Nigeria Petroleum Industry Reforms:

Petroleum Industry Administration Bill

NASS Petroleum Industry Reform Technical Team

July, 2018
Content..
 Global Perspectives
 Why Petroleum Administration Reforms
 Principles of the Reform
 Goals of the Administration Reform
 Objectives of the Reform
 Scope of Petroleum Industry Administration
 Upstream issues
 Midstream issues
 Downstream issues
 Petroleum administration reform and value creation
 Implications of the reform on regulatory role
 Conclusion

DEPARTMENT OF PETROLEUM RESOURCES

Global perspective of Industry Developments

Production

Exploration

Capital
Investment

Reserve

Oil Demand continued to lag behind supply.

Oil price not dictated by demand/supply alone.
Bust and Boom: cyclical investment pattern. Tough Time for
Strong Production growth outside OPEC particularly USA. a REGULATOR!
Nigeria is a Price Taker!
A regulators Dilemma?
DEPARTMENT OF PETROLEUM RESOURCES 3
 Crisis in Midstream

Refining Gas processing

Capacity infrastructure Depot and gas
plants accident

Increase in Pipeline
Illegal Refining Vandalism
crude supply? Oil and Gas

Non-Bankable Non-competitive NGC’s Monopoly of Inadequate

Gas flare
Gas Sales oil and gas Gas transmission Transmission
on-going
Agreement handling tariffs pipeline infrastructure
DEPARTMENT OF PETROLEUM RESOURCES 4
 Looming Negative Upstream Indices

Reserves
High value
Replacement
Rate Onshore Production $$$
Price &
$$$Revenues Gas to Power
Costs Jobs

Squeeze of national economic capacity, and threat to

sustainable socio-economic development of the nation
DEPARTMENT OF PETROLEUM RESOURCES 5
 Downstream in Comatose

Growing
Growing
spate of
Truck accident Quality of
Illegal retail
outlets products? Anti-trust Dominance of
issues? fuel
importation

Strategic challenges

Regulatory National Strategic Distribution of Product

compliance Reserves storage tanks distribution

Non-market driven price determination for petroleum products creates

opportunity for welfare loss, rent seeking and distort incentive for fair
market development
DEPARTMENT OF PETROLEUM RESOURCES 6
Growing Regional Competition

COTE
D’IVOIRE
CAMEROON

1975 1985 1995

?
COTE
COTE D’IVOIRE
D’IVOIRE
CAMEROON
CAMEROON

2005 2015 2025

DEPARTMENT OF PETROLEUM RESOURCES 7

 Principles of the Administration Reform

 Enhance value creation and addition to stakeholders

 Optimize regulatory framework and reduce transaction cost
 Accountability and transparency in industry operations
 Sustainability of industry’s competitiveness
 Output based reward rather than effort oriented
 Elimination of barriers to entry
 Competition regulation and anti-trust issues
 Shared prosperity in host community engagement
 Environmental sustainability and safety excellence
 Competition and Anti-trust
 Simplicity and clarity of rules

DEPARTMENT OF PETROLEUM RESOURCES 8

 Goals of Administration Reforms
Government Investors

1. Encourage and promote investment

1. Balance sharing of risk and reward
2. Optimize its value addition to the economy
2. Maximize value from investment
from petroleum operations
3. Conduct safe operation with minimal
3. Create effective and efficient one regulatory
downtime
stop shop
4. Level playing field with same rules of the
4. Increase Nigerian content in the oil industry.
game applied across board
5. Accelerate linkage with other sectors of the
5. Clarity and simplicity of rules
economy
6. Enhance transparency & accountability 6. Stability and predictability of business

7. Ensure safe and environmentally friendly environment

operations 7. Transparency and accountability
8. Rebuild trust and public confidence on 8. Progressive, dynamic and efficient
community development front regulatory environment

DEPARTMENT OF PETROLEUM RESOURCES 9

 Objectives of the Administration Reform
 promote the exploration and exploitation of petroleum resources .
 promote the efficient, effective and sustainable development of the operation of the
Petroleum Industry.
 Encourage efficient, dynamic, progressive and independent regulatory environment
 promote the safe development and efficient use of midstream and downstream
infrastructures.
 Encourage and facilitate both local and foreign investment in the Petroleum Industry
 Promote transparency and accountability in the administration of petroleum resources
 Develop competitive markets for petroleum operations
 Promote safe and affordable access to Petroleum and Petroleum Products
 Create a conducive business environment for operations in the Petroleum Industry
 Promote the liberalization of the downstream Petroleum Industry
 Ensure protection of the environment and safety of lives and properties
 Promote effective intra and inter economic sectors linkage for value creation.
 Enhance indigenous participation in the industry operations

