligation to obtain the

consent of persons in lawful occupation of the land

or the holder of the right of occupancy before he34 see Section 44 (3) CFRN 1999

enters upon or occupies the land or make use of the

land for his operations. In the event of the title

to such land being a statutory right of occupancy

the beneficiary of the OPL or OML must ensure that

the holder obtain a prior consent in writing of the

state governor before the alienation.35

The beneficiary of the OPL or OML is also

obligated to pay fair and adequate compensation to

the person in occupation of the land for the

disturbance or extinction of his surface rights.

Compensation is paid for destruction of economic

trees, structures affixed to the land, fishing

rights, destruction of structures, venerable objects

and other surface rights but no compensation is

payable to the person in lawful occupation for the

land itself which the Act says is vested in the

Governor.36

35 see Section 21 Land Use Act Cap. 202.36 Note that Governors consent is not required if the alienation of surface right is to take place. E.g. for cutting seismic lines, erection of camp sites and easement of a temporary nature.

OBLIGATIONS OF LICENSEE AND LESSEE

The grant of oil prospecting license and an oil

mining lease impose certain obligations in respect

of the level and standard of work to be accomplished

within a specified period.

These are

1. RECRUITMENT AND TRAINING OF NIGERIANS

The employment and training of nationals of

almost country by foreign owned oil companies

operating in the country is a common feature of the

petroleum law of oil producing countries the

developing world. The licensee is under obligation

to submit to the minister for his approval a

detailed programme for recruitment and training of

Nigerians in all phases of petroleum operations

whether or not the license conducts the operations.

The lessee in the case of an OML has the same

obligation as well37. If the minister approves, such

programmes which may include scholarship scheme may

not be altered without lies permission. The lessee

or licensee is to submit also a progress report of

the programme together with that of Nigerianisation

so far implemented at or about June and December

each year.

In respect of employment of skilled or unskilled

Nigerian personnel the holder of an OML shall ensure

that he achieve within ten years of the grant of the

lease up to at least 75 percent of the total number

of persons in managerial, professional and

supervisory grades as Nigerian citizens. Nigerian

citizens in any one such grade shall be not less

than 60 percent of the total. Also all skilled, semi

skilled workers are Nigerians.38

37 See regulation 26 to 29 petroleum (Drilling and Production) Regulations.38 See paragraph 37 first schedule to the petroleum Act.

(ii) WORK OBLIGATIONS OF LICENSEE OR LESSE

These are designed to provide efficient and

continuous operations within the entire area covered

by the license or lease. The aim also is to ensure

and mandate the operator to conduct his operations

with such equipment, methods and practices that

prevent physical and economic waste of oil and gas

and environmental pollution.

With six month of the grant, the licensee or

lessee shall carry out exploration of the area using

geological, geophysical and any other acceptable

methods of examination to arrive at petroleum

producing prospect until the area is adequately

explored and with due regard to the reasonable

wishes of the minister.

Also the licensee or lessee shall not carryout

seismic data survey in any area unless he has

obtained a permit in respect of the license or lease

from the Director of Petroleum Resources at least

one month before be commencement of the survey.

Once the licensee or lessee decides on the

location of a well or borehole, he must notify the

Director of Petroleum Resources in writing; and also

must obtain a drilling license from the Director of

petroleum Resources before commencing of drilling. A

drilling license which is not transferable will

expire on the 21st day of December next following the

date of its grant but is renewable upon a written

application made at least two months before the date

of expiring of the license. 39

(iii) FIEDL DEVELOPMENT AND PERROLEUM CONS

A major reason for government regulation of

methods and practices used in exploration and

production of petroleum is the conservation of

petroleum resources which once depleted is

39 See petroleum (Drilling and Production) (Amendment) Regulation 1996, regulation 1(b)

irreplaceable. Nigeria does not have a separate

statue dealing with the conservation of oil and gas.

The OPL and OML make ample provisions governing

oilfield methods and practices designed to promote

conservation of oil and gas resources.

(iv) COMPULSORY UNITISATION

The regulation empowers the minister to direct

by written notice licensees or lessees on a single

geological formation to put forward for his approval

plans for working and developing of the fields as a

unit in accordance with good oil field practice if

he is of the opinion that in the best interest of

Nigeria and the licensees or lessees that the field

should be developed as a unit to secure maximum

ultimate recovering of petroleum.

(v) SECONDARY RECOVERY

Before there is a ten percent decline in initial

reservoir pressure of a pool, the licensee or lessee

must see to it that a study is undertaken to

determine the economic practicability of initiating

a secondary recovery or pressure maintenance project

and the timing of the project. A full report of the

study is to submitted to the Director of Petroleum

Resources within six months after the attainment of

a pressure decline of ten per cent.

(vi) RIGHT OF INSPECTION

The Director of Petroleum Resources or any

person authorized by him has the right all times to

enter the license or lease areas to inspect the

operations and the offices of the licensee or lessee

and to inspect and make abstracts or copies of logs,

records, maps, accounts and other documents required

to be kept relating to petroleum operations of the

licensee or lessee.

(vii) SUPPLY OF NATIONAL NEEDS

A primary aim of exploitation of Nigerian

petroleum is freedom from imports of finished

products which are subject to dangerous price

fluctuations, which is a treat to the economic life

of any country. It is obviously of great economic

and strategic advantage that Nigerian’s petroleum

needs should be substantially satisfied in priority

over exports. The measures designed to ensure

sufficient supply of national needs of crude oil and

petroleum products have the added advantage of

promoting secondary industries such as the

manufacture of petrochemicals and fertilizers. In

times of national emergency, the provision of

statutory measures to satisfy domestic needs serves

a special purpose in the interest of National

security. The minister has right of pre-emption in

that he can require a licensee or lessee to produce

for the government, to the extent of refinery

capacity available in Nigeria, petroleum products

complying with specifications given by the

minister40.

Also the minister also has additional preemptive

right of taking control of any works, plant

facilities and premises of the licensee or lessee.

The servants and agents of the licensee or lessee

are bound to obey all the orders and directions

issued by the minister in operating or maintaining

the works and facilities41 This ministers preemptive

right is not restricted by statute to situations of

national emergency although it is only in certain

national emergencies such as war that it is

exercised. Note that apart from such pre-emptive

right, the licensee or lessee is under no statutory

40 . See Second Schedule to the Petroleum Act.41 If any loss or damage occurs to the facilities, reasonable compensation shall be payable based on agreement between the minister and the licensee or lessee or in the absence of such agreement by arbitration.

obligation in Nigeria to sell his crude oil or

refined product to any government monopoly.

(viii) ASSIGNMENT OF LICENCE OR LEASE

If the holder on an oil prospecting license

or oil mining lease desires to assign the

license or any right, title or interest therein,

the must submit an application to the effect “to

the Minister in writing and accompanied by the

prescribes fee at the discretion of the

Minister,…41. The Minister may give his consent

on the payment of an additional fee, premium or

both and upon such terms as he may deem fit.

However, the Minister may waive the additional

fee or premium if the following conditions are

satisfied.41 Petroleum (Drilling and Production) (Amendment) Regulations 1996; regulation 1(d). Thefees payable on an application to assign or sublet on contract an oil prospecting license or oil mining lease is five Hundred ThousandNaira (N500,000.00) under the Regulations.

a. The assignment is made to a company in a

group of companies of which the assignor

is a member and

b. The assignment is made to a company in a

group of companies of which is to promote

efficiency and the acquisition of

resources for more efficient petroleum

operations.42

For the Minister’s consent to be given, the

proposed assignee must be of good reputation or

a member of a group of companies of good

reputation. In addition the assignee must have

available to it, sufficient technical skills,

experience and financial resources for efficient

petroleum operations. Finally, the assignee must

be politically acceptable to the Government in

42 Petroleum Act. First Schedule, Paras 14 and 15

all other respects. If the assignee is a new

entrant into the Nigerian petroleum industry, it

has to satisfy essentially the same conditions

and requirements of a new applicant for a grant

of petroleum rights from the point or view of

technical competence, financial capacity and

political acceptability.

