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nnpc joint operating agreement


In many cases it extended over the whole land in the nation. The Commission is to ensure even and equitable development of the Niger Delta. The federal government often defaults on payment of cash calls because of the need to develop other areas of the economy. The state and the oil companies are normally the parties to these agreements. The partners involved in the joint venture are the NNPC with the ownership of 55% shares in the OML 11, Shell, Total and Agip, with the ownership of 30%, 15% and 5% respectively. [6], The JOA spells out the legal relationship among concurrent owners of licences, leases or concessions, as the case may be, and lays down the rules and procedure for the joint development licences, leases or concessions for the benefit of the concurrent owners.[7]. In Nigeria, the concession granted to Shell in 1938 was in respect of the entire mainland of Nigeria. According to the NNPC, the proposed budget was to support the 2021 JV/PSC/SC forecasted production of 1.639mpbd of oil and condensate per day, and 6.532bn standard cubic feet of monetised gas per day. These lessees then often assign undivided fractional shares of those oil and gas leases to third parties. Major operators will be looking to rid themselves of their less productive assets: there is little incentive to stay as the petroleum lease (PL) is no longer an asset but a liability due to impending decommissioning costs. They give companies the opportunity to outlay their investment in multiple ventures and thus increase their chances of finding and exploiting oil and gas. For purposes hereof, ‘good cause’ means gross negligence or wilful misconduct, the material breach of or inability to meet the standards of operation contained in the contract, or a material failure or inability to perform its obligations under the agreement. All parties share in the expenses of the operations and in the proceeds resulting from the development. The company pays specified costs and taxes to the state that has the crude oil. Provisions should be made in the JOA to protect the operator from having to bear the burden of funding the default. this is why in the companies reviewed the MOU to reflect prevailing economic realities.​. It is an agreement born in response to the funding problem faced by the old JV arrangement as well as the desire of the Nigerian government to open up the sector for more foreign participation. Under this type of concession, the company has rights over the produced petroleum and owns it as from the point of extraction. Concession is one of the main interests that can be created. [23] Leadership Newspaper of 19 May 2015; Vanguard of 19 May 2015. International Bar Association Joint Operating Agreement The Joint Operating Agreements (JOA) is the basic, standard agreement between the NNPC and the operators. It is common in the oil industry to have a JV between the host country and the international oil company. Petroleum remains at all times the property of the state in almost all agreements of this nature. recommendations regarding the JOA and Petroleum Act. The above shall not relieve operator from exercising utmost diligence in accordance with good oil field practice in selecting, training and supervising its employees, contractors and agents.’. While the JOA allows the government to exercise control over its natural resources and obtain economic returns, the payment of cash calls is a burden. In the oil and gas industry, JVs are usually unincorporated, which means that they do not have a distinct legal personality and therefore cannot be taxed, sued or sue in their own name.[2]. The JOA governs the relationship between the parties, including budget approval and supervision, crude oil lifting and sale in proportion to equity, and funding by the partners. 2. The joint venture established pursuant to this Agreement shall not be considered to be a company, cf. Non-consent clauses are provisions included in JOAs to take into account the fact that although a proposal put forward to vote at the JOC/OPCOM might have received the requisite pass mark as spelt out in the JOA, a party might be so fundamentally opposed to the plan that it is unwise to require such a party to contribute (pro rata its participating interest in the venture) towards the funding of a project. Where the PL is divested to smaller companies, they are more likely to go bankrupt than major companies. 83 of 21 June 1985 concerning liable companies and limited liability partnerships (the Companies Act) Section 1-1 fourth paragraph. Only the Agip Energy and Natural Resources (AENR) operates the SC in Nigeria. Joint Operating Agreements (JOA) The JOA is the basic, standard agreement between the NNPC and the operators. Mobil Producing Nigeria Unlimited: A joint venture between NNPC (60 per cent) and Mobil (40 per cent) operates in shallow water off Akwa Ibom state in the southeastern delta and averaged production of 632,000 bpd in 1997, making it the second largest producer, as against 543,000 bpd in 1996. They directed employees of NPDC, a subsidiary of the NNPC, to indefinitely shut down their locations and all oil production facilities nationwide on 20 May 2015 in a bid to force the minister and the federal government to reverse the transfer of operatorship of oil mining licences (OMLs) 42, 40 and 30. experienced companies that have decided to undertake a high risk or These owners then execute oil and gas leases to multiple lessees, who then own the associated leasehold estate in undivided fractional shares. The area was often very large. concessions, production sharing contracts (PSCs) and JOAs; the JOA’s challenges, benefits and burdens; and. This is important in order to