1. 1. INTRODUCTION
Petroleum
exploration and production in Nigeria is strictly regulated by statute. In this
regard, the principal legislation is the Petroleum Act, 1969.[1]
The Act makes provisions for grant of petroleum licences to wit: oil
exploration licences, oil prospecting licences and oil mining leases.[2]
Operations in the country’s upstream sector is undertaken majorly through
government participation with oil companies, mostly international oil
companies, (“IOCs”) and a handful of indigenous companies in form of joint
ventures. In such instances, while one of the companies holds the oil licence
or lease as the case may be, the other counterparties in the joint venture have
rights, powers or interests in the oil licence or oil lease. This right, power
or interest is proprietary in nature and thus capable of being transferred.
However, unlike some other proprietary rights which can be transferred at will
by the owner of such right, the rights in an oil licence, though can be
transferred at will, is subject to some strict conditions governing such
transfer. Principal of such conditions is the requirement that the prior
consent of the Minister of Petroleum Resources (“the Minister”) be obtained
before such transfer is effected. It is important to examine some issues
arising from this strict legal requirement. Thereafter, the case of Moni Pulo
would be considered as well as the issues arising therefrom.
2. OBTAINING
THE MINISTER’S CONSENT: ISSUES ARISING
2.1.
The
legal obligation to obtain consent
The
obligation imposed on a transferor of an interest, power or right in an oil
licence or lease is created by the First Schedule to the Petroleum Act. Paragraph 14 of the First Schedule
provides thus:
Without
the prior consent of the Minister, the holder of an oil prospecting licence or
an oil mining lease shall not assign his licence or lease, or any right, power
or interest therein or thereunder.
The
grant or withholding of consent is at the absolute discretion of the Minister.
However, the Minister shall not give his consent to an assignment unless he is
satisfied of the following:
a.
that the proposed assignee is 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.
that there is likely to be available to
the proposed assigned (from his own resources or through other companies in the
group of which he is a member, or otherwise) sufficient technical knowledge and
experience and sufficient financial resources to enable him to effectually
carry out a programme satisfactory to the Minister in respect of operations
under the licence or lease which is to be signed; and
c.
that the proposed assignee is in all
other respects acceptable to the Federal government.
It
is important to distinguish the consent of the Minister from the consent of the
counterparties to the joint venture. Most Joint Operating Agreements (“JOAs”)
contain provisions requiring the consent of the continuing parties in the joint
venture before a transfer to a third party is effected, with the clause that
such consent should not be unreasonably withheld. The purpose of this is to
prevent an unwanted newcomer joining their venture by way of licence interest
transfer.[3] It
is also to give the continuing parties the right to first refusal or
pre-emption rights, perhaps they want to acquire the interest.[4] In
the case of Moni Pulo v. Brass
Exploration Unlimited & 7 ors[5]
the Court emphasised on the importance of the Minister’s consent in the
transfer of upstream assets. According to Justice Okeke, it is because of the
importance of petroleum resources to the Federal Government of Nigeria and the
need to avoid a situation where oil prospecting or oil mining will be an all
comers affair that will turn the petroleum industry into a motor park for touts
to hold sway. Such a scenario, according to his lordship, would lead to chaos
in the petroleum industry which will be detrimental to the national security
and the economy.[6]
Also,
with respect to oil pipelines, the Oil Pipelines Act[7]
restricts an assignment, subletting, mortgaging or otherwise parting with the
oil pipelines licence or any right or interest thereunder without the prior
consent of the Minster.[8] This
ought to be expressly stated in the oil pipelines licence, and where it is not
stated, it shall be deemed to be one of the conditions to be performed and
observed by the holder of the licence. Consequently, every discussion relating
to upstream petroleum assets would apply mutatis
mutandis to oil pipelines.
2.2.
At
what point should consent be obtained?