(ix) TERMINATION AND SURRENDER

Not less than three months prior notice in

writing given to the Minister to that effect is

required for the holder of an oil prospecting

license or mining lease to terminate the license

or lease on the effective date of the notice.

Termination of the license or lease is without

prejudice to any obligation or liability imposed

by or incurred under the license or lease before

the effective date of the termination. Rents

paid before the notice of termination are not

refundable.43 Within two months from termination

of the license or lease, the license or lease

must deliver up to the Minister in good order,

repair and condition and fit for working all

producing boreholes and wells and other well

equipment.44. However the Minister may extend the

period beyond two months and the Director of

Petroleum Resources may direct the licensee or

lessee in writing to plug the boreholes or wells

in accordance with the regulations. The license

or lessee should also within two months after

the termination of the license or lease restore

the surface of the possible and fill up or fence

all holes and excavations other than boreholes

and wells to the extent that the Director may

43 Petroleum Act. Fist Schedule Para. 17-22. 44 Petroleum (Drilling and Production) Regulations, Regulation 45.

require. The license or lessee is obliged to

remove all buildings, installations, effects and

other structures and chattel from the lease

area, but the Minister may direct the license or

lessee not to remove certain buildings or

structures and pay for them a price based on the

written down value of such buildings or

structures not removed.

Within three months of the termination of a

license or lease the holder must submit a report

to the Director of Petroleum Resources and the

Director of Surveys describing the geology of

the license or lease area and giving an account

of the stratigraphic conditions of the area

including structural and geological maps. Plan

sections and a list of buildings, equipment and

facilities in the license or lease area. The

license or lessee has the right, upon giving

three months notice in writing to the Minister

to surrender the license or lease as to a

portion or the whole of the licensed or leased

area. The shape of the area retained and of the

area to be surrendered or relinquished shall be

approved by the Minister and in such a case the

license or lease shall be deemed to have been

terminated as to the area surrendered or

relinquished45.

(x) REVOCATION

Revocation of a license or lease amounts to

its termination by the Minister. Revocation has

to be for one or more of the grounds specified

in the regulations. The first ground is “if the

licensee or lessee becomes controlled directly

45 Petroleum Act. Fist Schedule Para. 18.

or indirectly by a citizen or subject of, or a

company incorporated, in any country which is a

country other than the licensee’s or lessee’s

country of origin”46 and the country is one under

whose ways Nigerian citizens are not permitted

to acquire and hold petroleum rights on

conditions which, in the opinion of the

Minister, are reasonably comparable to the

conditions upon which such rights are granted to

subjects of that country. This concept of

reciprocity is usually applied in other counties

as one of the conditions for the granting of

petroleum rights rather than for the revocation

of those rights.47 The second ground for

revocation is if the licensee or lessee fails to

comply with any of the regulation which is, by

46 Petroleum Act. First Schedule, Para 23. 47 As in the Mineral Leasing Act. 1920 of U.S.A amended

reference. Incorporated into the license or

lease or if the license or lease or if the

licensee or lease fails to comply with the

provisions of the Petroleum Act. Of particular

importance as far as revocations is concerned,

are failure on the part of licensee or lease to

conduct petroleum operations continuously and

vigorously and in a business like manner in the

opinion of the Minister, default in payment of

rents and royalties within the periods specified

or required by the Petroleum Act and default in

submitting such reports on operations as the

Director of Petroleum Resources may lawfully re

quire.48 Any one or more of the default may

result in a revocation of the license or lease.

Before the license or lease is revoked, the

48 Petroleum Act. First Schedule Para 24.

Minister informs the licenses or lessee of the

grounds on which the license or lessee may not

be revoked. After the explanation, the Minister

may require the licensee or lease to rectify the

matter complained of within a stipulated period.

If the explanation is not satisfactory to the

Minister or the licensee or lessee fails to

rectify the matter complained of within the

stipulated time, the Minister may revoke the

license or lease. The revocation notice will be

sent to the last known address of the licensee

or lessee or legal representative in Nigeria and

published in the Federal Official Gazette.

Thereafter, the revocation becomes, effective

but without prejudice to any claims or

liabilities of the license or lessee accrued

against him before the revocation.

(xi)AREA RELINQUISHMENT

paragraph 12 of the First Schedule to the

Petroleum Act provides that ten years after the

grant of an oil mining lease, one half of the

area of the lease shall be relinquished. The

mandatory provision applies to all leases

granted under the Act. Whether or not the

provision applies to leases granted under the

repealed Mineral Oils Act depends on the

interpretation of Paragraph 1 of the Fourth

Schedule to the Petroleum Act. It is therefore

necessary to quote again the provisions of

Paragraph1:

any license or lease granted under an

enactment repealed by this Act shall

continue in force notwithstanding the

repeal but under excepts as regards the

duration of the license or lease, the

rent and royalties payable in respect

thereof and any term or condition as to

which the Minister certifies that the

justice of the case requires that the

term or condition in question shall

continue to be effective

notwithstanding this Act

In this regard, there are two opposing

views. The first is that the mandatory area

relinquishment provision does not fall within

the ambit of the saving provisions of paragraph

1 of the Fourth Schedule to the Petroleum Act.

According to this view, the area relinquishment

provision is not one of the exceptions specified

in paragraph 1. In other words, “the duration of

the license or lease, the rent and royalties

payable in respect thereof” which is saved by

the paragraph does not include area

relinquishment.

The second and opposing view on the

applicability or otherwise of the mandatory

provisions for area relinquishment of leases

granted under the repealed Mineral Oils Act is that

leases granted under the repealed Act are not

subject to the provision on area relinquishment,

notwithstanding that the provisions are

mandatory. According to this view, the Minister

has the power to certify in a proper case, that

the area of the lease granted under the Mineral

Oils Act shall continue to be effective

notwithstanding the Petroleum Act. The effect of

such certification will be that the area

relinquishment provision will not apply to

leases covered by the Minister’s certification.

Whatever the merits of the first view

outlined above, the reality of the matter is

that the first view is fraught with practical

problems and disruptive effects in the oil

industry in Nigeria. Besides, the courts would

probably resolve the issue in such a manner as

to make the Act work and that is the merit of

the second view.

If the provision on area relinquishment is

considered in the content of joint ventures of

which the Nigeria National Petroleum Corporation

is a co-owner, it becomes very difficult, if not

impossible, to see how the area relinquishment

provision can be implemented, notwithstanding

that it is a mandatory provision. The co-tenants

are both bound by the common law principle of

co-tenancy that no one cp-tenant has a better

right of possession that another in respect of

every part of the joint property. Accordingly, a

co-tenant cannot lay claim to any part of the

joint property to the exclusion of its co-

tenants. It follows that if any co-tenant of the

Corporation purports to unilaterally

relinquishment any part of the joint property

such as any are of the jointly owned oil mining

lease, such a relinquishment is a nullity

because the Corporation owns an undivided

percentage interest in every part of the area

for as long as the lease has not expired,

terminated or been partitioned.

(xii) PROTECTION OF THE ENVIRONMENT

Although this text is on petroleum law and

its practice in Nigeria, yet it will be culpable

omission to ignore completely Nigerian

legislation on the prevention and control of

environmental pollution arising from mineral oil

and natural gas operations. In fact, the

regulations on water pollution by oil,

prevention of serious damage to the land surface

and to plant life, the obligation of a lessee

upon the termination of a lease with regard to

the environment. Such pollution may consist of

waste oil and mixtures, chemicals and any other

substances whether solid, liquid or gaseous that

are capable of degrading or altering or forming

part of a process of degradation or alternation

of the quality of any part of the environment to

the extent that is detrimental to the use of

that part of the environment by man, animals

fish or plants that are useful to man.