DEPARTMENT OF PETROLEUM RESOURCES 10

 Scope of the Administration bill
Upstream Midstream Downstream
 Ownership  Facility  Distribution and
 Acreage development and supply
Administration use  National Strategic
 Management of  Open access Reserves
Petroleum  Licensing  Licensing
Resources  Pricing and tariffing  Pricing and tariffing
 Government  Network code  Measurement
Participation Implementation  Transparency and
 Transparency and  Measurement Accountability
Accountability  Transparency and  Technical Issues
 Technical Safety Accountability  Environmental
 Environmental  Technical Safety issues
issues  Environmental  Occupational health
 Occupational health issues  Community
 Community  Occupational health empowerment
empowerment  Community issues  Nigerian content
 Nigerian content  Nigerian content  Cost benchmarking
 Cost benchmarking  Cost benchmarking  Competition and
 Competition
DEPARTMENT OF PETROLEUM RESOURCES anti-trust 11
Upstream Administration Issues
Acreage Petroleum Government
Management Management Participation

Type & mode Exploration &

Contract type
of licensing appraisal

Licensing Stage & point

Development
(competitive vs of
discretionary of oil and gas
participation
Size and
Production & Condition of
shape of
depletion participation
acreage

Relinquishment
Unitisation & Quantum of
commingling participation
Work
Conversion & Dispute
programme
extension resolution
obligation
Field
Surrender &
development
revocation
planning

Consent & Gas flare and

DEPARTMENT OF monetisation
assignment PETROLEUM RESOURCES 12
Upstream Administration Issues
Technical
Safety
Environment Health
Decommission
Process
ing & Occupational
safety Abandonment
Pre & post
Operational
Safety
impact Family
assessment
Produced
Risk
Assessment
water and Public
waste
Laboratory &
Audit &
Inspection
quality Ecosystem
assessment
Accident
Compensatio Dispute
reporting &
n resolution
investigation

Air quality &

emissions

Spills
DEPARTMENT OF PETROLEUM RESOURCES 13
Midstream Administration Issues

Facility Development
Open Access Licensing
& Use
• Oil processing • Tariffs • Scope
• Gas processing • Standards • Duration &
• Transportation • Incentives renewal
• Unitisation & • Licensing & types • Approving
cluster • Scope authority
• Third party • Dispute resolution • Three tier vs two
processing tier
• Open access • Obligations
• tariffs • penalties

DEPARTMENT OF PETROLEUM RESOURCES 14

Midstream Issues cont..
Pricing & Tariffing Measurement systems Gas Network code
Custody transfer Connection
Market oriented
point issues
Types of
Types of Pricing
measurement Operatorship
& tariffing
systems

Calibration and
Methodology carrier
integrity
Monitoring and Audits & Supplier Vs
reporting Inpection Distrbitor
Error limits and tariffing
Anti-trust
standards methods
Wholesale Vs Reporting
retail

DEPARTMENT OF PETROLEUM RESOURCES 15

Midstream Issues cont…
Technical safety Environment Health
Decom &
Process safety Occupational
Abandonment

Operational Pre & post

Impact Family
Safety
assessment
waste mgt and
Risk assessment Public
effluent discharge
Audit and Laboratory &
Ecosystem
Inspection quality assessment
Accident reporting Compensation & Dispute
& Investigation Right of way resolution
Air Quality and
Emissions
Oil and gas
spillage
DEPARTMENT OF PETROLEUM RESOURCES 16
Downstream Issues
Distribution Supply Strategic Reserves
Centralized Vs
What and scope What and scope
Decentralized

Medium and Medium and Operations

obligation obligation

Measurement Tranportation Availability limits

Utilization and
Pricing Anti-trust approving
authority
Anti-trust Standards location and
adminstration
Wholesale Vs Measurement
retail
Trucking & Trucking and
others others
DEPARTMENT OF PETROLEUM RESOURCES 17
Downstream Issues
Licensing Measurement Pricing & traffing
Market Vs
Distribution Integrity
Government
Type of
Supply measurement Transparency
systems

