A CRITICAL ANALYSIS OF THE REGULATORY REGIMES OF THE PETROLEUM INDUSTRY IN NIGERIA

CHAPTER TWO HISTORICAL EVOLUTION, GROWTH AND DEVELOPMENT OF THE REGULATORY REGIMES OF THE PETROLEUM INDUSTRY IN NIGERIA

2.1     Introduction

Although the regulatory regime of the petroleum industry in Nigeria dates back to the very early part of last century, yet no real discernible government regulatory policy in the petroleum industry existed. The absence of such a policy could be blamed on the fact that until the early 1970s there had been no substantial oil production. Nigeria's economy had been based mainly on Agriculture and the Government's interest in petroleum was limited to enforcing the few petroleum regulations that existed[1]. Ascertaining exactly when the regulatory regime of the petroleum industry began can be quite confusing. Principally because what is contained in the main legislative enactment represents only a partial picture of what the current situation is. For better understanding, it is expedient to first consider the history of the petroleum laws before and after oil discovery and its attendant regulations over the years[2].

           

2.2     Regulatory regimes pre-oil discovery in Nigeria

An examination of historical background of the petroleum industry would reveal that the major constituents of the laws which touch upon the exploration and production of petroleum dates back to the Minerals Oils Act of 1914[3] which was enacted "to regulate the right to search for, win and work mineral oils". This aspect of the laws did not develop in any great measure until the later part of the 1950-60 decade, when the active search for oil in the country was stepped up. One other reason for its stunted growth before this period was the cessation of the pioneering work begun in 1908 in the industry by the German firm known as the Nigerian Bitumen Company on the outbreak of hostilities between Britain and Germany in the First World

War. With Nigeria then being under the territorial control of the United Kingdom, and Germany losing the war, the Nigerian Bitumen Company's activities which had not recorded any commercial discovery were not resumed at the end of the war instead, a consortium of Royal Dutch and Shell

(Dutch and English interests) known as Shell D' Arcy‟s Company emerged and began oil exploration operations in 1937 from its base in Owerri, the present state capital of Imo State. Shell D' Arcy's operations similarly experienced an interruption of six years because of the Second World War and it was not until 1946 that the company resumed active operations. By that date it had been joined by British Petroleum (BP), the British State-owned oil company, thus establishing Shell-BP, as it was commonly known before the nationalization of BP's shares therein in 1979. Shell-BP did not only fully assume as the pioneer position of the Nigerian Bitumen Company in the search for petroleum in Nigeria, until its successor, Shell Petroleum Development Company of Nigeria Limited has held and led the field since that time, when compared to the other oil majors in Nigeria. This privileged position of Shell-BP was not surprisingly maintained, because under Section 6 (1) (a)[4] the right to search for and win oil could only be made to British subjects and to those companies which had their principal places of business in Britain or in its dominions and whose chairmen or majority shareholders and directors were British subjects. These significant qualifications for the grant remained the operative law until the repeal was introduced by Section 226. In early 1946, the law specifically providing for the ownership of petroleum and the right to search for and win mineral oils in Nigeria, Section 3(1)[5], stipulated that: “The entire property in and control of all mineral oils, on under or upon any lands in Nigeria, and of all rivers, streams and watercourses throughout Nigeria, is and shall be vested in the Crown. Save in so far as such rights may in any case have been limited by any express grant made before the commencement of this Act”.  A new sections was added to the 1914 Act by the Mineral Oils (Amendment) Act in 1950 whereby the submarine areas of Nigeria's territorial waters were brought under the ambit of the 1914 Act[6] and by yet another amending legislation in 1959, the legislative competence of Nigeria's Federal legislation was pronounced to cover the submarine areas of other waters which the legislature may decide to legislate upon in the future, in matters relating to mines and minerals.  It should be remembered that all that time, since 1946, Shell-BP had resumed exploration activities and was proceeding with the same. It drilled its first well in 1951 at a location near Ihuo village, some sixteen kilometres northeast of Owerri[7]. From there its operations were moved to drill its Akata-1 well[8]. So, with the company's increased activities, as was to be expected, there came some form of governmental control and regulation to ensure compliance by Shell-BP in its operations of safe and good oil-field practice measured by the international standards then known in the industry.