(xiii) FEES, RENTS AND ROYALTIES

Fees are prescribed in the regulations for

application for grants of oil exploration

licenses, oil prospecting licenses and oil

mining lease and for the withdrawal of such

applications. Similarly applications to

terminate or surrender the whole or any part of

a license or lease, to operate a drilling rig

and to export samples for analysis require

payment of prescribed fees.

Annual rents are payable for an oil

exploration license and any period less than a

calendar year is deemed to be a year for the

purpose of rental payments for an oil

exploration license. As for the oil prospecting

license, rentals are charged on each square mile

of the license area or part thereof whereas

rentals on oil mining leases are on acre basis

or part thereof. The rental for the first ten

years of an oil mining lease is half of the

rental per acre for the remainder of the term of

the lease. The current annual rents payable on

an oil prospecting license or an oil mining

lease and the fees payable for applications for

an oil exploration license. Oil withdraw any of

the applications or renewal of oil mining lease

are stated in the Petroleum (Drilling and Production)

(Amendment) Regulations 1996, Regulation 1 (d) and

(e).

The royalties chargeable on crude oil casing

head petroleum spirit49 vary according to the

petroleum zones to operations the Petroleum (Drilling

and Production0 Regulations as amended lays down the

49 Regulation 61 (1) defines s “(Casinghead)” petroleum spirit as theliquid hydrocarbons which (a) haven been obtained from natural gas by natural separation or by any chemical or physical process and (b)have not been refined or otherwise treated.

royalty rates for crude oil, casing head

petroleum spirit and natural gas sold and

consumed in Nigeria.

(xiv) FISCALISATION

After the production of crude oil natural

gas, the next step is the determination of the

exact quantity and quality of each of them. The

purpose of the determinations is to ensure that

all crude oil and natural gas produced are

accounted for before the disposal or

utilization. The process of determining the

exact quantity and quality of crude oil or

natural gas produced or sold for the purpose of

assessing Government revenue there from is

termed fiscalisation.

Fiscalisation consists of gauging the tanks

in which crude oil produced is stored,

withdrawal of crude samples for quality

determinations, measurement of tank temperature

for appropriate volume calculation and

laboratory analysis of crude samples. It is from

the tanks that crude will be withdrawn to load

oil tankers for export. Fiscalisation is a very

important and sensitive operation, it is closely

monitored and the security surrounding it is

very strict.

(xv). OFFENCES AND PENALTIES FOR NON-COMPLIANCE

Any person who interferes with or obstructs

the licensee or lessee or its agent or servant

in the exercise of any of the rights, powers or

liberty conferred by the license or lease the

Petroleum Act or who does, without the appropriate

license, lease or permit any act for which is

license, lease or permit is required under any

regulations made under the Act shall be guilty

of an offence and on conviction, shall be liable

to a fine or imprisonment under Section 13 of

the Act. Contravention or any of the provisions

of Petroleum (Drilling and Production) Regulations also

attracts a fine a two hundred and fifty thousand

naira or imprisonment for a term of six months

or to both such fine and imprisonment.50

CHAPTER TWO

PETROLEUM OIL CONTRACTS

Oil exploration and mining is a venture, which

require expertise dependent on highly professional

manpower. It also required a huge financial

investment in infrastructure deployed for harnessing

these resources. This position influenced the types

50 Petroleum (Drilling and Production) (Amendment Regulations 1996. Regulation

of contractual arrangements that had been entered

into by the owners of petroleum resources and the

exploring companies.

These accounts why “patently ludicrous”5151

contracts with oil exploring companies with minimal

financial benefits were the first types of

contracts. This was the situation the world over

owing also because the ownership of the resource was

invested in the state, with the exception of the

United States, which had instances of individual

ownership. Nigeria is not an exception and had

transmitted from those traditional forms of

contractual arrangements to the more modern methods.

The following forms of petroleum contracts have

existed and/or still exist in Nigeria namely

(a) The concession

(b) The production sharing contract

(c) The risk service contract

(d) The pure service contract

(e) The technical assistance agreements52

51 S.K.B. Asante “Restructuring transnational Mineral Agreements”. 73(1979) A.J.I.L. 335 at     339

Other writers53 recognize three major types of

contracts as follows:

(a) Petroleum joint venture

(b) Service contract

(c) Production sharing contracts.

(A) THE CONCESSION

(i) The Traditional Concession

This was the earliest type of petroleum

arrangement. It gave the oil company exclusive

right to explore for petroleum and if it was

discovered, to produce, market and transport the

oil and gas. In exchange the company paid a5 2 This is about the widest form of classification adopted by

learned writers. See Yinka Omorogbe “The Oil and Gas Industry.Exploration and production contracts” (1997) Malthhouse PressLtd, Lagos, 59; Maxwell M. Gidado adopts a similarclassification in his book. Petroleum Development contractswith multinational oil firns, The Nigerian experiences. (1999)Ed-Linform services Maiduguri pgs.111-194.

5 3 See Martin M. Olisa Op cit pg.61-66, 106-149; G. EtikerentseOp cit. pg.42-60 while Patrick Ndubuisi Oche in “Petroleum Lawin Nigeria: Arrangements for Upstream Operations” (2003) MonoExpressions Ltd, Jos pg.143-152 classified them as (a)production sharing contract (b) Risk service contract (c)Pure service contract.

specified costs and taxes. It generally takes

the form of a grant, a license or a lease or

even some times all three.

Its unique characteristics is that it is usually

cover a very large area or mostly extended over

a national territory and for long duration of

between 40 years to 75 years. Its unique

financial feature is the payment of royalty,

which may be nominal sometimes or be a huge sum

but was based on the volume of out put, rather

than value. The oil companies were in a

position to display all incident of ownership of

the extracted mineral products. The first

effective petroleum concession which led to the

discovery of oil was granted to Colonel Edwin

Drake in July 1859 at Titusville, Pennsylvania

USA.54 In Nigeria the earliest grant of a

5 4 Blinn et al (eds) “International Petroleum Agreements”(1987) Euro Money Publications p.40; M.M. Gidado Op cit.pg.113.

concession was to a German bitumen Company in

1908.55

(ii) The Modern Concession

This is basically the same as the traditional

concession as it grants the oil company the

exclusive right over the mineral products

extracted in exchange for payment of all costs

and specified taxes. The oil company has rights

over

the produced petroleum but it owns it at the

point of extraction. It is variously referred

to as license or lease but it is still the most

widely used type of agreement. The duration is

usually for an initial period of twenty years,

but now covers a greatly reduced area56. The

55 Maxwell M. Gidado Op. cit pg. 113.5 6 In Nigeria by virtue of Regulations petroleum regulations

1969 the maximum area of for an oil mining lease is 500 squaremiles.

company is given rights to explore for crude oil

and sometimes natural gas. They now also carry

an increased financial obligations, like rents,

royalties and a higher tax rate of up to 55 and

90 per cent of the economic rent on the average

for the state57. Also petroleum in situ remains

at all times the property of the state in almost

all of these types of agreement but the

contractor still possesses extensive rights over

the petroleum since it has the exclusive right

to explore, search and drill for, produce,

store, transport and sell petroleum within the

concession area.

