Petroleum licensing conversion.ppt
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The document discusses Nigeria's Petroleum Industry Act (PIA) 2021 and its implications for operators in the oil and gas sector. Some key points: - The PIA establishes a new licensing and lease framework that converts existing Oil Prospecting Licenses (OPLs) and Oil Mining Leases (OMLs) to the new system of Petroleum Prospecting Licenses (PPLs) and Petroleum Mining Leases (PMLs). - License and lease holders have an option to voluntarily convert to the new PIA terms or remain under the existing terms, but must decide before the 18-month conversion window closes. Voluntary conversion provides access to new fiscal terms but requires relinquishing acre
Petroleum licensing conversion.ppt
- 1. Petroleum Industry Act 2021: Petroleum Licence Conversion and implications for operators in the Oil and Gas Sector Kayode Adebiyi, Sept 2023
- 2. Our Roadmap Overview of the oil and Gas industry Conversion of marginal fields Conversion guidelines Relinquish ment Impact and success factors s
- 3. Crude Oil Characterization Hidden underground High risk and uncertainty Unlimited potential as a raw material The world runs on oil. Liquid, easy to transport and convert Preferred energy source Crude Oil Characterization Main characteristics of crude oil and gas.
- 4. Value Chain
- 6. E&P cycle ATA Appraisal drilling Field Development Plan Abandonment Acreage acquisition Basin analysis Prospect generation Economic analysis Wildcat Drilling Field development Facilities design Facilities construction Facilities installation Operations Reservoir Mgt NIGERIA QI T CAMEROU N Exploration and Production Life Cycle Economic analysis QI L LAG O S 6
- 7. 7 The entire value chain of the oil and gas sector is known as the petroleum industry. The industry is divided into three major sectors: Midstream Upstream Finding, lifting, and processing crude oil & gas from subsurface into surface and ready for transportation. Also known as Exploration and Production (E&P). Downstream Transportation and storage of crude oil and natural gas from E&P plant for further processing by pipeline, railway, road, or tanker. Further processing of crude oil and natural gas into useful final product or raw material for other industries. Overview of Oil and Gas – Industry Sectors
- 8. 8 Pre-drilling Exploration Leasehold/ License Acquisition Exploratory and Development Drilling Production Abandonment The Upstream Sector - The Upstream Life Cycle
- 9. 9 • Acquire data • Submit proposals 1 Pre-drilling Exploration • Preparatory work • Seismic and drilling activities • Evaluate results and appraise economics • Submit development plans / abandon / suspend • Evaluate results and appraise economics • Submit development plans / abandon / suspend 3 Exploratory and Development Drilling • Evaluate results and appraise economics • Submit development plans / abandon / suspend 4 Production • Negotiate contracts • Pay signing bonuses 2 Leasehold/ License Acquisition • End of economic life of the well • Plugging of oil well • Removal of facilities • Restoration of site 5 Abandonment The Upstream Sector - The Upstream Life Cycle
- 13. 13 • This involves applying for block(s) for exploration under an Oil Exploration License (OEL) or Oil Prospecting License (OPL). Upon discovery of commercial quantities of hydrocarbon, the licensee is eligible to apply for conversion of the OEL/OPL to an Oil Mining Lease (OML). PEL PPL OML/PML • Grants a non-exclusive rights to carry out petroleum exploration operations within the area provided for in the Iicence. • It may cover an area that includes PPL or PML, provided that the holders of such licences or leases, will have no obligation to purchase the results of any survey conducted under the PEL • Grants an exclusive right to drill exploration and appraisal wells and non-exclusive right to carry out petroleum exploration operations within the area provided for in the licence. • the area provided for in a PPL will not exceed: 350 sqkm for any onshore or shallow water acreages; 1,000 sqkm for any deep offshore acreages; and 1, 500 sqkm for any frontier acreages • Granted to win, work, carry away and dispose of crude oil, condensates and natural gas on an exclusive basis. • drill exploration and appraisal wells and carry out the related test production on an exclusive basis • carry out petroleum exploration operations on a non-exclusive basis. The Upstream Sector- Obtaining a Right to Mine S/N PIA Regime PPTA Regime 1 Petroleum Exploration Licence (PEL) Oil Exploration Licence (OEL) 2 Petroleum Prospecting Licence (PPL) Oil Prospecting Licence (OPL) 3 Petroleum Mining Lease (PML) Oil Mining Lease (OML)
- 14. ❖ May cover petroleum prospecting license (PPL) and petroleum mining lease (PML). ❖ Onshore and shallow water acreages - Initial period of 3 years, renewable by 3 years. Deep offshore and frontier acreages - Initial period of 5 years, renewable by 5 years. Petroleum Exploration License (PEL) 14