Accordingly, a set of Regulations known and described as "The Mineral Oils

(Safety) Regulations[9]" were issued with an effective date of 31 January

1952[10]. The Regulations were made under the powers granted by Section 9[11]. These Regulations have since been updated and replaced by the Mineral Oil

(Safety) Regulations 1963[12], which became effective from 11th April 1962.

These Regulations as amended are currently known as Mineral Oils (Safety)

Regulations as a subsidiary legislation of the Petroleum Act[13]

2.3     Regulatory regimes post-oil discovery in Nigeria

The first commercial discovery of crude oil[14] was made early in 1956 in a location near Oloibiri village in the current Bayelsa State, with production starting at 5,100 barrels per day in 1958[15]. Since pipelines were and still are one of the cheapest means of transporting such crude oil through long distances between the well-head and the point of exportation or refining, hence the Oil Pipelines Act[16] was passed with provisions designed to meet the requirements of this development in Shell-BP's operations. In order to specially tax the realised profits of oil companies, separately and distinctly from the companies which engage in other enterprises, the Petroleum Profits Tax Act[17] with retroactive effect from 1st January 1958 was enacted. Towards the end of the 1950-60 decade, shortly before Nigeria's independence from Britain and after the repeal of the provisions of the laws which disqualified non-British companies from grants of exploration licenses, some international companies that were mainly of American nationality became involved in continuing search for more oil in commercial quantities[18]. Available for grant in addition to other areas was the 50% of Shell's entire concessions at the time, which it had relinquished in 1958[19]. The Nigerian Gulf Oil Company which was a subsidiary of Gulf Oil Corporation with its headquarters in Pittsburgh, U.S.A., but which said subsidiary was a Delaware Corporation, was licensed about 1961 to explore for petroleum in Nigeria[20]. Other multinationals that were represented on the scene and which secured exploration licences at about the same time, included Mobil Oil, Texaco, Sunrayy Tenneco, Occidental, Agip, the Italian State-owned oil company as well as its French counterpart Safrap, which later became known as Elf Petroleum. The principal legislation under which these companies' grants were made was the Mineral Oils Act[21] Their realised profits were taxed in accordance with the terms of the Petroleum Profits Tax Act[22]. A few nonlegislative regulations also applied to their operations at the time. Administrative directives from the appropriate Government Ministry, to the oil companies virtually had tile force of law. For example, Agreements were entered into between the Nigerian Government and some of the oil companies in which the conditions relates to the following:



[1] ETIKERENTSE G (2005) Petroleum Law in Nigeria (2nd edition), Dredew Publishers, Lagos.

[2] OMOROGBE Y (2001) Oil and gas Law in Nigeria, Malthouse Publishers, Lagos.

[3] CAP 135, LFN 1948

[4] Mineral Oil Act, CAP 135 of the 1948 Edition of Laws of Nigeria 26 Ibid

[5] Ibid

[6] Ibid

[7] ETIKERENTSE G (2005) Petroleum Law in Nigeria (2nd edition), Dredew Publishers, Lagos.

[8] Reference is made to Shell-BP's operations here and will continue to be mentioned as the discussions under this topic progresses because, as has been stated, Shell-BP did enjoy a great measure or governmental protection at this stage of the oil industry in Nigeria and therefore the early development and growth of

Nigerian petroleum law were understandably linked with Shell-BP's operations and advancement

[9] Mineral and Safety Regulations of 1952

[10] ibid

[11] Minerals Act CAP 135 LFN 1948

[12] ETIKERENTSE.G (2005) Petroleum Law in Nigeria (2nd edition), Dredew Publishers, Lagos.

[13] CAP P10 LFN, 2004

[14] When the oil that is discovered in a particular well head is enough to be explored for exportation or local refining

[15] Ibid at foot note 13

[16] CAP O7 LFN, 2004

[17] CAP P13, LFN, 2004

[18] ETIKERENTSE G (2004) Petroleum Law in Nigeria (2nd edition), Dredew Publishers, Lagos.

[19] ibid

[20] ibid

[21] CAP 135 LFN, 1948

[22] CAP P13 LFN, 2004

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