The Nigerian experience in this area kicked off

with the first grant of concession to the German

Bitumen Company in 1908 to prospect for oil in

57 Yinka Omorogbe Op cit. pg. 60

the British protectorate at Lagos. The second

concession was in favour of shell

D’Arcy Petroleum Company and British Petroleum

Company (Shell B.P.) in 1937. The terms was for

a period of thirty and forty years for on-shore

and off-shore areas respectively covering the

whole mainland of Nigeria, that is 357,000

square miles (925,000 square kilometers)58. It

had the option for renewal for the same term, it

lasted till 1959 when it was reduced to twenty

years and the area narrowed down to 40,000

square miles (103,600 square kilometers) around

the Niger Delta basin.59 Modern types of oil

concessions are as follows:

(a) Oil Exploration License (OEC)

5 8 The concession document of the Nigerian government withshell-Bp 1937; cited in Schatzl H.L. Petroleum in Nigeria(1969) Ibadan University Press. P.I. The concession wasgoverned by the old Colonial Mineral Ordinances Act of 1914

59 Maxwell M. Gidado Op cit. .pg. 117.

(b) Oil Prospecting License (OPC)

(c) Oil Mining Lease (OML)

The concession era gradually came to an end with

the desire by most countries to participate in

the development of its hydrocarbon resources

with the foreign oil companies. This was a

shift from the erstwhile purely regulatory and

non-participatory role it played. In Nigeria

this gained impetus with the formation of the

Nigerian National Oil Company in 1971 and the

country’s membership of OPEC the same year. At

the 16th conference of OPEC in January 1968 it

passed a resolution calling for a modification

in the concession system or arrangements between

member states and oil companies and gave a

guideline for a level of participation ranging

from a minimum of 25 percent in 1973 and a

maximum of 51 percent by 1982.60 This new drive

for change from the concession type of agreement

to participation and the need for increased

control was re-emphasized and supported by the

United Nations through its many resolutions

which accentuated the importance of permanent

sovereignty as the rights of peoples and nations

to determine freely the use of their natural

resources.61

(B) THE PRODUCTION SHARING CONTRACT

This is defined as

“A contract for the development of mineral resourcesunder which the contractors costs are recoverableeach year out of the production but there is amaximum amount of the production which can beapplied to this cost recovery in any one year. Thisshare of oil produced is referred to as ‘cost oil’. Thebalance of the oil is regarded as ‘profit oil’ and is

6 0 OPEC Resolution No.192 of 1971 cited in “PetroleumDevelopment contracts with multinational oil firms, theNigerian experience” on M. Gidado Op. cit. pg 125.

6 1 These are General Assembly Resolutions 523 (VT) of1952; 626 (VII) 1952; 837 (LX) 1954 and 1803 (XVII) of1968.

divided in the net profit royalty ration for instance,55% to the government. After the contractor hasrecovered its investment, the amount of ‘cost oil’ willdrop to cover operating expenses only and the“profit oil” increases by a corresponding amount…62

This form of contract was first used in

Indonesia in the 1960’s for agricultural

contracts and then in the oil industry in Iran.

It has since then been extremely popular and

widely used in several countries all over the

world. It is sometimes also referred to as

”petroleum sharing contracts”63 PSC. In a

typical PSC the oil company bears all the risk

of exploration and act as a contractor but the

ultimate responsibility for control and

management of the enterprise, in principle is in

the hands of the host of country’s national oil

6 2 William, H.R. and Meyers, G.S; Oil and Gas Law (1966) NewYork, Matthew Bender; pg.686.

6 3 Yinka Omorogbe “Contractual forms in the oil-industry: TheNigerian Experience with Petroleum-Sharing Contracts”, vol.20,(1986) J.W.T.L. 342 at 343-344.

company. Other features of PSC are that the

contractor understands that it has no title to

the oil deposit that the continuation of the

contract is dependent on oil being discovered in

commercial quantities, the contractor oil

company recoups for itself, its investments and

cost of operations out of crude oil, after

deducting royalties and taxies.64 The profits

are then shared on a pro rata basis between the

two parties. Also the government receives

revenue from the beginning of production through

its share of the “profit oil”. In the opinion

of Professor Omorogbe, the major criticism of

encouraging windfall profits or the reverse can

be modified through the appropriate clause.

Also production splits need not be based solely

64 Barrons, G.H. “World Petroleum Arrangements” (1980) New York, pg. 7.

on an often incorrect presumption that increased

production implies more profits.65

Furthermore, section 18 of the Deep

Offshore and Inland Basin Production Sharing

Contracts Act 409 as ammended66 defines

production-sharing contracts as follows:

“…any agreement or arrangement made betweenthe corporation67 or the Holder68 and any otherpetroleum exploration and production company orcompanies for the purpose of exploration andproduction of oil in the Deep offshore and InlandBasins”

The same section defines Deep Offshore as

meaning any water depth beyond 200 metres and defines

Inland Basin as meaning any of the following Basin,

6 5 Yinka Omorogbe: The oil and Gas industry Explorationand production contracts (1997) Malthouse press ltd pg.63.

66 Amended by Deep Offshore and Inland Basin Production sharing Contract Act No.26 of 1999.67 The Nigerian National Petroleum Corporation.6 8 i.e. any Nigerian Company who holds an OPL or OML

situate within the Deep Offshore and Inland Basin underthe relevant provision of No.9 of 1999, amended by anidentically titled Amendment Act No.26 of 1999.

namely Anambra, Benin, Benue, Chad, Gongola, Sokoto

and such other basins as may be determined from time

to time by the minister. The implication of the

above definition is that the PSC arrangement is

mainly if not exclusively available in respect of

petroleum operations in Deep Offshore and Inland

Basins environments. It may also be inferred that

the arrangement is not available in respect of the

Onshore zones. The reason for this opinion is

gleaned from government statement that:

“Exploration and production activities in theNigerian oil industry are mainly concentrated in theonshore Niger Delta zone. In order to encourageactivities in the hitherto unassigned Offshoreconcessions, the unexplored Basins of Chad,Dahomey and Benue trough and other frontierzones, government has decided to adopt andexecute the production sharing contracts (PSCs)arrangement. The arrangement should, in the longrun reduce governments burden of upstream cash-call commitments currently averaging $4.4 billionannually.69

6 9 Chafe, K. S.; “Petroleum Policy and the future of thePetroleum Industry in Nigeria” (1995) Lagos. Ministry ofPetroleum Resources, pg. 3.

This statement betrays the belief and

anticipation that production-sharing contract,

as an arrangement, is capable of inducing oil-

producing companies into embracing it.70 It is

normally for a period of ten years.

(C) RISK SERVICE CONTRACT (RSC)

This is an arrangement where the contractor

provides the entire risk capital for exploration

and production.71 If no discovery is made the

contract ceases to exist with no obligation on

either party but where a commercial discovery is

made, the expenses are recouped and the

contractor is entitled to payment, which is in

cash although often an option for payment to be

made in crude oil is included within the

7 0 Patrick Ndubuisi Oche; “Petroleum Law in NigeriaArrangements for upstream operations” (2003) Mono ExpressionsLtd, Jos pg. 144.

7 1 Adedeji, K. “State participation in Nigerian petroleumindustry” J.W.T.L. 11 91977) pg. 170; P.N. Oche Op cit. pg.150

contract. It is this method of payment that

constitutes the major difference between the

risk service contract and the production-sharing

contract. It is also called “Operation or Work

Contract”.72 It covers a period of shorter

duration than the PSC and the oil company has no

title to the oil produced under this

arrangement. The RSC is based on the premise

that an oil-producing country needs these

essential services from the oil company, that

is, technical, financial and commercial

services. The primary duration of this contract

is five years and the service contract is

automatically terminated if no commercial

discovery is made with no obligation on both

sides but if otherwise the oil company is

7 2 Blinn, K. W. et al: “International Petroleum Exploration andagreements: legal, Economic and Policy Aspects”. (1987) pg. 82.M. M. Gidado Op. cit. pg 173.

entitled to recover the cost of exploration and

development as provided in the contract. As an

incentive the oil company has the first option

to purchase certain fixed quantities of crude

oil produced from the service contract service.73

(D) THE PURE SERVICE CONTRACT OR SERVICE CONTRACT

Yet another type of contract which entails that

the oil company is paid a flat fee, generally

related to production for its services. The

government bears all the exploration risk. This

type of contract has so far only been negotiated

by countries with excellent geological prospects

such as Saudi Arabia and Venezuela. It

substantially reduces the return which the

government would need to offer to the oil

company as against what will obtain under the

7 3 Fatayi-Williams, M. (ed). ‘The Nigerian oil Industry’ (1994)NNPC pg. 7; Omorogbe, Y. The Oil and Gas Industry Exploration &Production Contract. Op. cit. pg. 63.

