The UK Oil and Gas Offshore Exploration and Production

Introduction

The oil and gas industry worldwide plays a huge role in the distribution of energy in many countries. Its daily use and consumption by humans who are the final consumers of the natural resource as well as its importance cannot be over-emphasised. The oil and gas sector of a countries directly and indirectly contributes to the overall economic progress of countries that are involved in its exploration, production and trade respectively. The top 20 petroleum producing countries in the world include Saudi Arabia, Russia, United States of America, Iran, China, Canada, Mexico, United Arab Emirates, Brazil, Iraq, Nigeria, Kuwait, Venezuela, European Union, Norway, Algeria, Angola, Libya, Kazakhstan and Qatar.

The oil and gas sector can be classified into three (3) main categories: the upstream, the midstream and the downstream. The upstream sector, being this paper’s main focus can also be described as the exploration and production stage in the oil and gas industry because it involves the search for underwater and underground natural gas fields or crude oil fields and the drilling of exploration wells and drilling into established wells to recover oil and gas.

This paper explicitly seeks to discuss off shore drilling in the exploration and production stage of oil and gas in the United Kingdom and Nigeria, comparing them, paying close attention to the type of agreement used, the nature of ownership rights and the overall authority and power the government has over the petroleum sector.

The UK Legal Framework

The main law governing the oil and gas sector in the United Kingdom is the Petroleum Act 1998 as amended. Under this legislation, all rights and obligations to petroleum in addition to the rights to “search for, bore and get” petroleum are entrusted in the crown.[footnoteRef:4] In recent times, the Department for Energy and Climate Change (DECC) was substituted by a regulatory body called the Oil and Gas Authority (OGA) which took over on the first (1st) of April 2015 and whose obligation is to handle licensing and regulatory lapses in the sector. Any company wishing to partake in the upstream petroleum sector of the UK must have at least one (1) of the following stated licences; the Seaward Production Licence, the Landward Production Licence, the Offshore Innovate Licence and the Exploration Licence.

The Nigerian Legal Framework

There are several laws regulating the oil and gas sector in Nigeria. However, the significant legislations to note are; the Petroleum Act 2004 as amended, the Deep Offshore and Inland Basin Production Sharing Contracts Act, the Nigerian Oil and Gas Industry Content Development Act 2010 and Petroleum Profits Tax Act. Also, the regulatory body responsible for the extraction of oil and gas is the Department of Petroleum Resources (DRP) and its functions include; monitoring how the oil companies operate, issuing licences, setting and enforcing environmental standards among others. Another key aspect is that in order to carry out oil and gas exploration activities in Nigeria, international oil companies (IOCs) need to obtain a licence called Oil Exploration Licences (OEL), Oil Prospecting Licences (OPL) and Oil Mining Licences (OML) by the Petroleum Minister via the DRP.

Nature Of Property Rights

Property rights deal mainly with the ownership or power over the location where the actual natural resource and when it is found or discovered. As earlier stated, all rights to oil and gas discovered used to be under the crown before the establishment of the Oil and Gas Authority whose duty includes issuance of licence(s). This regulatory body’s power however doesn’t cover the on shore oil and gas sector in Northern Ireland.

In Nigeria it is slightly different because the constitution which is supreme over all over legislations, particularly section 44(3) and item 39 Schedule II of the Exclusive Legislative List vests the control and management of the natural resources and hydrocarbon operations on the federal government for the common good and benefit of the citizens. Because the UK’s laws aren’t written and therefore flexible, power is vested in a regulatory body and can be changed at any point as the parliament deems fit as opposed to Nigeria whose laws are written and the nature of rights/ ownership therefore vests in the government, is constitutional and rigid.

Contracts

In any exploration and production agreement between host countries and international oil companies in the oil and gas sector, certain types of contracts legally bind them. These contracts can be in four (4) main forms. They are: concessions, production sharing contracts, joint ventures and service contracts. This means that the type of contracts utilised in the petroleum sector in both the United Kingdom and Nigeria could be any of the contracts mentioned above. In Nigeria however, the Production Sharing Contract (PSC) is the most commonly used contract because it benefits both parties to a certain extent.

Offshore Drilling

Prior to the establishment of the Oil and Gas Authority (OGA) in the UK which is now in charge of the upstream oil and gas sector, the secretary of the state was in charge of giving or granting licence to drill for, produce and explore petroleum reserves within the jurisdiction. Paying close attention to offshore drilling in the UK, there are two main forms of licences formerly required to operate are the Seaward Production Licence (SPL) and the Exploration Licence.

With the new regulatory body (OGA) in force, a new licence which is a form of SPL governing offshore drilling was also introduced. The “innovative licences”, “offering greater flexibility for each applicant to design a work programme around particular circumstances.” In essense there are three (3) main licences required to operate in offshore drilling and they are;

• The Seaward Production Licence (SPL)
• The Offshore Exploration Licence and
• The Innovative Licence.

The upstream sector in Nigeria is mainly governed by the Petroleum Act (Laws of the Federal Republic of Nigeria) 2004. This Act is mainly concerned with how petroleum is explored, produced and finally distributed. International oil companies seeking to drill offshore within the Nigerian territory are also required to obtain licences to drill. This licence should be obtained from an institution referred to as the Ministry of Petroleum who is headed by the Minister of petroleum.

Earlier, when describing the legal framework in Nigeria where the necessary licences were mentioned, it is important to note that these rights are held as long as the contract binding them is still valid. The Production Sharing Contract is the primary form of contract used in Nigeria as afore mentioned and this type of contract is governed by the Deep Offshore and Basin Production Sharing Contracts Act.

In line with the foregoing, what can be deduced from the written statements in my view is that oil and gas exploration and production are similar in both jurisdictions especially when paying close attention to offshore drilling. They both require licences, they both have legislations governing or stating how the activities are done within each jurisdiction and a regulatory body in charge of the issuing of these licences to international oil companies who are interested.

The similarities between the two jurisdictions don’t go without any difference(s). Formerly, in the United Kingdom, all rights to petroleum within its jurisdiction belonged to the crown by of recent, this power and authority was delegated to the Oil and Gas Authority (OGA), a regulatory body. In Nigeria on the other hand, ownership of the natural resource wherever found within the land or jurisdiction belongs to the Federal Government and this is backed up by the constitution right from the beginning of oil and gas exploration in the country. The point here is that because the laws in the UK are easily changed, there is ease of amendment of these legislations and regulations where necessary. That of Nigeria’s on the other hand isn’t rendering it no so easy to amend and therefore rigid. Another key difference is that when the necessary licence for offshore drilling has been obtained in the UK by oil companies, a subsequent licence isn’t required to the produce this natural resource. This is not the case in Nigeria. When an Oil Exploration Licence (OEL) is obtained, in order to then produce the natural resource (oil and gas), a subsequent licence referred to as the Oil Prospecting Licence (OPL) is required to be obtained.