The above shall not relieve operator from exercising utmost diligence in accordance with good oil field practice in selecting, training and supervising its employees, contractors and agents.’. The JOA is indeed one of the most important agreements in the development of oil and gas resources. strengthening of NNPC by assisting in establishing the first formal Joint Operating Agreement for upstream oil operations in Nigeria, strengthening NNPC's ability to market condensate, and reviewing NNPC's rolling five-year corporate plans and commercialization program. In 1991, a Memorandum of Understanding (MOU) was signed between the Nigerian National Petroleum Corporation (NNPC), representing the Federal Government of Nigeria on one hand and the Operation Companies (OPCOS) - Shell, Mobil, Chevron, Agip, Elf, and Pan Ocean on the other. One major difference between the SC and PSC is that SC covers only the OPL, the PSC may span two or more OPLs at a time. Act No. experienced companies that have decided to undertake a high risk or The Petroleum Arrangement includes Joint Operating Agreement (JOA), Production Sharing Contract (PSC), Service Contract (SC), and Memorandum of Understanding (MOU). However, the operator is exonerated except for ‘gross negligence or willful misconduct’. concessions, production sharing contracts (PSCs) and JOAs; the JOA’s challenges, benefits and burdens; and. The joint venture established pursuant to this Agreement shall not be considered to be a company, cf. All parties share in the expenses of the operations and in the proceeds resulting from the development. ost is recoverable with crude oil in the event of commercial find, with. [21] P Roberts, ‘Fault-lines in the Joint Operating Agreement: Forfeiture’ (2008) 274I.E.L.R. It is different from the MOU. Some of the highlights of the MOU are: To encourage unit cost efficiency, a tax inversion rate of 35% shall, ompany in its equity crude and a minimum of $1.25/ bbl after tax. The JOA also provides for resignation, removal and replacement of an operator. Seplat Petroleum Development Company Plc (“SEPLAT”) and its subsidiary, ANOH Gas Processing Company (AGPC) with the Nigerian National Petroleum Corporation (NNPC) and other related subsidiaries yesterday, Monday, 13th August 2018, at the NNPC Towers, Abuja, Federal Capital Territory, signed the Shareholder Agreement and other Commercial Agreements for ANOH Gas Processing … The Participation Agreement sets out the level of participation of each. Amending the law is cumbersome but as a contract it can be easily amended and subject to abuse. In addition to the above, the operator can also carry out sole risk operations. The remainder is then shared between the national oil company (NOC) of the oil-producing country and the company in a predetermined proportion. The other partners in this JV are Shell Petroleum Development Company (30%), NNPC (55%,) and Total E&P Nigeria (10%). Since most major decisions involving undertaking a new operation, or terminating an existing one, are subject to other express agreement provisions, the JOA has the effect of giving the operator control over how operations are to be conducted on a day-to-day basis once approved, but not the ability, as a general rule, to determine which operations should be undertaken at the joint expense of the parties. the right of the NOC/its subsidiaries to be the operator except where it decides that any of the parties should be the operator under the JOA. The whole or any part of the re-entry penalty shall be paid in cash in the currency in which the sole risk costs have been incurred or in kind or both as may be mutually agreed by the parties. Government realizes that investment can only thrive in a peaceful atmosphere. Participation Agreement (PA) and the Joint Operating Agreement (JOA).18 Sometimes, a Memorandum of Understanding (MOU) is entered between the Government (through NNPC, NPDC or the Ministry of Petroleum) and its co-venturers.19 3.1. Generally, the state establishes the commercial, legal and fiscal framework within which the exploitation of the hydrocarbons takes place. The Nigerian National Petroleum Corporation (NNPC) and Enforcement of Zero Gas . The Joint Operating Agreement (JOA) is a participation agreement that enables the federal government, represented by the Nigerian National Petroleum Corporation (NNPC), to actively participate in the Nigerian petroleum industry. The area was often very large. Under these arrangements, the NNPC is the holder of the concession while the IOC is the contractor. The operator will issue periodic cash calls. The rights of operator removal are subject to stringent restrictions. investors who are participating in a promoted prospect for the first time. These concessions had certain characteristics. It is the agreement that hands over and transfers a certain interest in a property to another person. the responsibilities of the parties to the contract; and. In Nigeria, oil and gas exploration and production contracts could be in the form of concessions (now abolished), the JOA, a service contract (SC) or a production sharing contract (PSC). This arrangement preserves the Contractual framework within which the Nigerian National Petroleum Corporation on behalf of the Nigerian government and the Multinational oil companies conduct Petroleum Operations in Nigeria. recommendations regarding the JOA and Petroleum Act. London, EC4A 4AD The FAAC consists of the finance commissioners of the 36 states and is headed by the Minister of Finance, Kemi Adeosun. Such agreements vary in detail because they are individually negotiated, but they remain the same in substance. The JOA is the basic, standard agreement between the NNPC and the operators. In Nigeria, the concession granted to Shell in 1938 was in respect of the entire mainland of Nigeria. They were in respect of very large areas of land of the host country. ‘Operation’ involves designating one of the licensees as operator, who shall be responsible for conducting the day-to-day operations subject to the supervision of the JOC. Through participation, the host country’s objectives are potentially capable of fulfilment, although its effectiveness depends on the way it is implemented. If a co-venturer breaches its financial obligations, it breaches its most basic duty under the JOA. There should also be a comprehensive review of the JOAs at least every three to five years. That major policy shift was also to ensure for the company a minimum profit margin of $2.30/bbl; after tax and royalties on the company's equity crude. charge interest on the borrowed funds in respect