risk service contract.74 This type of contract

is usually accompanied with a legally

unconnected but parallel purchase contract for

part of the oil being produced from the contract

area.75

(E) TECHNICAL ASSISTANCE AGREEMENTS

This is the newest agreement and of great value

to countries interested in developing a viable

indigenous petroleum industry. On face value

they are similar to the pure service contracts

the difference lies in the fact that the oil

company is engaged to produce technical services

without any interest in the oil at any time. It

is remunerated solely on an agreed fee. It is

described as a marked departure from the

7 4 Gidado Op. cit. pg 176

7 5 Yinka Omorogbe Op. cit. Malthouse Press Ltd pg. 63-64, seealso P.N. Oche Op. cit. pg. 152.

traditional concession and principally relegates

the oil company from the status of owner to that

a contractor.76

(F) PETROLEUM JOINT VENTURES

As from the 1970s participation by host

countries in their mineral and oil rights became

increasingly common. Now, it is commonplace,

with the notable exceptions being the United

States and Britain. When the government

participates, the resulting effect is what is

commonly known as a joint venture.

But the foundational contract often remains the

same. That is, the contractual arrangement

remains a concession, PSC, etc, as the case may

be. However, other contracts, which define the

participation arrangement, are now entered into.

7 6 See S.K.B. Asante “Restructuring transnational MineralAgreements 73 A.J.I.L. 335 at 367 Y. Omorogbe Op. cit. pg. 64.

Owing to the debt crisis facing the world and

privatization is experiencing a bit of a decline

worldwide. In Nigeria for example, there is a

policy swing away from joint ventures towards

pure production sharing contracts, which are

seen as less expensive for the government but

participation remains a very relevant concept.

Any shifts away from it are based on pragmatism

and not on ideology and therefore, it should

regain prominence whenever the world economic

climate improves.

Participation is most common in concessions. In

Nigeria the government has a 60 per cent share

in the concessions of all the oil companies as

joint ventures, projects are subject to a number

of agreements which define the relationships of

the respective parties. In Nigeria these

agreements are, the participation agreement

which set out the respective interests of the

parties in the Concessions; the operating

agreement which spells out the legal

relationships between the owners of the leases

and lays down the rules and procedure for joint

development of the area and of joint property,

the Heads of Agreement which delimit the general

principles intended to govern off take

scheduling and lifting agreement for the crude

oil.77 Participation options are also exercised

in production-sharing or risk service

agreements78 although in practice many of the

advantages of participation can also be achieved

through a judicious use of these agreements.

7 7 Y. Omorogbe, Op. cit pg. 14 – 65; G. Etikerentse Op. cit 45 –

46.

78 As is done in e.g. China and Indonesia, see Blinn and Others; at

111-118.

(G) MERITS OF PETROLEUM JOINT VENTURES

(i) It has the advantage of enabling the host

country to exercise more effective control

of the operations of its oil industry.

(ii) It allows for effective transfer of

technology since the host country is likely

to become more familiar with the practical

aspects of the petroleum industry.

(iii) Through this form of contract the host

countries objectives are potentially

capable of fulfillment, although it’s

effectiveness depends on the way it is

implemented.

ADVANTAGES AND DISADVANTAGES OF PRODUCTION SHARING

CONTRACTS

(i) The production sharing arrangement typically

frees the host country from contributing to the

direct costs of operations.

(ii) This arrangement allows the state to participate

in control of oil operations through an

operating or management committee although day-

to-day management is undoubtedly the

responsibility of the contractor.

(iii) This agreement leads to a reduction in the

incidence of tax evasion by the oil company

through manipulation of prices since each party

receives its entitlement in oil rather than in

cash thereby reducing conflicts.

(iv) It frees the host country from directly bearing

the costs of the initial operations since all

are borne by the oil company, thereby allowing

the country’s resources to be channeled into

other pressing engagements.

(v) Unlike a joint venture under which the oil

company has to continue bearing costs over the

life span of the contract by entering into the

production sharing contract, it may recover all

its expenses within the first three years

provided production and markets are available.

On the other hands, it has the following

disadvantages

(a) For instance because the oil company has to

recover the cost of exploration and production

from its share of the “cost oil”, the host

country will be concerned with these expenses

which the company has to recover.

(b) It is also likely for a contractor after

realizing that it is more beneficial or

profitable to concentrate on producing one oil

field to slow down the pace of exploration of

new areas covered by the contract the benefits

flowing to the host country from such

unwarranted slow pace of exploration would be to

the eventual detriment of the host country.

(c) One would say that production-sharing contracts

were devised to avoid the political opprobrium,

which in the oil producing countries has become

associated with concessions.

(d) It has been noted that they involve a credit

from abroad to be repaid from the results of

production or from the improved quality of

production.

In the final analysis, many factors come under

consideration in deciding the most suitable contract

in any given situation. It is also not possible to

say that one form is the best. The overriding

difference between all the forms of contract is in

the proportion of crude oil produced, which goes to

the company.

The concession gives title to the crude oil and

right over the area, the PSC gives title to an agreed

percentage of production only usually at a later

stage in the extraction process while the area is

held by the counting while the Risk and Pure Service

Contract and the Technical Assistance Agreement all

give none of the production to the company and the

contract area is held by the host country. But in a

concession and a production-sharing contract the oil

company may or may not have the right to buy a

portion of the production.

CHAPTER THREE

THE NIGER DELTA AS A CASE STUDY

The Niger Delta region is an area covering so

70,000 square kilometers, of Nigeria, with the level

mangrove forest in the world a third of which is

wetland.78 The term is used initially to refer to the

minority communities of the former East Central

State of the defunct Eastern Nigeria but now a

reference to Nine of Nigeria’s Thirty-six States

spanning three of the countries six geo-political

zones.79 Precisely all the six states of the south-

south geo political zone are oil-producing states

while a few communities in the remain three states

are oil producing states.

The problems of the Niger Delta region is as old

as the Nigerian Nation. At the earliest days of

Nationhood, agitations from this region had occurred

repeatedly as desire to proffer solution to the

domination and marginalization of this region by the

others. One unique special predicate of the

78 Gamaliel Onosodie, “Petroleum, Development and the Environment:NDES Perspective”. Published in “Nigerian Petroleum Business AHandbook”. (Ed). Victor E. Eromosehe (1997) Advent CommunicationsLtd, Lagos, Pg. 287- 291.

79 The South-South geopolitical zone, South east and South WestGeopolitical zones

complaints of this region bothers an their peculiar

terrain and needs which are distinct from the other

components of the federating units. At the London

Constitutional Conference of 1957, the Willinks

Commission80 was set up to take care of the interests

of these people. The highlights of the Memorandum

presented by Chief Harold Dappa – Biriye on behalf

of his people succulently capture the problems of

these people

“ that the people in this area shared a long of lifedictated by the physical circumstances of thecountry in which they lived , and that they wereunited by fear of neglect at the hands of agovernment who did not understand their, needs,and who in any case put the needs of the interiorfirst. That when the British first came to this area,they made treaties of trade and protection withlocal chiefs; these were of special nature anddeferred from the treaties made with other chiefsInland. The British crown undertook to provideprotection and so deal with foreign powers, but thetreaties did not provide that the chiefs shouldsurrender to the British government a sovereignty,which could be transferred to any other authority.