Paragraph 14 of
the First Schedule requires that the consent of the Minister should be obtained
prior to the assigning of a licence or lease or any right, power or interest
therein or thereunder. This literally means before an assignment is carried
out. The relevant question to ask is at what time an assignment can be said to
have been carried out for the purpose of determining when the consent should be
obtained. Is it at the point of invitation for bids or upon conclusion of the
bidding process? A plausible interpretation may seem to be that the consent
should be sought at the point the assignor sets out to transfer the licence or
lease or right, power or interest therein or thereunder, i.e. before placing
invitation for bids. However, this interpretation would crumble upon
consideration of paragraph 16 which
when read alongside paragraph 14 would
suggest that the assignee to whom the assignor seeks to assign should be known
by the Minster for the purpose of determining the status of such assignee in
compliance with paragraph 16. Of
course, the Minister is not expected to go on a wide goose chase for the
purpose of ascertaining the status of unknown prospective assignees or
ascertaining the status of a large number of prospective assignees who have
submitted their bids. An infallible interpretation would be that the Minister’s
consent should be sought after the bidding is closed and a bidder has been
selected, but before consummation of the assignment in form of payment of
contract sum or signing of transfer documents. The reason for this
interpretation is simple. Often times, assignment of upstream petroleum
interests is quite cumbersome and complex. In some instances it can last for
several years and involve very strong commitments. A ready example is the
acquisition of ConocoPhilips’ assets by Oando Energy Resources. In order to
raise the about $1.5 billion required to pay for the acquisition, Oando made
some very strong commitments including selling one of her subsidiaries, East
Horizon Gas Company, making private placement of shares, and receiving funds
through debt commitment letters received from financial institutions. Applying
for the Minister’s consent after such commitments is extremely dangerous and
could have disastrous consequences if the Minister withholds consent.
The
Department of Petroleum Resources (“DPR”) has also had cause to complain about
the time at which application is made for the Minister’s consent. In a memo
released earlier this year and which was addressed to companies involved in the
sale of upstream petroleum assets,[9]
the Department berated companies that usually seek consent after the
transaction has been consummated. According to the Department, applying at such
a time would give the federal government a “fait accompli”. It is thus
advisable that parties seeking the Minister’s consent should do so immediately after
the bidder has been selected. Upon obtaining the Minister’s consent, then the
assignee can proceed to fulfil his financial obligations and other commitments
under the assignment.
2.3.
Who
has the duty to obtain consent?
From
the language of paragraph 14 of the
First Schedule, it would be seen that the duty to obtain the consent of the
Minister is that of the assignor not the assignee. This position was recently
affirmed by the Court of Appeal in Statoil
(Nig) Ltd. v. Inducon (Nig) Ltd & Anor[10]
where the Court noted that it was the duty of Statoil (Nig) Ltd as holder
of the licence and assignee of the interest in the oil lease to obtain the
Minister’s consent. This also accords with reason. In line with the position
taken in paragraph 2.2 above, if the Minister’s consent is sought at the
appropriate time, i.e. immediately after the bidder is selected but before the
transaction is consummated, the assignee would have no locus to seek for consent.
3.
ISSUES
ON THE MINISTER’S CONSENT ARISING FROM MONI
PULO VS. BRASS EXPLORATION UNLIMITED & 7 ORS[11]
3.1.
The
Case
The
facts of the case are simple and quite notorious. However, it is necessary to
restate them for the purpose of this work. The case arose out of a joint
operating agreement on Oil Mining Lease 114 (“OML 114”), to which Moni Pulo
Limited and Brass Exploration Unlimited were both counterparties. In 1992, Moni
Pulo was awarded Oil Prospecting Licence 230 (“OPL 230”). In 1996, Moni Pulo
entered a relationship with United States’ Baker Hughes Incorporated for the
purpose of developing the licence area. It was agreed that Moni Pulo would
assign 40% of its 100% interests in OPL 230 to Baker Hughes or its nominated
subsidiary as consideration for its partnering with Moni Pulo. In furtherance
to this, Baker Hughes nominated Brass Exploration Unlimited to hold the 40% of
the participating interest in OPL 230 and the said interest was assigned to
Brass Exploration after the consent of the Minister had been obtained.
Subsequently, OPL 230 was converted to OML 114. Thereafter, Baker Hughes
notified Moni Pulo of its decision to divest from OML 114. Moni Pulo then
assigned the 40% interest to Petroleum Oil and Gas Corporation of South Africa
(Nigeria) Ltd (“PetroSA”) which was consented to by the Minister vide a letter
dated January 27 2004. At this point, the shares of Brass Exploration Unlimited
were held by PetroSA. In 2011, all of Brass’s shares held by PetroSA were
transferred to Camac Energy Services Ltd and Camac Resources Ltd, both owned by
Camac International Corporation, despite the initial opposition of Moni Pulo to
the transfer to the Camac companies. The effect of the transfer was to make
Camac International Corporation the parent company to Brass Exploration
Unlimited. The Minister’s consent was not sought in this transfer of Brass’s
shares to the Camac companies. Moni Pulo was dissatisfied with this transfer to
Camac by Brass and sought the Court to void the transfer.
The court held that
where the controlling shares of an oil-asset holding company is sought to be
transferred, then such transfer of controlling shares in addition to being
subject to other laws relating to transfer of shares, would also require the
Minister’s consent to be valid. According to the Court,
The words used in
paragraph 14 of the First Schedule to the Petroleum Act and Paragraph 4 of the
Petroleum (Drilling and Production) Regulations are simple and clear that no
transfer, assignment, sale and/or takeover of an oil mining lease or any right,
power or any interest therein or thereunder can be validly effected without the
consent of the Minister of Petroleum Resources.
