DISPUTE RESOLUTION BY ARBITRATION IN THE NIGERIAN OIL AND GAS INDUSTRY UNDER THE NIGERIA PETROLEUM INDUSTRY ACT 2021.1

1. Introduction

The Oil and Gas industry is the mainstay of the Nigerian economy and contributes significantly to Nigeria's economic development. Due to the myriad of contractual arrangements and the nature of activities occurring in the petroleum industry, disputes are inevitable. Disputes arise amongst the investors or between operators and the oil-producing communities, contracting state governments and foreign investors, etc.2

Parties to Oil and Gas contracts often resort to the use of alternative dispute resolution (ADR) processes whenever disputes occur in business agreements, especially arbitration which is an established and significant feature in such agreements.3 Arbitration is more suited compared to litigation because the Oil and Gas industry involves heavy capital investment from foreign investors who are unlikely to agree to resolve disputes that may arise before the Nigerian courts. Also, due to the sophisticated contractual agreements involved in the Oil and Gas industry, foreign investors are reluctant to submit such contractual disputes to the jurisdiction of the host country's judicial system and would rather resort to arbitration where they can select arbitrators with the requisite experience and expertise to resolve their disputes. In this article, we examine the current legal framework for arbitrating disputes in the Oil and Gas industry in Nigeria.

2. Legal Framework for Arbitration in the Nigerian Oil and Gas Sector

Under the Nigerian legal system, arbitration is recognized as an effective means of dispute resolution. National laws (and in recent times, some sub-national laws e.g., Arbitration Law of Lagos State) have been enacted to incorporate arbitration in the country's legal system. The statutes enacted give recognition to arbitration as a prominent mechanism for the settlement of disputes in the Oil and Gas industry in Nigeria. Some of the national laws generally give room for voluntary arbitration by parties whilst some other statutes mandate compulsory arbitration.4 The domestic statutes that provide for arbitration in the Nigerian Oil and Gas sector include the newly enacted Petroleum Industry Act ("PIA"),5 the Petroleum Act ("PA"),6 Oil Pipelines Act,7 the Nigerian Investment Promotion Commission Act8 and the Nigeria LNG (Fiscal Incentives, Guarantees and Assurance Act).9

Prior to the signing of the PIA bill into law, Section 11 of the now repealed PA stipulated that:

"(1) Where by any provision of this Act or any regulations made thereunder a question or dispute is to be settled by arbitration, the question or dispute shall be settled in accordance with the law relating to arbitration in the appropriate State and the provision shall be treated as a submission to arbitration for the purposes of that law.

(2) In this section "the appropriate State" means the State agreed by all parties to a question or dispute to be appropriate in the circumstances or, if there is no such agreement, the Federal Capital Territory, Abuja."

The above provision is an indication that arbitration is legally permissible in the settlement of disputes arising from transactions in the Oil and Gas sector. However, the PA did not lay down the procedure or rules to be followed in the conduct of arbitration of this nature.

On 16th August 2021, the PIA was enacted and it repealed the existing PA 200410. The PIA stipulates an array of provisions and innovations that influence the status of the private, and public sectors, as well as stakeholders in the oil and gas industry. The PIA was enacted after several attempts of the Nigerian government at developing a new legal, governance, regulatory, and fiscal framework for the Nigerian Petroleum Industry.11 Significantly, the new Act does not provide an equivalent provision to section 11 of the repealed PA. However, there are provisions in relation to arbitration in the PIA. We highlight below most of the provisions setting the background for arbitration or relating to arbitration or the consequences of arbitration or its awards on stakeholders in the Oil and Gas industry below.

  1. Under the PIA, the Nigerian Midstream and Downstream Petroleum Regulatory Authority is charged with the duty of making regulations concerning dispute resolution. This is provided for in Section 33 (t) of the Act as follows:

"subject to section 216, the Authority shall make regulations concerning dispute resolution and customer protection"

  1. Alongside the description of the acreage and the term and conditions of the licence and lease, section 76(1)(f) of the PIA mandates that the model licence or model lease for each bid round should include a clause containing the rules for the resolution of disputes including arbitration, mediation, conciliation or expert determination. The provision states thus:

"The model licence or model lease for each bid round shall reflect the conditions of the licensing round guidelines for the bid round and shall in all circumstances include the following clauses: rules for the resolution of disputes including arbitration, mediation, conciliation, or expert determination".

