Nigeria: Ministerial Consent — Necessary For Change Of Corporate Control Under Oil And Gas Law In Nigeria...Say The Court And The PIB

Introduction:

The principal legislation which regulates the Nigerian oil and gas industry is the Petroleum Act (the PA). The laws and regulations which deal with the grant or acquisition of petroleum interests in Nigeria prescribe certain conditions which must be met prior to the grant or acquisition of such interests. The overriding purpose of these requirements is to ensure government control over petroleum resources and for all interest holders to be acceptable to the government. Consequentially, this enables the government to ensure that petroleum resources are utilised both for the ultimate benefit of the people and in the interest of national security.

It is customary in commercial transactions for companies to acquire or purchase all or majority of the shares in another company or to offer their shares for sale to other companies or individuals. This could result in the change in control of the acquired entity.

In this regard, and particularly with reference to petroleum interests, the PA at paragraph 14 of the First Schedule, provides that a holder of an oil prospecting lease or an oil mining lease shall not assign his licence or lease, or any right, power or interest therein without the prior consent of the Minister for Petroleum Resources (the Minister). In addition to this, the Petroleum (Drilling and Production) Regulations (the Regulations) provide the procedure to be adopted for the application to the Minister for the assignment or takeover of an oil prospecting licence or an oil mining lease or of an interest in either.

The issue of what constitutes an assignment or takeover of a petroleum interest, or whether a violation of the provisions of the PA and the Regulations occurs where a sale and/or transfer of the entire or majority shares in a company - being the holder of an oil mining lease - is effected without the prior consent of the Minister, was recently decided by the Federal High Court in Nigeria.

In the subject case, our firm, Adepetun Caxton-Martins Agbor & Segun, represented the plaintiff who contended that the take over or acquisition of the first defendant's 40% interest in an oil mining lease (in which the plaintiff was holding the 60% stake) by third parties (also sued as co-defendants), by way of a share acquisition through other counterparties, without the prior consent of the Minister violated the provisions of the PA and the Regulations which require such consent.

Facts:

Moni Pulo Limited (Moni Pulo) and Brass Exploration Unlimited (Brass) were both counterparties to a joint operating agreement on Oil Mining Lease 114. By a letter dated 27th January, 2004, the Minister approved Moni Pulo's application to assign a 40% undivided participating interest in Oil Mining Lease 114 to the Petroleum Oil and Gas Corporation of South Africa (Pty) Ltd (PetroSA) which had acquired this interest through the transfer of Brass' shares (then owned by two subsidiaries of a company called Rachael Holdings, being Brassco (Cayman) Ltd and Brass Holding Ltd) to the Petroleum Oil and Gas Company of South Africa (Nigeria) Ltd (PetroSA Nigeria) and PetroSA Brass (Pty) Ltd.

In February 2011, all of Brass' shares – as then owned by the PetroSA group – were transferred to Camac Energy Services Ltd and Camac Energy Resources Ltd, both owned by Camac International Corporation. As a result of the share transfer, the relevant entity in the Camac group became Brass' parent company. The Minister's consent was neither properly sought nor obtained for this subsequent transfer to the Camac group.

Dissatisfied with the manner of the transfer and unwilling to partner with the Camac group, Moni Pulo approached the Federal High Court of Nigeria to seek an interpretation of, among other things, Paragraph 14, First Schedule of the PA and a determination of whether the Minister's consent was required for the valid transfer of Brass' 40% participating interest in OML 114 by way of a transfer of 100% of the shares of Brass from the PetroSA group to the Camac group. Paragraph 14, First Schedule of the PA provides that "[w]ithout the prior consent of the Minister, the holder of an oil prospecting licence or an oil mining lease shall not assign his licence or lease, or any right, power or interest therein or thereunder."

Moni Pulo in its argument referred the Court to Regulation 4(b) of the Regulations, which provides that:

"[An] application for the assignment or takeover of an oil prospecting licence or oil mining lease (or of an interest in the same) shall be made to the Minister in writing and accompanied by the prescribed fees at the discretion of the Minister; and the applicant shall furnish in respect of the assignment, or takeover, all such information as is required to be furnished in the case of an applicant for a new licence or lease."

The thrust of the proceedings filed by Moni Pulo was to determine the clear intent or purposive interpretation of the above provisions as it applies to the change in the corporate control by a 100% share transfer of Brass, which owns a 40% participating interest in OML 114, without the prior consent of the Minister.

Brass, PetroSA, PetroSA Nigeria, PetroSA Brass, Camac Energy Services, Camac Energy Resources, Camac International Corporation and the Minister were sued as the first to eighth defendants respectively.

Decision:

The Federal High Court delivered its judgment on 7th May, 2012, holding that the Minister's consent was required before the Camac group could exercise any right or interest in Brass' ownership/control of a 40% participating interest in Oil Mining Lease 114, irrespective of the share transfer concluded between the PetroSA group and Camac group. The Court thereby restrained all of the Camac group and their representatives from exercising any rights in or taking any benefits from OML 114 until the Minister consents to the change in corporate control of Brass, being an oil asset owning company subject to the provisions of the PA and the Regulations.