Under the Companies and
Allied Matters Act, Subscribers and Shareholders of a company can ordinarily
transfer and/or sell their shares in the company. Such a company if its
business is governed by another law must comply with the provisions of such law
before it can take benefit of such transfer and/or sale of the shares. In the
instant case the 1st defendant's 40% participating interest in the OML 114 held
by the 2nd, 3rd and 4th defendants acquired by the 5th, 6th and 7th defendants
can only come into fruition on the approval of the Minister of Petroleum
Resources. I agree with the 1st – 7th defendants that a limited liability
company such as the 1st defendants has a distinct legal personality from its
shareholders. See Salomon v. Salomon (supra). However it must be borne in mind
that such a company operates through its director appointed by the
shareholders. The Minister of Petroleum Resources has a duty to satisfy himself
or herself that the 5th, 6th and 7th defendants who have acquired the 2nd, 3rd
and 4th defendants' shares in the 1st defendant's 40% participating interest in
OML 114 are qualified to participate in the OML 114.
3.2.
State
of affairs before the Moni Pulo’s decision
In
order to appreciate the significance of the Moni Pulo’s decision, it is
necessary to recount the state of affairs before that decision was given.
Before the decision, while there was no ambiguity or uncertainty as to whether
the Minister’s consent is needed where the subject of assignment is a licence,
a lease or any right, power or interest therein, little was known as to whether
his consent is needed in corporate restructuring, i.e. where what is being
assigned is not the licence or lease itself or an interest therein, but the
shares of a company holding oil assets. Even the Ministry of Petroleum
Resources was unsure of the powers of the Minister in that regard and would
often seek legal opinion from the DPR as to whether or not the consent of the
Minister is required in corporate restructuring involving the acquisition or
takeover of the controlling shares of an oil asset holding company. However,
this decision has settled that controversy, and until upturned by a superior
court, remains the legal position as regards this issue.
3.3.
Is
consent needed to transfer or assign non-controlling shares?
Where
an oil-asset holding company seeks to transfer its shares to third parties
through the stock market or any other means, it would be overstretching the
boundaries of the decision in the Moni Pulo’s case to say that the consent of
the Minister would be required in such cases where the amount of shares
transferred does not amount to a takeover of the oil-asset holding company.
While this is the case if reference is made solely to the Moni Pulo’s case, it
might not be an easy conclusion if reference is made solely to paragraph 14 of the First Schedule. The
said paragraph 14 requires the
consent of the Minister to be obtained where there is an assignment of a
licence, lease, or any right, power
or interest therein or thereunder. The said paragraph does not qualify “any”
and in which case could be said to mean any interest, irrespective of the form
or size of the interest. Can the holder of a single share in an oil-asset
holding company be said to have an interest in the licence or lease? If the
answer is yes, then a strict and literal interpretation of paragraph 14 would mean that the consent of the Minister is needed
to transfer or assign that interest. Same would be the case if the shares
sought to be transferred are non-controlling.
However,
this cannot be said to be the intendment of the lawmakers, else before any single
share of an oil-asset holding company is sold, the consent of the Minister
would be first sought and obtained. This would definitely lead to chaos in the
petroleum industry.
Paragraph 14 read
alongside paragraph 16 seeks to
ensure that the Minister is aware of those that would be taking over operations
over the licence area, to ensure they have the financial, technical and
reputational capacity to undertake such operations. The mischief the paragraphs
seek to correct is one where entities with no financial or technical capacity
are allowed to be in charge of operations over licensed areas, thereby impeding
production of petroleum which is the mainstay of the Nigerian economy. Thus, in
deciding whether the Minister’s consent is required, the crucial question is
whether by such transfer of shares or interests, the management and control
over the leased or licensed area is altered. If the answer is in the
affirmative, then the Minister’s consent is required, but if it’s in the
negative, then his consent is not required. On the strength of this, we can
safely assert that where the shares sought to be transferred are not such as
can alter the management and control over the leased area under any
circumstance, the consent of the Minister would not be required, this would
apply to cases where the shares are non-controlling shares or where the
corporate restructure is not such as to alter the management and control of company
the licensed or leased area.
4.