80 Named after Sir Henry Willink

If her majesty’s Government saw fit to end thetreaties, then chiefs of this area were morallyentitled to revert to their original stauts.81

This was an agitation for autonomy from the Nigerian

State which belatedly sought to undo the heart of

the British colonial government in unifying the

whole area now known as Nigeria, but it highlighted

the peculiarities of the region with emphasis on the

fact that it will require unique models of

integrating the peoples habitat and culture into the

fast pace of communication and social and physical

infrastructure. With the exploitation of oil in this

region these complaints have become politicized and

the various Nigerian governments have proffered

halfhearted political solutions, which does not

answer the problems of this region. The Willinks

commission recommended that the area deserved

81 Cyprian Agim “Understanding Community Relations in Nigeria’s OilIndustry” in “Nigeria petroleum Business A Handbook” (1997)(ed) Victor Eromosele, (Lagos) Advent Communications Limited. 128.

special attention because of its difficult terrain.

In line with this the Niger Delta Development Board

(NDDB) was established to address the needs of the

region. The central government did not make enough

money available to the board and since what it had

could not change the lives of the people it failed

woefully. Another interventionist agency, the

Presidential Taskforce on Niger Delta was set up to

replace the Niger Delta Development Board during the

civilian government of the second republic. It was

popularly known as the 1.5 percent committee.82

Those in authority then obviously did not learn from

the errors of the promoters of the NDDB. The

Taskforce was starved of fund and was used as an

avenue for official profligacy and as well

politicized its activities, as a result it did not

achieve much. The Oil Mineral Producing Area

82 It was funded by 1.5 percent of the annual income of thegovernment from the oil section

Development Commission (OMPADEC) followed next and

was funded from three percent of the annual income

from the oil sector.83 Again lack of funding,

official profligacy, lack of a master plan and undue

politicization also made it unable to change peoples

life.84

This persistent failure to answer to the needs

of this region led to the establishment of the Niger

Delta Development Commission (NDDC) by the act of

the National Assembly.85 The NDDC it is hoped will

consistently pursue the development of the region in

line with the goals of the Nigerian state. The NDDC

83 Itse Sagay “Ownership and Control of Nigerian petroleum resourcesa legal angle.” In Nigerian petroleum business a handbook (1997)(ed) Victor Eromosele, (Lagos) Advent Communications Limited. 176-187. Where He express the view that the recognition of the oilproducing communities does not inevitably lead to (Believe in)individual proprietorship of the resources, but in recognition ofthe gross inequity and perceived oppression inherent in thetotalitarian concept of oil ownership and control by the state.84 See “NDDC’s Silent Revolution in Niger Delta” ‘TELL Magazine’Special Publication March 2007. A publication of Tellcommunication Ltd, Lagos.

85 Niger Delta Development Commission (Establishment, etc) Act 2000Cap. N86 Laws of the Federation of Nigeria 2004.

Act increased the percentage of the funds of the

commission as well as the sources of its funds.

Section 14 of the Act provides as follows:

(1) The Commission shall establish and maintain a fund from which shall be defrayed all expenditure incurred by the Commission.

(2) There shall be paid and credited to the fundestablished pursuant to subsection of thesection -

(a) From the Federal Government, the equivalentof fifteen per cent of the total monthlystatutory perceptions due to member statesof the Commission the Federal Account; thisbeing the  contribution of the FederalGovernment to the Commission;

(b)     Three percent of the total annual budget of any oil-producing company communicating onshore and         offshore in the Niger-Delta area: including gas-processing companies;

(c) Fifty percent of monies due to member states of the commission from the Ecological Fund;

(d) Such monies as may from time to time, be granted or lent to or deposited with the Commission by the Federal or a

State Government, any other body orinstitution, whether local or foreign;

(e) All monies raised for the purpose of the Commission by way of gifts, loan, grants-in-aid, testamentary disposition or otherwise; and

(f) Proceeds from all other assets that may from time to time accrue to the Commission.

(3) The fund shall be managed in accordancewith the rules made by the Board andwithout prejudice to the generality of thepower to make rules under this subsectionthe rules shall in particular containprovisions -

(a) Specifying the manner in which the assets or the fund of the Commission are to be held, and regulating the making of payments into and out of          the

fund; and

(b) Requiring the keeping of proper accounts and records for the purpose of the fund in such form as may be specified in the rules.

It is hoped that this legislative attempt will

once and for all meet the legal basis of solving the

problems of the region. So far the Net federal

allocation into the region from May 1999 to December

2006 is to totaled at about N3,073,203 Trillion. The

impact of this huge sum in the region and how it has

improved living standards in this region is not

within the scope of this paper.86

Another reason for the suffering in the Niger

Delta region is on the account of the Economic

structure of the Nigerian economy, which grossly

enhanced the dominance, if not monopoly, of

petroleum as the prime mover and sole financer of

the economy. The collapse of other sectors of the

economy has generated the concentration of all focus

on the oil industry. Hence again the existing

legislation which transfers all the rights of

earning into the hands of the central government

accounts in part for the restive nature of the oil-

producing communities in the Niger Delta. It is

believed that if the federal government is

86 See ‘’Tell Magazine’ Special Publication March 2007 Op. cit. at Page 61which record resounding applauses for NDDC

responsive to the cash calls of the NDDC and the

state governments in pursuing developmental

projects, which will improve the well being of the

peoples of the region the restiveness will abate.

Contemporaneously, there has been an explosion

in the number of youths who have obtained higher

education in an atmosphere where the availability of

opportunities is inversely related to the population

able, willing ad qualified to take up such

opportunities. Post independence Nigeria had a civil

service class who symbolized, power and success

because they were in a position to replace the

expatriate officers at all levels of government.

Currently, this class of Nigerians have almost been

eroded and/or subjugated and their positions

devalued while there is an explosion of a population

of employable people nationwide. This scenario also

has the resultant and unsavory effect of creating a

sense of discontent with few petroleum professionals

who had built successful careers in the industry.

The only remedy insight is for government policy to

tilt towards first, capacity building among Nigerian

youths in the industry87 as well as an aggressive

pursuit of successful transfer of technology to

Nigerians after a given time. There is also a

converse position to the issues raised above which

points to the fact that the oil companies most times

are not committed to the communities or environment

where the operate. The reasons for this position is

on the account that their activities are geared

towards attracting the attention of the federal

authorities whom the local communities and legal

regime place in the position of “distant Landlords

Plundering their resources.” It is canvassed that if

8 7 There is actually nothing wrong in pursuing a Quota systemof placement of Qualified indigenous personnel in the oilindustry especially people from the various communities whowill free they belong in the scheme of things in the industry

the oil companies show more commitment in the

execution of their business and engage less in

practices which impact less negatively on the host

communities the restiveness and destruction and

environmental degradation will be minimal. To this

ends it is advocated that the oil companies show and

exhibit a high level of social responsibility by at

least carrying the host communities along through

the community leader on its plans and contributions

to community development works the host community

will be more accommodating. It is also part of the

duties of the oil company as part of its social

responsibility to empower the productive members of

its host community. It can achieve these goals and

objectives by forming an alliance with the critical

and vital interest groups in the community. These

interest groups are of five major classes; namely

the traditional ruler-ship, the women group, the

community government or community Development

Committee e.g. Town Union’s, the youth organization

and the actual power group. Each of these groups

should be approached with the sole aim of

maintaining a harmonious relationship with all.

There must also be evenhandedness and transparency

in all relationships with these various groups. It

should be borne in mind that any wanting in

transparency could lead to corruption which will

cast aspersions on the integrity of the whole

effort.

IS THE FAILURE OF THE NIGER DELTA COMMUNITIES TO

SHARE FROM THE PROFIT OF PRODUCTION THE REASON FOR

RESTIVENESS IN THE REGION

As was earlier discussed, the petroleum law

1969, the Exclusive Economic Zone Act and the

Constitution of the Federal Republic of Nigeria 1999

vested the ownership of all minerals in the country

on the Federal Government of Nigeria. The pecuniary

interest which accrues to the country from its

rights in the crude oil is pooled together into a

distributable pool designated “the Federation

Account.”88 The resources in this account is

distributed by a proposal of the president on the

advice of the Revenue Mobilization Allocation and

Fiscal Commission, sent to the National Assembly.