- 15. ❖ Term of the PPL has been increased to: ❖ Onshore and shallow water acreages - Initial period of 3 years, renewable by 3 years. Deep offshore and frontier acreages - Initial period of 5 years, renewable by 5 years. ❖ The area in a petroleum prospecting licence has a maximum of – (a)350 square kilometres for onshore or shallow water acreages; (b)1,000 square kilometres for deep offshore acreages; and (c)1,500 square kilometres for frontier acreages. Petroleum Prospecting License (PEL) 15
- 16. Maximum period of 20 years; including the development period. Where development period is not stated, onshore lease will use 5 years. Lease in shallow water, deep offshore or frontier acreage will use 7 years. Conversion from oil prospecting license to PPL is permitted. Petroleum Mining Lease (PML) © 2021 16
- 17. Conversion of licenses and leases All existing OPLs and OMLs will be automatically converted to PPLs and PMLs, upon their expiration. However, the PIA allows holders of OPLs and OMLs under the current regime to voluntarily convert them to PPLs or PMLs, respectively. The PIA provides some condition precedents which are to be contained in the Conversion Contracts. One such condition, is a stipulation that all on-going arbitration and court cases will be terminated.
- 18. Conversion of licenses and leases This conversion process, which had an 18-month window that closed in February 2023, grants them access t the fiscal terms of the new regime. To facilitate this transition, the Commission introduced the Conversion and Renewal (Oil Prospecting License and Oil Mining Leases) Regulations. These regulations outline the application procedure for OPL and OML conversion. They also extend to the conversion of producing marginal fields into PML, which concluded on 5 February 2023, as well as the conversion of non-producing or developing marginal fields into PPL. Key considerations for upstream operators at this time is determining whether to exercise the right into opt into the PIA fiscal framework and the downsizing of the license or lease acreages within their portfolio. The Commission is required to develop a model license and model lease which shall be incorporated into contracts bef such can be approved, and to include a carried interest provision giving NNPC Limited the right to participate up to 60% a contract.
- 19. Obligations for an operator to convert • Separation of upstream, midstream and downstream operations; • Incorporation of Host Community Development Trust; • Establishment of Decommissioning and Abandonment Plan; • Preparation and submission of Environmental Management Plan; • Compliance with domestic crude oil and gas supply obligations; • Submission of a yearly summary of royalties, fee, taxes, profit oil shares and other payments to Government; • Submission of annual tax returns and payment of final instalment of hydrocarbon tax.
- 20. Additional requirements • In addition to the supporting documentation for the application, the applicant is specifically required to provide the following with respect to the renewal of an OML: • evidence of payment of the applicable rent, • the applicable work commitment guarantee, and • the applicable parent company guarantee.5
- 21. Other provisions of the Conversion Regulations • detailed procedure in respect of the voluntary conversion process for an OPL and OML where holders of an OPL or OML elect to convert to the PIA regime; • the compulsory conversion process for a marginal field; • contributions to funds created under the PIA upon conversion; • the requirement for the sign-off of the Nigerian National Petroleum Company Limited for conversion; and • provisions relating to the model conversion contract to be issued by the Commission.
- 22. Voluntary Conversion The Upstream Sector The holder of an existing OPL or OML may enter into a voluntary conversion contract under the PIA. Where the licensee or lessee complies with the provisions of the PIA, such licensee or lessee will benefit from the fiscal provisions under the PIA. However, it should be noted that the conversion contract will contain a termination clause of all outstanding arbitration and court cases related to the respective OPL or OML and any stabilization provisions or guarantees provided by NNPC in respect of such OML or OPL will be null and void. Furthermore, the incentive provisions contained in sections 11 and 12 of the PPTA do not apply (that is, the incentives for the utilization of associated and non-associated gas). Conversion will also result in relinquishment of a portion of the existing acreage
- 23. Voluntary Conversion The Upstream Sector The date of a conversion contract is the earlier of: 18 months from the effective date of the PIA the expiration date of the OML or date of conversion of the OPL to and OML Where the holder of an existing OPL or OML does not enter into a conversion contract prior to the conversion date, the terms and conditions applicable to the OPL or OML prior to the effective date of the PIA will continue to apply to the OPL or OML, subject to some provisions in the PIA.