prevent unnecessary interference with the contract by the Minister of Petroleum. The intention of government then was to attract more investments than that already made. It said that the agreement covered Shell's 30 per cent interest in oil mining leases (OMLs) 4, 38 and 41, covering approximately 2,650 square kilometres in the north-western Niger Delta. Article 2.4.2[13] provides: ‘In the event that the operator commits any material breach of, or fails to observe or perform, any material obligation on its part contained in this agreement the operator may also be removed by any of the non-operators holding participating interest of at least 60%, giving notice in writing to the operator.’, Article 2.2.1[14] vests significant authority in the operator on how joint operations should be consulted. However, the operator is exonerated except for ‘gross negligence or willful misconduct’. Information gathered that the revocation of the operating licence of Shell by the president was in line with the Joint Operating Agreement (JOA) signed by the joint venture partners. Fax: +44 (0)20 7842 0091, Public and Professional Interest Division, Anti-Corruption Strategy for the Legal Profession, International Human Rights Fact-Finding Guidelines. It is different from the MOU. The JOA allowed the NNPC to be able to own certain interest percentages in the operations of licences that were in existence prior to the 1969 Petroleum Act. Participation Agreement (PA) and the Joint Operating Agreement (JOA).18 Sometimes, a Memorandum of Understanding (MOU) is entered between the Government (through NNPC, NPDC or the Ministry of Petroleum) and its co-venturers.19 3.1. Article 2.2.1 of the Nigerian JOA provides that ‘The operator shall conduct all joint operations with utmost good faith and in a good and workmanlike manner in accordance with good industry practice and the applicable regulations shall apply to all operations hereunder.’[12] Therefore, the operator is obligated to conduct the operations in ‘a good and workmanlike manner’. Since most major decisions involving undertaking a new operation, or terminating an existing one, are subject to other express agreement provisions, the JOA has the effect of giving the operator control over how operations are to be conducted on a day-to-day basis once approved, but not the ability, as a general rule, to determine which operations should be undertaken at the joint expense of the parties. rofit Oil: The balance after deduction of Tax Oil and Cost Oil, which is, o be shared between the NNPC and the contractor in an agreed. According to an NNPC report, total export crude oil and gas receipt for August 2015 to July 2016 stood at $3.21 billion of which $3.16 billion was transferred to joint venture cash call. [16] While parties to a JOA would ordinarily hope that all proposals put forward to JOC/OPCOM enjoy unanimous support (which will more likely lead to faster response from the parties in meeting cash calls), this is not always the case. [7] M M Olisa, Nigerian Petroleum Law and Practice (Jonia Ventures Limited 1997), p 74. [8] Therefore, the JOA is a contract between two or more parties. opt for and carry on sole risk operations. The remainder is then shared between the national oil company (NOC) of the oil-producing country and the company in a predetermined proportion. T… These are legal arrangements in which crude oil is shared by the parties in prearranged proportions. The agreement calls for the development of the lease or the premises by one of the parties to the agreement, who is designated as operator or unit operator for the joint account. Typically, the fee oil and gas estate is owned in several undivided fractional shares. The right to operate should be statutory and the Petroleum Act/Regulation should be amended accordingly. While it contains the basic understanding on the joint Venture, the MOU is a response to the specifics of fiscal incentives. The Participation Agreement sets out the level of participation of each. It is also an arrangement whereby the oil company receives the exclusive right to explore for petroleum and, if petroleum is discovered, to produce, market and transport it. ‘Operation’ involves designating one of the licensees as operator, who shall be responsible for conducting the day-to-day operations subject to the supervision of the JOC. e Technical Cost (TC) of operations is not more than the notional, ar year, a company's Capital Investment Cost (T2), ceeds $2.00/ bbl on average, the minimum guaranteed notional. The ‘institutional link’ between the operator and the non-operator is the Joint Operating Committee (JOC/OPCOM) on which all the parties to the JOA sit.[10]. In most countries, the state claims title to the hydrocarbons within its territory. The other partners in this JV are Shell Petroleum Development Company (30%), NNPC (55%,) and Total E&P Nigeria (10%). In other cases, the landowner may own the title. The paper examines the Joint Operating Agreement (JOA) with a view to ascertaining the purposes of sole risk and non-consent clauses in JOA and their incompatibility or otherwise with the joint objectives of the agreement. [6] Jimena Marvan, ‘The changing shape of a Joint Venture/Partnership Agreement and how you can effectively prepare for its evolving structure within your terms: A Case Study from Mexico’ accessed 14 May 2013. A modern concession is similar to the traditional concession in many ways. The development of these contractual agreements is a reflection of the readiness of the Nigerian government to respond to trends in he global oil and gas industry as well as tackle inherent problems emanating in old arrangements. The Petroleum Act should be amended to enable federal government advice parties to the existing JOA to come up with an incorporated joint venture (IJV) arrangement similar to the Nigerian Liquified Natural Gas (NLNG) Model, especially JOAs grappling with the issue of default in cash calls. (i) the right of the Federal Government to take natural gas produced with crude oil by the licensee or lessee free of cost at a flare or at an agreed cost and without payment of royalty; (ii) the obligation of the licensee or lessee to obtain the approval of the Federal Government as to the price at which natural gas produced by the licensee or lessee (and not taken by the Federal Government) is sold; and, (iii) a requirement for the payment by the licensee or lessee of royalty on natural gas produced and sold.’