The National Assembly then decides the formula for

distribution based on the principle of equality of

states, population, internal revenue generation,

land mass, terrain as well as population density.

How ever the principle of derivation shall be

88 See Section 162 CFRN 1999

constantly reflected in any approved formula as

being not less than thirteen percent of the revenue

accruing to the federation Account directly from any

natural resources.89

The purport of this provision is that at all

times the interest of the oil producing communities

through the oil producing states are secured

constitutionally and in principle. There have been

agitations from the Niger Delta states calling for a

further increase in the derivation principle. A

closer look on this provision shows that the

percentage is not yet at its ceiling as the

provision only recommended a minimum of thirteen

percent.

This provisions in principle shows that the

federation has the willingness to assuage any

additional cash calls from the oil

89 See Section 162 (2) CFRN 1999

Producing states and their communities. The

distribution from the federation account is between

the states and the federal government especially in

applying the derivation principle as against the

three tiers of government being beneficiaries from

the Federation Account.

On the other hand these provisions of the CFRN

1999 does not guarantee the uses to which these

funds will be put to. This is a pointer to the

persistent agitation in that region which emphasizes

the absence of infrastructure in most communities in

this region. The blame cannot be borne only by the

state government. They have always complained that

the unique nature of the terrain entails that the

cost of executing most projects in these areas will

far exceed the revenue entitlements of the states.

This excuse, although a weak one contributed

immensely to the neglect and almost total absence of

development in the area. It is also a clear

statement of the fact that even the federal

Government also lack the will to carryout

infrastructure development in this region and

underscore the fact that the problem does not lie in

the vesting of ownership in the state or the failure

of the oil communities to share in the profit of the

production for in reality they share from the

profit.

The most contributing factor to the suffering of

the oil producing communities is the effect of oil

exploration on the land. This region is endowed with

a rich arable farm land, creeks and water ways in

which a consistent engagement in agriculture will go

along why to solve the food sufficiency needs of the

nation. Unethical practices during oil exploration

and oil spillages have led to degradation of the

environment and pollution to such an extent that the

land is incapable of supporting life. No better

attempt to articulate both locally and

internationally the environmental degradation

associated with the exploitation of petroleum and

the unfair appropriation of the oil wealth of this

region than that made by the late president of the

Movement for the Survival of the Ogoni People

(MOSOP) Ken Saro Wiwa. Different opinion have also

been canvassed over the social and economic

dislocation and distortion associated with the oil

industry and how these affect the perception of

environmental issues, blurring the line between them

and resentment over economic underdevelopment.

Certainly the incessant community conflict and

agitation over environmental degradation and

pollution have wide implication for the social-

economic and political stability of the region for

which there is clearly a shared responsibility by

the parties concerned. Very related to this is the

prevalent argument which has aroused much

controversy than the oil industries generally should

play a much larger role in meeting the host

communities developmental needs. Although the issues

involved and implications for various stakeholders

are not so clearly developed the roles and

responsibilities of other institutions and agencies

should be critically appraised to formulate a more

holistic response. It is presumed and acknowledged

that the absence of a good data base to make

judgments on the state of the Niger Delta (on

environmental degradation) is counter productive in

the context of developing an appropriate

environmental remediation strategy for the region.

In a 1995 World Bank90 report to assess industrial

waste in the Niger Delta region of Nigeria, it was90 Cited in “Petroleum, Development and the Environment NDES perspective”, Gamaliel Onosodie,     “Nigerian Petroleum Business A Handbook” (ed) Victor E. Eromosele (1997) op. cit. pg. 289.

asserted that the petroleum industry is the “biggest

source of pollution”, generating most of the 5,500

tons of hazardous waste produced annually. The Bank

further notes that oil spills and leaks occur

hundreds of times a year resulting in serious

degradation of surface water and adjacent wetland

and mangrove ecosystems.

In a separate report, it uses environmental

considerations, human health and economic

significance, as basic framework for prioritization

and states clearly that the impact of oil-related

activities on the region, through widespread and

substantial, should be accorded priority in

comparison with a full spectrum of environmental

problems especially sewage, vehicular emission,

municipal solid wastes, toxic and hazardous

substances and including Gas flaring which are

given high priority. The world bank however

concludes that additional analytical research,

particularly spatially based information and

continuing systematic stakeholder participation is

essential to reach consensus on which issues should

be addressed. The cause of the spills and leaks is

still a moot point.

As a countermeasure it is advocated that, in

line with the precautionary principle, where there

are threats or irrevocable damage, lack of full

scientific data, certainly should not be used as a

reason for postponing cost effective measures to

prevent environmental degradation. Also since the

oil industry is heavily dependent on capital,

technology and programmes that transcend National

boundaries should form the meeting point for the

evolution of standards and criteria for corporate

business responsibility, as they affect the

environment and community development. Therefore

where National environmental legislations are poorly

developed or enforced, industry standards as

practiced in the home country of the multinational

oil company concerned, should take pre-eminence and

constitute the benchmark for good practice.

The truth is that the communities themselves do

not want the oil industry or indeed any other

industry or major human activity terminated which

fact calls for a determined search for an integrated

process of operation that secures the quality of

life of the people and protects the environment.

There is a need to strike a balance by building the

people’s reasonable expectation into the development

process. This may seem a daunting task but it is

the only way forward. It is acutely pronounced and

in the fore that some of these issues are strictly

matters for government intervention, being

essentially constitutional in nature, it is

nevertheless important to have them in mind when at

work and in formulating appropriate operational

policies by the relevant bodies as it cannot be

over-emphasized that environmental issues present

what would be a life threatening challenge to the

future of the oil industry, for were it not the fact

that oil still remains the most versatile and cost-

effective energy source at present a gradual close

down of the industry would have been imminent.

The logical response to these circumstances is

for the industries to maintain very strict

environmental standards in every area of its

operations and to abide by the regulations of the

state in which they operate. It is recognized that

in practice two standards obtain in relation to the

environment. There is the international standard

and the national standard which varies from country

to country. The international standards can be

identified through various international

environmental treatises and guidelines aimed at

ensuring that national standards attain the same

level through the imposition of obligation on

signatory states to pass laws which incorporate

these standards. The tendency is that a company in

its operations, tend to comply with national

standards of the state in which it is operating and

therefore wide practices within different countries

by the same oil company during the same period often

occur. It invariably will be more careless and use

cheaper and less environmental-friendly technology

in a country that is not environmentally conscious,

while in another country it will abide by stringent

guidelines and use up-to-date expensive and

environmentally sound technology. It is therefore

submitted that environmental issues are best dealt

with first by legislation and as part of national

policy, and then through the use of clauses in the

contract which uphold the host countries

environmental standards.

Finally there is need to protect the environment

from harmful use or irreparable damage and this is

what all environmental provisions and legislations

should seek to achieve. Environmental degradation

contributes most to restiveness in the Niger Delta

region as the populace are precluded from engaging

in other activities (farming) that sustain life.

Also problems militating against environmental

protection have often centred around the fact that

the protection of the environment increases

expenditure which affects the commercial viability

of a project and the profit margin of the parties;

but until the environment is perceived by the host

country governments as being more of a priority,

obligations not to pollute will continue to be

slighted and couched in general terms in contracts.

