Government Participation in private auction: Regulatory requirement or Bureaucratic Snare
Ever since the initial move by the UK BG Group to divest of some of its onshore assets in Nigeria, many other International Oil Companies (IOCs) have joined the bandwagon. The divestments have in the last few years become an important avenue for indigenous exploration and production companies to acquire oil and gas assets in a country where licensing rounds/government auction of oil blocks are not regular.
The IOCs have conducted the divestments via private auction with many of the divestments approved by the Regulator. Governmental consents have typically been sought after the execution of transaction documentation between the IOC and the prospective assignee. Thus, consent to the divestment is in practice usually processed at the end of the transaction. At the end of last year, the Department of Petroleum Resources (DPR) released a Directive to all Exploration and Production Companies (the Directive) specifying in unequivocal terms that prior consent of the Minister must be obtained before an assignment pertaining to any right, power or interest held in an OPL or an OML is conducted. The Directive highlights and emphasizes the provisions of Paragraph 16 of the First Schedule of the Petroleum Act on the conditions under which consent shall be granted to an assignment. The Directive also expresses the Federal Government’s displeasure in the mode in which joint venture partners have been divesting of their interest in joint venture arrangements with the NNPC. Specifically, the Directive provides that the NNPC joint venture partners have over a long period of time contravened the provisions relating to seeking prior consent of the Minister and indicated that application for consent after execution of documentation impacted on discharging its function as espoused and contained under the Petroleum Act:
The Assignee must fulfil the following conditions before the Minister would grant consent to the assignment:-
(a)Be of good reputation, or is a member of a group of companies of good reputation, or is owned by a company or companies of good reputation ;
(b)Have sufficient technical knowledge, experience and financial resources to carry out operations under lease or licence being assigned ; and
(c)In all other respects be acceptable to the Federal Government;
In addition, the Directive restated another provision relating to the Minister discretion’s to impose a fee or premium or both before granting consent to an assignment.
Henceforth, all divesting companies are required to submit information on all prequalified bidders for assets to be divested for a prior evaluation and due diligence to the DPR. The DPR would then evaluate the technical and financial competence of the prequalified companies and confirm that such companies are acceptable to the Federal Government of Nigeria.
Commentary
The Directive would no doubt have a profound effect on divestments in the oil and gas industry in Nigeria. The Directive which is a restatement of the extant provisions of the law creates more questions than solutions. Industry stakeholders have questioned the rationale for requesting the submission of information on prequalified bidders to DPR as this may make the process for obtaining an assignment more cumbersome. The questions to be asked would then be that upon conducting an audit on the prequalified companies, would the process for granting consent to an assignment by the Minister of Petroleum Resources to a successful bidder be significantly reduced? Is there any guarantee that the process for evaluating the prequalified bidders would be transparent and not be liable to abuse?
In addition, it would appear that the phrase “acceptable to the Federal Government” as used in Paragraph 16(c) of the Petroleum Act may be ambiguous and open ended as there is no indication on what would amount to being acceptable to the Federal Government. The import of the provision is that in addition to Paragraph 16(a) and (b) of the Petroleum Act, there would be other measures which the Federal Government would consider in deciding whether to give consent to an assignment of an oil and gas asset. This may pose some challenges with regards to transparency and as such the DPR may as a proactive step, consider going a step further by releasing a procedure which would detail the timeline, criteria and consideration towards approving a divestment with clear parameters of the requirements expected of a proposed assignee.
Nevertheless, although it is clear that the Directive is within the provisions of the law, it would seem that the Directive even though well intentioned may be inchoate. A further directive or guideline may need to be issued to clarify the procedure stated above and provide certainty on the appropriate criteria and consideration that a proposed assignee must possess. Lastly, even though the Minister has a clear discretion on what is acceptable to the Federal Government; such discretion must be exercised judiciously.