Audit and Monitoring and

Marketing
inspection reporting

Services Reporting and Wholesale Vs retail

monitoring

Anti-trust Standards Methodology

Wholesale Vs Measurement
retail Anti-trust

DEPARTMENT OF PETROLEUM RESOURCES 18

Downstream Issues cont…
Technical safety Environment Health
Decom &
Process safety Occupational
Abandonment

Operational Pre & post

Impact Family
Safety
assessment

Risk assessment Waste mgt and

Public
effluent discharge
Audit and Laboratory &
Ecosystem
Inspection quality assessment
Accident reporting Dispute
& Investigation Lubes recycling
resolution
Air Quality and
Emissions
Oil and gas
spillage
DEPARTMENT OF PETROLEUM RESOURCES 19
 Summary

DEPARTMENT OF PETROLEUM RESOURCES

Main Sections

 Part 1:- Preliminary

 Part 2:- Upstream Sector Licensing & Regulations
 Part 3:- Midstream & Downstream Sector Licensing
 Part 4:- Midstream & Downstream Gas Regulations
 Part 5:-Midstream & Downstream Liquids Regulations
 Part 6:-Dispute Resolution
 Part 7:-Competition Monitoring
 Part 8:- The Registry of the Commission
 Part 9:- Offences and Penalties
 Part 10:- Interpretation
 Part 11:- Short Title and Commencement
 Part 12:- Repeals, Consequential Amendments,
 Transitional & Savings Provisions

DEPARTMENT OF PETROLEUM RESOURCES

Upstream key issues – License award

Negotiated
awards limited
to strategic &
bilateral
considerations

Upstream
license
award
Transparent
bidding process

DEPARTMENT OF PETROLEUM RESOURCES

New Petroleum Licence Lifecycle

• One Petroleum Licence to run from Dawn to Dusk

• Established gates to move from exploration to production periods

DEPARTMENT OF PETROLEUM RESOURCES

Contract Sanctity

Contract
Sanctity

Size

Petroleum
Duration Act
• Duration
• Rent
Relinquishment
• Royalties
• Any term
which
Minister
thinks the
justice of
the term
requires its
retention
DEPARTMENT OF PETROLEUM RESOURCES
Significant Gas Discovery

More complex Arrangements FDP or

5 year
gas for Relinquish at
retention
development commerciality end of term

Significant Gas Discovery

DEPARTMENT OF PETROLEUM RESOURCES

Assignment or Transfer of Interests

Assignment
or transfer

• 50% of shares
Consent
• Control of board • Explicit
• Control of voting recognition of
creation of the rights to
• Holding company &
trustee
control a security create security
interest
arrangements

• Requirement to
give reasons for
refusals
• Default Approvals

DEPARTMENT OF PETROLEUM RESOURCES

Revocation of Licenses

assignment without consent;

Does not exhibit good oilfield

practice;

fails to pay fees, rents or

royalties when due;

Does not comply with applicable

laws, regulations and the
conditions of the license
Is controlled by a citizen of a country which
does not permit Nigerian citizens or
companies to hold and operate petroleum
concessions

Right of representation
granted

DEPARTMENT OF PETROLEUM RESOURCES

Dormant/Marginal Fields

New concept to
List to be
replace existing
Marginal Fields 7 years compiled by
Commission
regime

Significant activity;
or
2 years Farm-out; or
Relinquish

DEPARTMENT OF PETROLEUM RESOURCES

Unitisation

• Licensees are required to notify the Commission of any straddli

ng accumulations

• License holders are required to enter into Unit Development Agr

eements

• Where licensees are unable to do so within a period of time dete

rmined by the Commission, the Commission may impose a unit
development arrangement