of unpaid amounts, as authorised under the accounting procedure; require a ‘contribution’ from the remaining non-operators. It sets the guidelines /modalities for running the operations. They give companies the opportunity to outlay their investment in multiple ventures and thus increase their chances of finding and exploiting oil and gas. crude and $1.35/bbl for NNPC's equity crude. The agreement consists of a main part – Special provisions – and two attachments; Attachment A – Joint Operating Agreement and Attachment B – Accounting Agreement. The company pays specified costs and taxes to the state that has the crude oil. Section 35 provides: ‘If he considers it to be in the public interest, the Minister may impose on a licence or lease to which this Schedule applies special terms and conditions not inconsistent with this Act including (without prejudice to the generality of the foregoing) terms and conditions as to –, (a) participation by the Federal Government in the venture to which the licence or lease relates, on terms to be negotiated between the Minister and the applicant for the licence or lease; and, (b) special provisions applying to any natural gas discovered, which provisions shall include-. Unlike the Joint Operating Agreement (JOA), which sets the tone of the agreement between the NNPC and the operators, including the guidelines and modalities for running the ventures, the MoU contains the basic understanding on the joint ventures as a response to the specifics of fiscal incentives. It is now called by various names, such as licence or lease, but it is still the most widely used type of agreement. The partners involved in the joint venture are the NNPC with the ownership of 55% shares in the OML 11, Shell, Total and Agip, with the ownership of 30%, 15% and 5% respectively. Joint Operating Agreements (JOA) The JOA is the basic, standard agreement between the NNPC and the operators. T… The federal government often defaults on payment of cash calls because of the need to develop other areas of the economy. Article 2.2.1 provides: ‘The operator shall conduct all joint operations with utmost good faith and in a good and workmanlike manner in accordance with good industry practice and the applicable regulations shall apply to all operations hereunder.’, ‘The operator or its affiliate shall not be liable, beyond such liability accruing to its participating interest, for any loss or damage which results from joint operations unless such loss or damage results from gross negligence, and or wilful misconduct on the part of its directors or supervisory staff, provided, that under no circumstances shall the operator or its affiliates be liable to non-operator for reservoir damage or pollution or for any consequential losses or damages whatsoever or howsoever occurring including, but not limited to, lost production or lost profits. [22] Section 35 of the Petroleum Act, Cap P10, L.F.N 2004. Article 8.10,[18] titled ‘Election to Participate in Further Work’, provides that: ‘A non-sole risk party may at any time, elect to participate in a sole risk operation by paying to the sole risk party, an amount equal to its participating interest share of the cumulative cost and expenditure of the sole risk operation, incurred as of the date of such election plus 200 per cent thereof (re-entry penalty). The Nigeria government has always had anticipate the global oil and gas industry by ensuring a dynamic approach to drawing up rules and fiscal regimes which make the industry one of the most competitive and investor friendly throughout the world. Unlike the concession, ownership of petroleum discovered remains vested in the state or its NOC and the contractor does not acquire title to its share of the petroleum until the oil reaches a mutually agreed point. In Nigeria, sole risk is provided for in Article 8. The operator is the party that implements the collective will of the JV and is responsible for the day-to-day management of the operations. [7] M M Olisa, Nigerian Petroleum Law and Practice (Jonia Ventures Limited 1997), p 74. Such a breach will cause real financial difficulty to the other parties who will have to make good the shortfall. [8] Therefore, the JOA is a contract between two or more parties. The right to operate should be vested in the federal government, that is the NNPC, for JVs that are not incorporated. It is different from the MOU. When oil is discovered in commercial quantities, the company is entitled to recoup its investments from the crude oil produced from the contract area. Fifty per cent of future JOAs should be IJVs, similar to the NLNG model. agreement ... been transferred to the Nigerian National Petroleum Corporation (NNPC) ... 1984 Agreement consolidating NNPC/Shell joint venture. [10] G Gordon, et al (eds), Oil and Gas Law – Current Practice and Emerging Trends (Edinburgh University Press 2007) at p 277. [23] The strike was called off on 24 May 2015. Provisions should be made in the JOA to protect the operator from having to bear the burden of funding the default. The Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari says the corporation has no secret accounts that … The Nigerian National Petroleum Corporation has signed a novation agreement with Nigerian Agip Oil Company on Oil Mining lease 60,61,62 and 63. The Production Sharing Contract (PSC) was widely introduced in 1993 to address some of the issues faced by the Joint Operating Agreement (JOA) and also to provide a suitable agreement structure for encouraging foreign investment in offshore acreage. A default situation arises when a party fails to meet its PI share of the expenditure made on behalf of the JV. Therefore, the need for the JOA to be regulated by law to forestall unnecessary interference cannot be overemphasised. The operator for the joint operations is designated in the JOA. The operations can be handled by fewer employees and equipment thereby promoting greater efficiency. When such default occurs, one or more of the non-defaulting parties have to step in to meet the defaulter’s share of the expenditure. In Nigeria, the JOA provides that the non-defaulting party should borrow funds and charge the defaulting party to pay the funds and the interest. As such, the right to explore, exploit, appraise and produce oil and gas is rarely exercised by a single entity. Major operators will be looking to rid themselves of their less productive assets: there is little incentive to stay as the petroleum lease (PL) is no longer an asset but a liability due to impending decommissioning costs. 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