- 24. Convert-No convert • Key considerations for upstream operators at this time in determining whether to exercise the right to opt into the PIA fiscal framework and the downsizing of the license or lease acreages within their portfolio. • There are bound to be trade-offs in deciding whether to opt in to the PIA regime • Upstream businesses must at this time evaluate the best course of action to take in respect of each license or lease they currently operate; • Most likely based on the inherent peculiarities of the geological formations within those assets and the best value that can be derived from exploiting those assets under the erstwhile regime or the new fiscal regime offered in the PIA. • Note that the key difference between the outgoing (outgone?) and the new concessions are the sizes. There is a significant reduction in the overall surface area granted and retained under PPLs and PMLs as against the OPLs and OMLs.
- 25. PIA impact assessments • Project economics, financial and commercial realities, other organizational priorities. • CBA of converting before or after the mandatory timeline based on the fiscal provisions; and • Resulting effective tax rate from the adoption of the PIA vis-à-vis the PPTA for selected forecast period(s). • It is pertinent for related parties operating in the Nigerian oil and gas industry to review their transfer pricing compliance and Service Level Agreements so as to avoid adjustment of transactions between related parties and intra-group transactions such as: Pricing related party transactions Compliance with transfer pricing regulations Dealing with transfer pricing audits Designing and implementing effective SLAs
- 26. Service Level Agreement (SLAs). What will change? 26 # SLA Section Sub-Sections Details 1 Statement of Intent • Purpose of Service Level Agreement (SLA) • Duration: Start and End date of SLA • Functions and Representatives 2 Scope • Definition of services in scope • Definition of products in scope 3 Metrics and Performance Monitoring • List of metrics and targets, purpose • Metrics definition and calculation methodology • Auditability and controls methods 4 Planning and Governance • Roles & Responsibilities • SLA review frequency • SLA change process • SLA resources performance management 5 Deviations from Standard Processes and SLA • Deviations that are allowed versus the standard business process that should be applied • Process to cover changes in requirements 6 Escalation and Issue Resolution • Processes for resolving performance issues and the processes for escalating unresolved issues 7 Signatures • Required signatures for the SLA. The SLA must be signed by the appropriate officers of the SLA to go into effect
- 27. Boom to Marginal Field Operators • The Act makes provisions for marginal fields operators to receive separate forms of license. • Thus resolving a longstanding lacuna about the legal status of marginal fields as well as the potential consequences from the expiry of the OML from which the marginal fields were carved out. • MFOs can now enjoy of the PIA terms like HT rate of 15%, CIT rate at 30% and royalty rates ranging from 5% to 15% depending on the level of crude oil production per day.
- 28. Conversion and Marginal Fields The Upstream Sector The PIA defines marginal field to mean “a field or discovery which has been declared a marginal field prior to 1st January 2021 or which has been lying fallow without activity for seven years after its discovery prior to the effective date of the PIA”. . Section 94 of the PIA provides that a producing marginal field must convert to a PML within 18 months from the effective date of the PIA. Furthermore, a discovery declared as a marginal field prior to 1st January 2021 and is not producing will be converted to a PPL and will benefit from the terms for new acreage provided under the PIA. However, no new marginal fields will be declared under the PIA.
- 29. ● Marginal field, prior to 1st January, 2021, that is not producing will convert to PPL. A producing field will continue under the old royalty rates and farm-out arrangements but convert into a PPL within 18 months from the effective date. Requirements ● Field development plan ● Environmental management plan: Within 1 year from effective date or 6 months after the grant of license. ● Natural gas flare elimination and monetization plan: Within 12 months from effective date. ● Transfer of rights in a license or permit is disallowed except withprior approval Marginal fields © 2021 29
- 30. Elements of Administration: Drill or Drop Concept With respect to onshore and shallow water The current work and relinquishment requirements under OPLs and OMLs are relatively “lax”. Most countries have tougher requirements. It is common to apply a “drill or drop” system, which means that companies either carry out exploratory drilling and appraisal drilling or drop (relinquish) the acreage. The PIA implements this more rigorous system in order to ensure an optimal work program on the acreage that is being granted Drill or Drop
- 32. Elements of Administration: Relinquishment … Deep Rights A Licensee may voluntarily relinquish acreage provided the Licensee has complied with all related obligations. Ten years after the granting of the PML, the Lessee shall relinquish: All areas not in production, and Formations deeper than the deepest producing formation (deep rights relinquishment) All relinquished areas shall vest with the Government and be managed by the Commission.