  1. Section 96 of the PIA provides for the revocation of a license or lease where the licensee or lessee fails to abide by an arbitration award set forth in the licence, lease or the Act. Section 96(1) (l) stipulates that:

"...upon receipt of the written recommendation of the Commission for revocation, the minister may revoke a petroleum prospecting license or petroleum mining lease, where the applicable licensee or lessee: fails to abide by any expert determination, arbitration award or judgment arising from the dispute resolution provisions set forth in a licence, lease or this Act."

  1. Similarly, Section 120 (1) (j) of the PIA provides for the revocation of a licence or permit in midstream and downstream petroleum operations where the holder does not abide by an arbitration award set forth in the licence or the Act. The section states thus:

"Notwithstanding the provisions of Chapter 2 of this Act related to midstream and downstream petroleum operations, a licence or permit may be revoked where the holder fails to abide by any expert determination, arbitration award, or judgment arising from the dispute resolution provisions set forth in a licence or this Act".

  1. Section 4 of the First Schedule to the PIA made pursuant to section 3(3) of the PIA also provides that:

"Any disputes as to whether a delay was due to causes beyond the control of licensee/lessee shall be settled by agreement between the Minister and the licensee/lessee or in default of agreement by arbitration"

  1. Section 5 (b) of the First Schedule to the PIA made pursuant to section 3(3) of the PIA also provides that:

"Dispute as to price of petroleum products taken by the Minister at port of delivery pursuant to his preemptive right is to be settled by agreement between the Minister and the licensee/lessee or in default of agreement by arbitration."

  1. Section 7 of the First Schedule to the PIA made pursuant to section 3(3) of the PIA also stipulates that:

"Any arbitration under the First Schedule shall take place after the petroleum or petroleum products have been delivered."

  1. Section 16 (Grievance Mechanism) of the Petroleum Host Community (Commission) Regulations made pursuant to Section 235 PIA provides that grievances should be referred to the National Oil and Gas Excellence Centre (NOGEC) – the Alternative Dispute Resolution Centre (ADRC) established for the resolution of disputes through mediation, reconciliation and arbitration by the Department of Petroleum Resources (DPR) now (the Nigerian Upstream Regulatory Commission). The ADRC was established and inaugurated in April 2021.12 The section provides for grievances to be resolved by arbitration after the host community and the settlor (and failing that, the mediator), have failed to resolve the dispute.

It should be noted that some of the disputes in the industry can still be referred to the local courts without exploring ADR first. For instance, Section 101 (d) provides that disputes between a licensee/lessee and owner of privately owned or legally occupied land as to compensation payment should be decided by the Federal High Court while section 163 provides that the Authority may mediate disputes in relation to third party access to gas transportation pipeline and networks. Further, sections 307, 308 and 309 are in relation to the 3 months Public Officers Protection limitation, 1-month pre-action notice and consequential amendment of certain provisions of any other enactments to the extent of their inconsistency with the Constitution and the PIA, respectively.

3. Saving/Transition Provisions of the PIA Preserving Arbitration as a means of Dispute Resolution in the Oil and Gas Sector.

The above highlighted provisions in, or made pursuant to, the PIA provide context for arbitration in the Nigerian oil and gas industry. Although, arbitration is not directly provided for in the same manner as under section 11 of the repealed PA, the sections highlighted above show that the provisions of paragraph 42 of the First Schedule to the PA made pursuant to section 2(3) of the PA, paragraph 5 of the Pre-emptive rights in the Second Schedule made pursuant to section 7(2) of the PA are all saved and become part of the extant law by the PIA given that paragraph 42 of the First Schedule to the PA is not inconsistent with the provisions of the PIA.

Section 309 of the PIA (Consequential Amendments) provides that:

"Subject to the provisions of the Constitution, upon the coming into force of this Act, where the provisions of any other enactment or law are inconsistent with the provisions of this Act, the provisions of this Act shall prevail and the provisions of that other enactment or law shall, to the extent of that inconsistency, be void in relation to matters provided for in this Act.

PA is not expressly repealed but some of its provisions are impliedly modified by the PIA.The PA itself, and particularly its First Schedule, is not listed in section 310 of the PIA (Repeals) as one of the laws and regulations repealed.