. Cost Oil: To reimburse the contractor for capital investments and operating costs. This was an agreement whereby the oil company received the exclusive right to explore for petroleum and, if petroleum was discovered, to produce, market and transport the oil and gas. Joint Operating Agreements (JOAs) In 1971, the first JOA was executed in Nigeria. Also, the SC covers a fixed period of five years and should the efforts results in no commercial discovery, the contract automatically terminates. This broad general grant of authority is also subject to the further limitation that such operations shall be conducted ‘as permitted and required by, and within the limits of this agreement’. The operator is the party that implements the collective will of the JV and is responsible for the day-to-day management of the operations. The operations can be handled by fewer employees and equipment thereby promoting greater efficiency. the joint operating agreement • a joint operating agreement (joa) is usually entered into after period of negotiation among the participants. For instance, the PSC is a responsible for some of the fears expressed over the JV more so as the nation was opening the Frontier areas such as the Inland basins and Deep/ Ultra Deep Waters.​. As an incentive for the risk taken, the contractor has the first option to purchase certain fixed quantity of crude oil produced from the SC area. This step is expected to ensure amity in the region and thereby offers a positive response to the problems which had often disrupted industry operations in the area.​. SPDC is the operator of this JV. Back to Oil and Gas Law Committee publications, Usenu Inifomet[1] The declaration of PI is one of the essential provisions of the JOA. ne of the partners is designated the operator, he NNPC reserves the right to become an operator. The right to operate should be vested in the federal government, that is the NNPC, for JVs that are not incorporated. The JOA is indeed one of the most important agreements in the development of oil and gas resources. There are two classes of party to a JOA: the operator and the non-operators. The whole or any part of the re-entry penalty shall be paid in cash in the currency in which the sole risk costs have been incurred or in kind or both as may be mutually agreed by the parties. Recently, consent was given by the minister on transfer of operatorship to NECONDE in respect of the JOA between the Nigerian Petroleum Development Company (NPDC) and Neconde Energy. charge interest on the borrowed funds in respect of unpaid amounts, as authorised under the accounting procedure; require a ‘contribution’ from the remaining non-operators. An operator may be removed only for ‘good cause’ by the affirmative vote of a majority interest (based on ownership) of non-operators, after excluding the voting interest of the operator. The transfer of operatorship from NPDC to NECONDE led the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and the National Union of Petroleum and Natural Gas Workers (NUPENG) to embark on a strike action. When oil is discovered in commercial quantities, the company is entitled to recoup its investments from the crude oil produced from the contract area. The Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari says the corporation has no secret accounts that … These multi-national Exploration & Production companies are operating predominantly in the on-shore Niger Delta, coastal offshore areas and lately in the deepwaters. This review should address all the issues/challenges in the JOA, ensuring a synergy between the provisions of the amended petroleum laws and the JOA. In line wit h the provisions of the joint operating. • can be: co-lessees of pooled mineral interests. Under the wording of the JOA, the operator appears to have tremendous control, since they are given the authority to ‘conduct and direct and have full control of all operations on the contract area’. NNPC could assign their right to operate to any of the parties to the JOA and also take over operatorship when the need arises. They were in respect of very large areas of land of the host country. [21] P Roberts, ‘Fault-lines in the Joint Operating Agreement: Forfeiture’ (2008) 274I.E.L.R. It has been used for a long time in many parts of the world to transfer interests in land and resources from one party to the other. The area of coverage has also been reduced. The operator will issue periodic cash calls. Yet, the MOU contained inherent mechanism for review in a way that both parties (NNPC and its Joint Venture partners) are left satisfied even when the dynamics of the economy such as inflation and exchange rates set in. The Nigerian National Petroleum Corporation has signed a novation agreement with Nigerian Agip Oil Company on Oil Mining lease 60,61,62 and 63. The company is usually given rights only in respect of crude oil and sometimes natural gas. This arrangement preserves the Contractual framework within which the Nigerian National Petroleum Corporation on behalf of the Nigerian government and the Multinational oil companies conduct Petroleum Operations in Nigeria. [23] The strike was called off on 24 May 2015. ost is recoverable with crude oil in the event of commercial find, with. Currently, Statoil, Snepco, Esso, Elf, Nigerian Agip Exploration Limited, Addax, Conoco and Petrobas, Star Deep Water, Chevron, Oranto Philips are operating the PSC in the country. The Nigeria government has always had anticipate the global oil and gas industry by ensuring a dynamic approach to drawing up rules and fiscal regimes which make the industry one of the most competitive and investor friendly throughout the world. Therefore, the JOA will need to provide a swift and effective sanction in circumstances of default.