Examining the Legal and Regulatory Framework on Marginal Oil Field Development in Nigeria

Abstract

Abstract The legal and regulatory frame work is critical for marginal field development in Nigeria. The petroleum amendment decree No 23 of 1996 is the basis of marginal field development. The Petroleum Act of 1969 with its amendments prior to Decree 23 of August 1996, prevented access by non-discoverers/owners to undeveloped or marginal fields. Indigenous companies are mostly non-discoverers/owners and this concern about the low level of participation of Nigerian nationals in the petroleum industry was addressed in the Petroleum (Amendment) Decree No 23 of 1996, which had the effect of giving the government absolute discretion in making guidelines for the farm-out of marginal fields. Before August 1996, the potentials of significant contributions by small and/or third-party operators (the so-called independents) to national production capacity had remained negated, unlike many oil basins of the world where the emplaced laws for acreage lease, farm-in/farm-out, the permissible limits of production, and interest acquisition/assignment, all serve to facilitate the transfer of rights to reserves. The overriding reason for the initiation of marginal field development program is to bring about economic development through revenue generation, promotion of indigenous participation in oil and gas sector and discouraging the abandonment of depleting oil fields considered marginal in Nigeria, in additional to technology acquisition and diffusion in the oil and gas industry. However no meaningful oil and gas development can take place without adequate legal and regulatory frame work. This paper assesses the effectiveness of legal and regulatory frame work for marginal field development program in Nigeria. The outcome of the study showed that the decree only guaranteed a 40% foreign equity holding. The provision preventing foreign equity holders of 40% from acting as operators will also act as a disincentive to investment as the lack of competencies on the part of local Oil Companies LOCs (as operators) will discourage many investors It also identifies lack of compensation clause for the original owners of the marginal oilfields in the legal frame work setting up marginal oil field program. The study offers useful suggestion for improvement. It is recommended that the passage of the Petroleum Industry Bill should make the laws governing the marginal field operations in Nigeria to be robust and comprehensive.