DEPARTMENT OF PETROLEUM RESOURCES

Environmental Management

Initial Environmental
Remediation
baseline impact

Environmental Management

DEPARTMENT OF PETROLEUM RESOURCES

Decommissioning

Decommissioning
plan

Funds in escrow
Abandonme Stakeholder
nt consultation

Regulations

DEPARTMENT OF PETROLEUM RESOURCES

Gas Flaring

Obligation
to
measure
Reduction
plan
Gas flare-out

Power to
shut-in

Penalties

DEPARTMENT OF PETROLEUM RESOURCES

DGSO/DCSO
ISSUES OBJECTIVES CONSIDERATIONS

DGSO • Development of gas for domestic • Include provisions that clearly provi
utilization de for DGSO
• Include sunset provisions
• Does not unfairly penalize under for
ce majeure or failure of buyer to tak
e gas or pay for gas

DCSO • Supply to local refineries • DCSO by Commission when Nigeria

n refinery capacity has been develo
ped
• Protection for local refinery capacit
y
• Supply to be commercially negotiat
ed
• Payment guarantees to be provided
• Dollar denomination

DEPARTMENT OF PETROLEUM RESOURCES

Activities Requiring a Licence –
Midstream & Downstream Gas

Midstream Downstream
 Gas processing  Retail trading of gas
 Gas storage  Gas distribution
 Pipeline gas transportation  Construction of retail trading
 Operation of a transport facilities
network
 Terminal for export/import
of gas
Activities Requiring a Licence –
Midstream & Downstream Liquids
Midstream
 Crude oil refining
 Pipeline crude oil or petroleum
products transportation
 Bulk transportation of crude oil
or petroleum products by rail,
road and any other means of
transportation
 Bulk storage of crude oil or
petroleum products
 Operation of a transportation
network
 Bulk sale of crude oil or
petroleum products
Downstream
 Operation of any facility for the
distribution or sale of
petroleum products
 Petroleum products storage
depot
 Distribution, marketing or
retail trading of petroleum
products
 Petrochemical production
 Terminal for export/import of
petroleum products or crude
oil
Selected Midstream & Downstream Issues

• Commission may require separation by

• Management
• Accounting
Separation of Licensed • Legal entities
Activities • No transfer pricing
• Commission consent required for acquiring interest in other
licences
• No bar on vertical integration

• Provision for third party access to transportation and distribution

facilities
Third Party Access
• Detailed rules to be developed by Commission
• Network code for gas and petroleum liquids

• Tariff methodology for monopoly infrastructure

• Based on transparent pricing principles
• Disaggregation of costs
Tariffs • Cost reflective
• No discrimination
• Tariffs to be developed by licensees based on tariff methodology
• Licensees to be consulted in developing methodology

DEPARTMENT OF PETROLEUM RESOURCES

Selected Midstream & Downstream Issues

Deregulation of
Competition Consumer
Petroleum
regulation Protection
Product Prices

Transition plan to Protect against Customer service

full market prices cartelisation codes

Foster the
Not to exceed 12 development of Metering;
months competitive Emergencies
markets

Robust powers
Minister may
granted to Fault repairs
declare earlier
Commission

Full market Invoices & dispute

subsequently resolution

DEPARTMENT OF PETROLEUM RESOURCES

 Selected Key Issues

Transitional Dispute Resolution

• OPL & OML to • Power to resolve

remain between licensee
• Applications to • Subject to
Commission within • fair hearing
24 months for all • Existing dispute
existing midstream resolution
& downstream mechanisms
licences

DEPARTMENT OF PETROLEUM RESOURCES

  The Petroleum Industry Administrat
Concluding Remarks
ion Bill will bring clarity to the man
agement of Nigeria’s petroleum res
ources

 The Bill is simple to understand, im

plement and administer, and provid
es a predictive and stable level play
ing field

 It removes arbitrariness and discret

ion, and delivers an open market st
ructure especially for the mid and d
own streams.

DEPARTMENT OF PETROLEUM RESOURCES

Implementation, not ideas is the key to success

DEPARTMENT OF PETROLEUM RESOURCES

Petroleum Administration and Value Creation

 Minimization of discretion would drives value creation and

restore investor confidence
 Automation of approval and reporting processes would
reduce transaction cost, increase savings and margins
 Clarity and simplicity of rules and regulations would drive
value maximization
 Technology deployment would leads to operational efficiency
and value creation
 Self regulation would minimize cost and enhance profitability
 Midstream commercial capacity is greatly required
 Policy and regulation should be dynamic , progressive and
 performance driven

DEPARTMENT OF PETROLEUM RESOURCES 41

THE END

Thank you

DEPARTMENT OF PETROLEUM RESOURCES