- 33. Re-designation of acreages • Other conditions are that the fiscal stabilization clauses, will not be grandfathered. • PML holders will need to designate their acreages into five broad classes: – parcels that merit an appraisal (for exploration); – parcels to make a declaration of commercial discovery, for which a field development plan is to be submitted; – parcels that have a significant gas discovery; – parcels which already have development programs underway; – parcels in which regular commercial production is occurring.
- 34. What is the target of any upstream oil and gas company? Is to find large amount of oil and gas? to make a profit ? Finding oil and gas not necessary ensures that you will make a profit, profit depend on commercial success OR Discussion – Impact of PIA
- 35. Does commercial success only means, find large amount of hydrocarbons? NO Commercial success simply depend finding large amount of hydrocarbons that can be produced economically.
- 36. 36 So how does PIA conversion impact? 1 Finding large amounts of oil and gas 2 Meeting commerciality criteria 3 Transparency and accuracy of information 4 Making profit 5 Sustainable development for the benefit of future generations
- 37. Kayode Adebiyi Managing Director HoneyRock Multiconsult Ltd I8B Bayo Ajayi Street Off Hakeem Balogun Street Marwa Brooks Estate Agidingbi – Ikeja Lagos 08033181225, 07064078211 hmlconsultancyltd@gmail.com
- 38. Profile of Mr Kayode Adebiyi Kayode Adebiyi holds an MBA from the University of Lagos and he is both a Fellow of the Institute of Chartered Accountants of Nigeria (ICAN) and Chartered Institute of Taxation of Nigeria (CITN). His working experience is rounded - spanning from the manufacturing industry to academics and Management Consulting. He rose to the position of Executive Consultant before joining NNPC in 1991 as a Senior Accountant. In NNPC, he worked in various SBUs - IDSL, CHQ. NAPIMS and NPDC where he acquired cognate experience in oil and gas accounting, taxation, managing Joint Ventures (JVs), Production Sharing Contracts (PSC) and Service Contracts (SC). With his vast exposure, extensive training, work attachment and self-development, he is an acclaimed subject matter expert in Oil and Gas Accounting and Taxation in the Nigerian Oil and Gas industry. He rose to the position of Executive Director, Shared Service in the Petroleum Products Marketing Company (a subsidiary of the Nigerian National Petroleum Corporation) before retiring from NNPC in March 2020 to start his financial and management consulting practice. He has authored three books, the most notable of which is "Petroleum Accounting and Taxation in Nigeria" which he co-authored with Dr. R. U. Uche, a former President of the Institute of Chartered Accountants of Nigeria. A notable conference speaker, he has presented papers to the most distinguished audiences in his professional domains. He has recently been appointed A Guest Lecturer in the Department of Accounting, Covenant University, Ota, Ogun State, Nigeria He is presently the Managing Director of HoneyRock Multiconsult Ltd, a financial and management consulting firm based in Lagos and Abuja, Nigeria. Mr. Adebiyi is a member of the Institute of Directors (IoD).
Editor's Notes
- #37: These principles are from the Chatham House Document. They are 5 guiding principles for good governance of the national petroleum sector. Like the Guidelines for Emerging Producers, the governance principles were driven and shaped by discussions between producers. These principles apply to producers at any stage of development of the resource. Clear goals = national vision. What role should energy play in this national vision? Clear goals for the NOC too. What is its mandate? How can it support the national agenda? Clear roles and responsibility Enablement is a key challenge Build capacity – technical skills to be able to monitor operators or handle own operations. But also means that NOC must be given the financial means to deliver on its mandate. (often not the case) Transparency – NOC must provide the government with clear accounts. Strong reporting is critical. Allows for accountability processes. Accountability also requires clear roles. If you don’t have clear delineation of which organisation does what, can’t hold to account.