[21]. The most important duty of all parties to a JOA is to provide funds when they are requested under a cash call. Generally, the state establishes the commercial, legal and fiscal framework within which the exploitation of the hydrocarbons takes place. Fifty per cent of future JOAs should be IJVs, similar to the NLNG model. Agreement concerning petroleum activities incl attachments: Companies being awarded a production licence are obliged to enter into an Agreement concerning petroleum activities. The PSC arrangement governs the understanding between the NNPC and all new participants in the new inland deep & ultra deep-water acreages. It is now called by various names, such as licence or lease, but it is still the most widely used type of agreement. Section 35 of the Petroleum Act[3] provides for government participation in the oil and gas industry. However, this has required the Minister of Petroleum to have undue interference with the contract. The rights of operator removal are subject to stringent restrictions. THE TERM: NNPC Shall mean Nigerian National Petroleum Corporation API Shall … The JOA can also be defined as the private agreement which 'splits' the joint and several liabilities imposed by the terms of the licence (as awarded by the relevant state) and regulates the relationship, obligations and rights between the JV partners. In Nigeria, oil and gas exploration and production contracts could be in the form of concessions (now abolished), the JOA, a service contract (SC) or a production sharing contract (PSC). Article 2.2.1 provides: ‘The operator shall conduct all joint operations with utmost good faith and in a good and workmanlike manner in accordance with good industry practice and the applicable regulations shall apply to all operations hereunder.’, ‘The operator or its affiliate shall not be liable, beyond such liability accruing to its participating interest, for any loss or damage which results from joint operations unless such loss or damage results from gross negligence, and or wilful misconduct on the part of its directors or supervisory staff, provided, that under no circumstances shall the operator or its affiliates be liable to non-operator for reservoir damage or pollution or for any consequential losses or damages whatsoever or howsoever occurring including, but not limited to, lost production or lost profits. Some of the highlights of the MOU are: To encourage unit cost efficiency, a tax inversion rate of 35% shall, ompany in its equity crude and a minimum of $1.25/ bbl after tax. 4th Floor, 10 St Bride Street The JOA provide a set of rules for the conduct of operations under the PL. Nigerian Petroleum Development Company, Benin City There are four different types of Petroleum Arrangements operating in the Nigerian Oil and Gas Industry. It sets the guidelines/modalities for running the operations. The Production Sharing Contract (PSC) was widely introduced in 1993 to address some of the issues faced by the Joint Operating Agreement (JOA) and also to provide a suitable agreement structure for encouraging foreign investment in offshore acreage. This article will consider: Across the world, the activities of exploration, development, production and marketing of oil and gas, and their associated products, are conducted within the framework of host government laws and commercial contracts. This contract enables government to participate[22] in the petroleum industry in the form of a JV with other companies. Government realizes that investment can only thrive in a peaceful atmosphere. investors who are participating in a promoted prospect for the first time. It will address issues including the funding project accounting, voting procedure and default mechanisms should a partner fail to act in accordance with the JOA and not meet their financing commitments. Sole risk clauses, on the other hand, take care of situations where a party to the JOA who is strongly in favour of a proposal lacks the requisite support of his other co-venturers to achieve the necessary pass mark for the proposed project to proceed as a joint one, but still wishes to execute the project alone. One major difference between the SC and PSC is that SC covers only the OPL, the PSC may span two or more OPLs at a time. The agreement consists of a main part – Special provisions – and two attachments; Attachment A – Joint Operating Agreement and Attachment B – Accounting Agreement. It is on the premise of the above section 35 of the Petroleum Act[4] that the JOA is executed between the federal government, represented by NNPC, and licensees/lessees. These clauses typically permit some members of the group to proceed with certain types of work without the dissenters. on the NNPC Crude which it lifts under the MOU. For the National Petroleum Investment Management Services (NAPIMS), which executes joint operations and other exploration and production activities for NNPC and oversees the federation’s interest in the joint operating agreements in 2017, total revenue stood …

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