Minister’s consent: Nigeria’s albatross in oil and gas deals?

Despite contributing about 90 percent to government’s revenue, the oil and gas sector barely add more than 10 percent to the nation’s Gross Domestic Product (GDP). To stem this drift, government over the years embarked on various strategies to help domesticate the huge earnings from the sector through growing of capacities.

 Marginal fields programme was meant to develop the capacity for Nigerian operators in the oil and gas sector, where dormant fields within the portfolios of international oil companies (IOCs) were auctioned to indigenous Nigerian companies. This was followed by the enactment of the Nigerian Oil and Gas Industry Content Development Act aimed at promoting greater participation in the sector by Nigerians.

 There is also a growing trend of asset divestment and acquisition of oil and gas assets in the Nigerian industry. Over the past few years, some IOCs have embarked on a strategy of refocusing their asset portfolios, with the resultant effect that their participating interests in a number of onshore assets are being snapped up by indigenous exploration and production companies with majority Nigerian interests.

 However, the challenge in some of the oil and gas assets divestments and acquisitions remain securing the “minister’s consent”. According to industry players, the process of obtaining ministerial consent under the Petroleum Act is generally tedious and time consuming.

According to paragraph 14 of schedule 1 of the Petroleum Act, the prior consent of the Minister of Petroleum Resources (the minister) is required for any assignment or transfer of a licence, lease or any associated right, power or interest. The Petroleum Act provides that the holder of an oil prospecting lease or an Oil Mining Lease (OML) shall not assign his licence or lease, or any right, power or interest therein without the prior consent of the Minister for Petroleum Resources. In addition to this, the Petroleum (Drilling and Production) Regulations (the Regulations) provide the procedure to be adopted for the application to the minister for the assignment or takeover of an oil prospecting licence (OPL) or an OML or of an interest in either.

 In practice, this provision is generally interpreted as requiring the consent of the minister for the transfer of the legal title to an OPL and an OML to another party by way of security. Hence, ministerial consent will be required for the creation of a mortgage of an OPL or an OML.

 Such mortgages of OPLs and OMLs are registered with the Department of Petroleum Resources (DPR). On the other hand, the creation of a charge over an OPL or OML does not require prior ministerial consent.

Ayodele Oni, an energy law and policy expert and senior associate in top law firm, Banwo & Ighodalo says it is factually the case that the consent of the Minister of Petroleum Resources is required before the assignment of a participating interest or interest generally in oil mining leases and oil prospecting licences can be completed, adding that “Recently, due to a recent Federal High Court decision, share transfer transactions would also in certain cases, be caught by this requirement.”

 “Many investors looking to acquire interest in oil and gas exploration and production companies have, however, been complaining about the delay to closing their transactions, occasioned by this requirement. In my view, it is a good thing that ministerial consent is required prior to completing certain transactions in the very important industry. However, it is important to have clearer rules beyond the Petroleum Act, as to timing for the grant of consent because of the challenge delays which could be upwards of two years can cause to oil and gas transactions.  Businessmen would typically say that time is money,” he said.

 It would be recalled that a 2012 Federal High Court decision in the case between Moni Pulo vs Brass & 7 Ors confirmed that a corporate restructure by an OPL or OML holder will have the effect of a transfer or takeover and will require the minister’s consent irrespective of the quantum of shares being transferred.

 Moni Pulo Limited and Brass Exploration Unlimited (Brass) were both counterparties to a joint operating agreement on OML 114. By a letter dated 27th January, 2004, the minister approved Moni Pulo’s application to assign a 40 percent undivided participating interest in OML 114 to the Petroleum Oil and Gas Corporation of South Africa (Pty) Ltd (PetroSA).

 In February 2011, all of Brass’ shares – as then owned by the PetroSA group – were transferred to Camac Energy Services Ltd and Camac Energy Resources Ltd, both owned by Camac International Corporation. As a result of the share transfer, the Camac group became Brass’ parent company. The minister’s consent was neither properly sought nor obtained for this subsequent transfer to the Camac group.

 Dissatisfied with the manner of the transfer and unwilling to partner with the Camac group, Moni Pulo approached the Federal High Court of Nigeria to seek a determination of whether the Minister’s consent was required for the valid transfer of Brass’ 40 percent participating interest in OML 114 by way of a transfer of 100 percent of the shares of Brass from the PetroSA group to the Camac group.

 Brass, PetroSA, PetroSA Nigeria, PetroSA Brass, Camac Energy Services, Camac Energy Resources, Camac International Corporation and the Minister were sued as the first to eighth defendants respectively.

The Federal High Court held that the minister’s consent was required before the Camac group could exercise any right or interest in Brass’ ownership/control of a 40 percent participating interest in OML 114, irrespective of the share transfer concluded between the PetroSA group and Camac group. The court thereby restrained all of the Camac group and their representatives from exercising any rights in or taking any benefits from OML 114 until the minister’s consent to the change in corporate control of Brass.

Oando Energy Resources, the upstream business of Oando Plc, is currently awaiting the minister’s consent to close the acquisition of ConocoPhillips’ Nigerian assets. OER had in February said it had completed all the financials for the closure of the acquisition and awaiting the ministerial consent. In what is the latest extension, the company recently said it had extended the completion date for the acquisition from April 30, 2014 to June 30, 2014 to enable the companies involved to satisfy all closing conditions, including the anticipated consent of the minister of petroleum resources.

FRANK UZUEGBUNAM & FEMI ASU