According to the Court:

"The words used in paragraph 14 of the First Schedule to the Petroleum Act and Paragraph 4 of the Petroleum (Drilling and Production) Regulations are simple and clear that no transfer, assignment, sale and/or takeover of an oil mining lease or any right, power or any interest therein or thereunder can be validly effected without the consent of the Minister of Petroleum Resources. The importance of the petroleum resources to the Federal Government of Nigeria cannot be over emphasized hence the grant of oil prospecting licence or oil mining lease (or of an interest in the same) is strictly under the President and the Minister of Petroleum Resources. In the absence of such control participation in oil prospecting or oil mining will be an all comers affair that will turn the petroleum industry into a motor park for touts to hold sway. Such an unfortunate scenario will lead to chaos in the industry which will be detrimental to the national security and economy.

...

Under the Companies and Allied Matters Act[,] Subscribers and Shareholders of a company can ordinarily transfer and/or sell their shares in the company. Such a company if its business is governed by another law must comply with the provisions of such law before it can take benefit of such transfer and/or sale of the shares. In the instant case the 1st defendant's 40% participating interest in OML 114 held by the 2nd, 3rd and 4th defendants acquired by the 5th, 6th and 7th defendants can only come into fruition on the approval of the Minister of Petroleum Resources. I agree with the 1st – 7th defendants that a limited liability company such as the 1st defendants (sic) has a distinct legal personality from its

shareholders. See SALOMON V. SALOMON (supra). However it must be borne in mind that such a company operates through its director appointed by the shareholders. The Minister of Petroleum Resources has a duty to satisfy himself or herself that the 5th, 6th and 7th defendants who have acquired the 2nd, 3rd and 4th defendants' shares in the 1st defendant's 40% participating interest in OML 114 are qualified to participate in the OML 114. It is for this purpose that the veil of the 1st defendant will need to be lifted to ascertain who the new owners of the 1st defendant are. See the cases of: JONES & ANOR V. LIPMAN (1962), ALL ER 442; DAIMLER C. LTD V. CONTINENTAL TYRE & RUBBER CO (GREAT BRITAIN) LTD (1916) 2 AC 307.

The requirement that the Minister of Petroleum Resources' approval for the transfer of sale and/or acquisition of the entire (100%) share capital of the 1st defendant from the 2nd, 3rd and 4th defendants by the 5th, 6th and 7th defendants is not in doubt."

The decision has since been appealed by the parties on several grounds.

Comments:

The issue of whether the Minister's consent is required for the valid transfer of the controlling shares of oil and gas asset-owning companies in Nigeria has been the subject of intense debate within the legal community. Prior to this judgment, the Department of Petroleum Resources customarily insisted on the consent requirement of the PA being adhered to, but this was at best implemented under the practice directives of the regulator, devoid of express judicial validation.

While the Federal High Court's judgment may not have finally laid to rest the issue of the consent requirement, particularly in light of the pending appeals, it would be prudent for oil and gas industry participants to note the thrust of the judgement and err on the side of caution by adhering to what is now the current position of the law.

It must also be noted that the decision would appear to reflect the government's current policy thinking in light of Clauses 194(1) and (2) of the Petroleum Industry Bill recently submitted to the National Assembly by the executive, which states:

"(1) Where a licensee, lessee or production sharing or service contractor is taken over by another company or merges, or is acquired by another company either by acquisition or exchange of shares, including a change of control of a parent company outside Nigeria, it shall be deemed to be and treated as an assignment within Nigeria and shall be subject to the terms and conditions of this Act and any regulations made under it.

(2) A licensee, lessee or contractor shall not assign his licence, lease or contract, or any part thereof, or any right, power or interest therein without the prior written consent of the Minister."

Pending the passing of the PIB into law, this landmark decision has unequivocally settled for the time being, the question of whether the Minister's consent is required where the transfer of interests in an oil mining lease is indirectly effected by way of the transfer of shares. Undoubtedly, this represents a milestone in Nigerian jurisprudence on the 'assignment' of petroleum interests in the Nigerian oil and gas industry and will serve to define the parameters under which decisions to acquire petroleum interests are made, going forward.

Footnotes

1. The government is currently proposing changes to the current legal framework of the Nigerian oil and gas industry through the Petroleum Industry Bill.

2. Paragraph 4.

3. Oil Mining Lease 114 is an offshore oil block located in the Niger-Delta Continental Shelf and covers an approximate area of 463,289 square kilometres.

4. Case FHC/L/CS/835/2011 instituted on July 13 2011;

5. Now compiled as Cap P10, Laws of the Federation of Nigeria, 2004.

6. This is the technical arm of the Ministry of Petroleum Resources responsible for the regulation of transfer of interests in the oil and gas industry, among other functions.

7. Reference in this regard is made to the court processes filed in the case by the Minister.

8. On 18th July, 2012.

9. On 18th July, 2012.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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