THE
FUTURE OF MINISTERIAL CONSENT IN TRANSFER OF PETROLEUM ASSETS
While it is not impossible that the
issue of Ministerial consent would continue to generate debates, particularly
in instances where the provisions of the law are not clear and explicit, in the
near future, these might be a thing of the past especially in light of the
Petroleum Industry Bill, 2012 (“PIB”) which is being deliberated by the
National Assembly and is likely to become law soonest. The PIB, unlike the
Petroleum Act, makes elaborate provisions potent enough to douse any doubt as
to instances where the Minister’s consent would be required. Section 194(1) of the PIB provides that
where a licensee, lessee or production sharing or service contractor is taken
over by another company or merges, or is acquired by another company either by
acquisition or exchange of shares, including a change in control of a parent
company outside Nigeria, it shall be deemed to be and treated as an assignment
within Nigeria and shall be subject to the terms and conditions of the Act and
any regulations made under it. Sub-section
(2) provides that a licensee, lessee or contractor shall not assign his
licence, lease or contract, or any part thereof, or any right, power or
interest therein without the prior written consent of the Minister. The effect
of the above provisions is that the Minister’s consent would still be required
in any form of transfer irrespective of whether it operates to transfer control
or not.
Under
section 195, where a licensee or
lessee has assigned or otherwise transferred its interest in the licence or
lease to any person or company without the prior written consent of the
Minister, the Minister may revoke such licence or lease. It should be noted
that revocation is not mandatory in such instances. It is at the discretion of
the Minister to revoke or not to revoke.
With
respect to oil and gas pipeline licences, the PIB wrests from the Minister the
power to grant consent over assignments or transfers and vests same on the
Downstream Petroleum Regulatory Agency. Section
209 provides that no licensee under this Part [12]
shall, directly or indirectly, assign or transfer its licence or any rights or
obligations arising from such licence without the prior written consent of the
Agency. Failure to obtain such consent would be a ground for revocation of the
licence under section 212.
5.
CONCLUSION
The
laws regulating the Nigerian petroleum industry contains strict provisions
relating to transfer or assignment of petroleum assets. The rationale for this
strict position is because of the strategic importance the industry has for the
survival of the Nigerian economy and State. In the Moni Pulo’s case[13],
the Court on emphasising this point noted that:
The importance of the
petroleum resources to the Federal Government of Nigeria cannot be over
emphasized hence the grant of oil prospecting licence or oil mining lease (or
of an interest in the same) is strictly under the President and the Minister of
Petroleum Resources. In the absence of such control, participation in oil
prospecting or oil mining will be an all comers affair that will turn the
petroleum industry into a motor park for touts to hold sway. Such an
unfortunate scenario will lead to chaos in the industry which will be detrimental
to the national security and economy.[14]
Of
crucial importance is the point at which consent should be obtained. It is not
uncommon to see parties seek consent after the transfer or assignment has been
consummated and payment made. An instance can be seen in the purchase of
ConocoPhilips’ assets by Oando Energy Resources. This is not advisable because
it does not give the Minister the opportunity to carry out due diligence on the
transferee for the purpose of satisfying himself as to their financial and
technical capabilities. In other words, the Minister merely rubber stamps the
transfer. What if the Minister refuses to rubber stamp and thus withholds
consent? It is advised that parties seek consent before beginning to undertake
commitments towards sealing the deal.
Also,
where there is doubt as to whether consent is required or not, it is advisable
to seek an opinion from the Department of Petroleum Resources. The Moni Pulo’s case is instructive in this
light.
Beyond
these, the PIB contains more elaborate provisions relating to the issue of the
Minister’s consent. It is believed that when it is passed into law, it would
finally put to rest most, if not all of the uncertainties relating to the power
of the Minister to grant consent.
[1] Now CAP. P10, LFN 2004. There is currently a
Petroleum Industry Bill before the National Assembly which is supposed to
replace the Petroleum Act as the principal legislation governing operations in
the Nigerian petroleum industry. However, until the Bill is passed into law,
the Petroleum Act still holds sway as the petroleum sector’s principal
legislation.
[2] See section 2 of the Petroleum Act.
[3]
See M. Hammerson, Upstream Oil and Gas:
Cases, Materials and Commentary, Globe Business Publishing Ltd, 2011,
London.
[4] Ibid.
[5] Suit No. FHC/L/CS/835/2011, judgment
delivered on Ma7 7, 2012.
[6] Ibid, pg. 115 of the judgment.
[7]
Oil Pipelines Act 1956, now CAP. 07 LFN 2004.
[8] Ibid, section 17(5)(d).
[9] Ref No. P1/1160/A/Vol. 10/251.
[10] (2014) 9 NWLR (Pt. 1411) 43, at pgs 82 – 83,
paras. H – B.
[11] Supra.
[12]
i.e. Part IV which deals with Downstream Licensing and provides for licences
for constructing and operating a processing plant, a transportation pipeline
for crude oil or gas, a petroleum transportation or distribution network, the
supply of downstream products or owning and running a downstream products or
natural gas processing or retail facility.
[13] Supra.
[14] Ibid, at
pg 115.
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