Nigeria's New Petroleum Industry Act Signed Into Law
Over 2 decades in the making, the Petroleum Industry Act has become law and establishes a new reality for Nigeria’s oil and gas industry.
Over 2 decades in the making, the Petroleum Industry Act (PIA) has become law and establishes a new reality for Nigeria’s oil and gas industry. The scale of the changes implemented by the PIA is widespread and profound; it is a root and branch overhaul of the administrative, regulatory, and fiscal regime, as well as the key petroleum institutions. As a result, the PIA is complex, detailed, and not easily digestible, but here is a summary of the key provisions that are relevant to upstream participants grappling with the new regime.
While the passing of the PIA delivers much needed stability for the industry in settling the applicable regulatory and fiscal terms, the upstream community will now assess whether it creates a framework that can support them in meeting the long-term challenges of declining investment and project development, withdrawing majors, and the energy transition and its implications.
Five Key Upstream Changes
- Fundamental reform of the administrative and regulatory regime and petroleum institutions. Creation of a new upstream regulator, the Commission, largely replacing the Department of Petroleum Resources (DPR). The PIA reforms aim to follow international upstream norms, remove potential conflicts of interests, and introduce greater transparency and rule-based systems. It attempts to transition the Nigerian National Petroleum Corporation to be a commercial entity that is not dependent on government support.
- Grandfathering of existing upstream licenses until their conversion to the new PIA regime. Existing oil prospecting licenses and oil mining licenses continue on their present terms, and only certain PIA terms apply to them (including requirements to establish and fund community trusts and decommissioning and abandonment escrow accounts but excluding the new fiscal terms). These licenses convert to the new PIA terms either voluntarily or mandatorily on license renewal, with changes to the existing terms only applying from conversion (along with significant relinquishment requirements, and the abandonment of related litigation proceedings on a voluntary conversion). This will be a key area of review and transitionary activity for existing upstream participants—assessing the benefits of early conversion against its implications.
- General reduction in the taxation and royalty-take of new/converted licenses from the prior fiscal regime. The extent of the reduction varies dependent on the nature of the acreage and whether it is freshly granted or converted pre-PIA acreage (with onshore/shallow water joint venture acreage receiving the biggest net reduction). The new fiscal regime only applies to existing licenses from conversion.
- Establishment of a new host community development trust structure. This entails payment of a 3% levy and the creation of community trusts to initiate local projects, as well as the transfer of existing community projects. Operators have 12 months to establish these trusts.
- Companies must segregate their upstream, midstream, and downstream operations. Midstream (and any downstream) activities that were being carried out as part of upstream operations will require the grant of new a midstream/downstream license within 18 months.