CHAPTER FOUR

PROPOSALS AND RECOMMENDATIONS

This work has been concerned in the first instance

with petroleum contracts with particular emphasis on

the interest of the Nigerian communities of the

Niger Delta region. The restiveness and agitations

in the region which play host to all the oil

explorations of the sixth largest explorer of

petroleum product in the world have placed such

issues at the top burner. It has analyzed the

various types of petroleum contracts available and

there various advantages and disadvantages and the

reasons why one form of contract is preferable to

the other. The views expressed in this work has been

that the problem of the Niger Delta region does not

lie in the type of contract adopted or entered into

by the state as trustee of the country’s mineral

resources (the Niger Delta region inclusive) and

neither is the problem one of law as clearly it was

shown that the law as it is in Nigeria is similar to

that in other jurisdictions. It had also been shown

that the law as it is, is not patently a bad one as

it adequately caters for the need of the Nigerian

nation. It was further shown that the federal

government have in passing the NDDC Act and

establishing the NDDC show that it has the mind to

bring to a timely end the environmental degradation

going on in that region. So far the government has

shown a commitment to implement this Act and the

NDDC had just recently drawn up a master plan which

sets the goals it has set out to achieve within a

fifteen years period starting from the year 2000. It

is believed that a strict adherence to the master

plan will within the given time frame bridge the

gaps that conspicuously exist in the pace of

development in the region.

However a major problem of this region that is the

foundation of and the cause of the agitation and

restiveness is the problem of good, transparent,

responsible and accountable government. It is

observed that in the Nigerian nation the pace of

development in the oil producing states is not the

equal and this is shown glaringly in those states

where transparent governance is entrenched and

practiced and with enhanced and fast paced

development the restiveness and agitation is minimal

and almost non existent. A case in point is that of

Cross River state. The developmental projects of

Governor Donald Duke is a pointer that where

government execute projects which impact so much on

peoples lives they feel committed to the whole idea

and support the efforts. Even though not all the

citizenry are beneficiary to the project, it is seen

by all to hold a bundle of opportunities which they

can key into at a later time or even benefit from

the fallout of the project, there is hope.42

Therefore, it is canvassed that government should be

more responsive to peoples needs for the problems in

42 . Cross River state is the only state in the south –south geo-political zone of the Niger Delta that has not recorded any kidnapping or hostage taking since the present civilian government.

Nigeria’s oil industry is not one of law or contract

but one of governance.

On the other hand, the oil companies also have a

role to play, this is based o the premise that

corporations incurs responsibilities to society

beyond profit maximization. This is because huge

corporations possess the power to control and

influence the quality of life of employees,

customers, shareholders and residents of local

communities in which they operate by a single

corporate decision which has the capacity to change

the lives of thousands of people in one fell swoop.

This sought of power necessarily entails

responsibilities.43 As far back as 1916 it has been

recognized by scholars that “if men are responsible

for the known result of their actions, business

43 . Stevina U. Evuleocha “ Managing Indigenous Relations, Corporate Social Responsibility and Corporate Communication in a new age activism” Vol. 10 Number 4 (2005) Corporate Communications: An International Journal; Emerald Group Publishing Limited; Page 328 - 340

responsibilities must include the known results of

business dealings, whether these have been

recognized by law or not”.44 This was the background

upon which Globalization, deregulation and

privatization and a redrawing of the lines between

state and market have changed the basis on which

private enterprise is expected to contribute to

public good, and also guaranteeing that the

relationship between companies and civil society has

moved on from paternalistic philanthropy to a re-

examination of the roles, rights and

responsibilities of business in society. This has

brought about a consciousness to companies that

improving their own impacts on the operating

environment and addressing wider social and

environmental problems will be crucial in securing

their long-term success. Corporate Social

Responsibility therefore is the continuing44 . Maurice Clark, (1916) Journal of Political Economy page 223.

commitment by businesses to behave ethically and

contribute to economic developments while improving

the quality of life of the workforce and their

families as well as of the local community and

society at large45. For the companies this entails

not only fulfilling legal expectations, but also

going beyond compliance and investing more in human

capital, the environment and relations with

stakeholders46

The above facts are the indices upon which many now

believe that it is no longer enough for a company to

say that their only concern is to make profits for

their shareholders, when they are undertaking

operations that can fundamentally affect (both

negatively or positively the lives of communities in

countries throughout the world. It is therefore

45 . See World Business Council for Sustainable Development (WBCSD) (2001) “Corporate social responsibility; making good business sense”available on www.wbcds.org46 . See European Commission (2001), “ Promoting a European Frameworkfor Corporate Social Responsibility, EU Green Paper, Commission of the European Communities, Brussels,.

noted that the position of the oil companies that

they cannot interfere in government’s legitimate

rights to enforce law and order (meant to subjugate

the host communities when the complain against the

oil companies) is not completely candid, because if

they had observed the highest level of ethical

standards as is applied in their home countries as

it relates to the result of their oil exploration on

the environment the restiveness and agitation

against them will not be apparent and the need for

government to suppress the protesters will never

arise. Their culpability is seen in the face of the

fact that they rarely protested against human right

abuses perpetrated by security forces in the region

in the name of protesting the oil installations and

when they do it only in guarded terms and when faced

with international pressure. This does not however

underscore their need for security.

The oil companies are the greatest catalyst to the

current problems in the Niger Delta, for it is

really surprising that they remain mute in the face

of the mismanagement of the pecuniary patrimony of

the Nigerian people by corrupt leaders who stash

away their loots in the vaults of international

banks when they are in a position to expose these

individuals by cooperating with international Non

Governmental Organizations (NGO)

Finally it is recommended that Nigerian government

should negotiate terms of production that are

acceptable to the oil companies themselves,

including matters such as compensation for

environmental damage, involvement in decisions

relating to oil production, restoration of the rule

of law and transparent and accountable

administration of the tax money earned from oil

revenues as well as environmental impact assessment

at regular intervals. Opportunity should be made so

that people who live in areas where oil is produced

are able to make their grievances and demands known,

both to the oil companies and to the government

without fear of reprisals from anybody for the

exercise of their freedom of expression assembly and

association. On the part of the oil companies and to

promote good relation with their host communities

they should comply with all Nigerian environmental

laws and international standards in development and

environmental spending to ensure that their presence

does not exacerbate conflict and create discontent,

but also intervention in areas that have

traditionally been regarded as too “political” for

them to take a position. They should also be

transparent with information as to the cause of

spillages and apart from bearing the cost of

clearing the spillage they should pay compensation

to all those who loose their livelihood owing to the

effects of the spillage.

BIBBLOGRAPHY

Statutes

Minerals oils Act Cap. 12 laws 2 Nigeria 1958

PETROLEUM ACT of 1969 Cap 350 Laws of the federationof Nigeria 1990

Constitution of the Federal Republic of Nigeria (CFRN) 1999

Exclusive Economic Zone Act Cap. 116 Laws of the federation of Nigeria 1990

Companies and Allied Matters Act Cap. 59 Laws of theFederation of Nigeria 1990

Land Use Act Cap. 202. laws of the Federation of Nigeria 1990

Niger Delta Development Commission (Establishment,etc) Act 2000 Cap. N86 Laws of the Federation ofNigeria 2004.

Books

Martin Mr. Olisa: “Nigerian petroleum law and practice” (1997) Jonia Ventures (Lagos) 7.

G. Etikerentse ‘Nigerian petroleum law’ Macmillan Publishers (1985) London pg. 25.

Williams H.R and Meyers C.J., Oil and Gas Law New York: Matthew Bender and Company (1962)

; Lewis and Thompson A. R., Canadian Oil and Gas Law(1960)

Yinka Omorogbe “The Oil and Gas Industry. Exploration and production contracts” (1997) Malthhouse Press Ltd, Lagos,

Maxwell M. Gidado adopts a similar classification inhis book. Petroleum Development contracts with multinational oil firms, The Nigerian experiences. (1999) Ed-Linform services Maiduguri

Patrick Ndubuisi Oche in “Petroleum Law in Nigeria: Arrangements for Upstream Operations” (2003) Mono Expressions Ltd,

Blinn et al (eds) “International Petroleum Agreements” (1987) Euro Money Publication

William, H.R. and Meyers, G.S; Oil and Gas Law (1966)New York, Matthew Bender; pg.686.

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