The Petroleum Act

The Petroleum Act provides the overarching framework governingexploration, production, and use of petroleum in Nigeria. It vests ownership and control of all petroleum exclusively with the government. The Minister of Petroleum Resources is responsible for granting exploration licences, prospecting licences, and mining leases. Other licences relate to the construction and operation of refineries, importing, storing, selling and distribution of any petroleum products. 

 

The Act authorises the Ministry to issue more specific regulations controlling the production of oil and gas. These include matters relating to licences and leases (e.g., safety; conservation of petroleum resources; prevention of pollution of watercourses and the atmosphere; making of reports and returns (e.g., on accidents); the keeping and inspection of records; measurement of production and crude oil delivered to refineries). These powers also extend to regulating the construction, maintenance, and operation of installations; refineries and refining operations, regulating the importation, handling, storage and distribution of petroleum, petroleum products and other flammable oils and liquids; and the transport of petroleum and petroleum products, among others.

 

The Act also authorise the Minister to impose special terms and conditions under specific circumstances.  Notably, it authorises the Minister to split exploitation rights for oil and associated gas, allowing the government to take that gas “free of cost at the flare or at an agreed cost and without payment of royalty.” Pursuant to this authority, the Ministry has established a separate permitting system to grant associated gas production under the Flare Gas Prevention of Waste and Pollution Regulations of 2018. 

 

The Minister may also impose obligations on the licensee or lessee to pay royalties on natural gas produced and sold and to obtain approval as to the price at which natural gas is sold. 

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