Section 311 of the PIA (Saving provisions) in its subsections 1 and 2 provide that:

"(1) Any Act, subsidiary legislation or regulation, guideline, directive and order made pursuant to any principal legislation repealed or amended by this Act, shall, in so far as it is not inconsistent with this Act, continue in force mutatis mutandis as if they had been issued by the Commission or Authority under this Act until revoked or replaced by an amendment to this Act or by subsidiary legislation made under this Act and shall be deemed for all purposes to have been made under this Act.13

(2) Any oil prospecting licence or oil mining lease granted under the Petroleum Act, 1969 that is subsisting as at the effective date of this Act shall continue to have effect, subject to the following terms and conditions ...."14

The 'terms and conditions' referred to above relate to when the licenses and leases terminate and how to renegotiate renewals in conformity with the PIA, while the conditions of issuance of the licenses and leases continue to be applicable until converted or made to be in conformity with the PIA, as long as their provisions do not conflict with the PIA.

Section 311 (9) of the PIA specifically saves the provisions of the PA with respect to extant licenses and leases, only making them renewable/renegotiable pursuant to the PIA. The PA is not expressly repealed but any of its provisions that conflicts with the provisions of PIA is void to the extent of the conflict.Thus, the provisions of section 11 of the PA has been saved by the PIA, particularly with respect to disputes in respect of the licenses and leases etc issued under the PA, and its provisions are applicable to arbitrations under the current regime. This also applies to the Alternative Dispute Resolution Centre ("ADRC") set up by the erstwhile Department of Petroleum Resources ("DPR") now Nigerian Upstream Petroleum Regulatory Commission ("NUPRC"), in consonance with the provisions of the PA, as it aligns with the provisions of the PIA highlighted above for dispute resolution via ADR means. The ADRC emphasizes the settlement of disputes through ADR mechanisms (mediation, conciliation and arbitration) without recourse to litigation. With a six-member Advisory Council and a 20-member Body of Neutrals to mediate on disputes between players in the oil and gas value chain, the ADRC has recorded significant successes via mediation of disputes within its short existence.

4. Conclusion

Timely settlement of disputes among the partners/operators of an oil and gas project is very key to stability, sustenance of commercial harmony, and to keeping the oil and gas fields in operation and ultimately securing the rents, royalties and taxes to government while helping asset holders to fulfil the conditions of their licenses. It is evident that arbitration is recognized, incorporated and in use in the oil and gas industry in Nigeria and the law continues to be fine-tuned to meet the current realities based on the legal regime of the PIA and regulations made pursuant to, or saved by, the PIA.

Footnotes

1. Peter Olaoye Olalere, Associate Partner and Head of Energy & Natural Resources Practice and Maryam Abdulsalam, Associate, SPA Ajibade & Co., Lagos, Nigeria.

2. Temitayo Bello, 'Dispute Mechanism in Petroleum Industry: An Overview of Arbitration Frontiers' Babcock University: School of Law and Security Studies [2017] (29) (10) 26 available at

https://deliverypdf.ssrn.com/delivery.php?ID=0630891020081200970861070310830271050320110840850350891200750691000171071250990100660050160430560610480600650
7510206706911400501905303903504808108809911509609711901509304703309703009412201507207811010211912610208509112709
6075089092000099023094096100100&EXT=pdf&INDEX=TRUE accessed on 4th April 2022.

3. D. Nwaogu, F. Onomrerhinor & D. Nicholas, ' An Examination of the Legal Frameworks on Arbitration in the Nigerian Oil and Gas Industry' International Journal of Business & Law Research 9(3): 236-247, July-Sept., 2021 available at https://seahipaj.org/journals-ci/sept-2021/IJBLR/full/IJBLR-S-21-2021.pdf accessed on 5th April 2022.

4. Mark Ukeche, 'A Legal Perspective for ICSID Arbitration Reforms: the Benefits for Nigeria Oil & Gas Sector' Faculty of Law, Baze University, Abuja, available at https://portal.bazeuniversity.edu.ng/student/assets/thesis/202105041326131579595152.pdf accessed on 27th April 2022.

5. The Act was signed into law on 16th August 2021. It repealed the existing Petroleum Act.

6. The Petroleum Act, Cap P10 LFN 2004.

7. Oil Pipeline Act, Cap 07 LFN 2004.

8. Nigerian Investment Promotion Commission Act, Cap N117 LFN, 2004.

9. Fiscal Incentives, Guarantees and Assurance Act, Cap N 38 LFN, 2004.

10. Section 317 of the Petroleum Industry Act.

11. See Nigeria: "Behold The Brand New Nigerian Petroleum Industry Act, 2021" at https://www.mondaq.com/nigeria/oil-gas-electricity/1103114/behold-the-brand-new-nigerian-petroleum-industry-act-2021. See also "Nigeria: Overview Of The New Petroleum Industry Act 2021" at https://www.mondaq.com/nigeria/oil-gas-electricity/1113104/overview-of-the-new-petroleum-industry-act-2021#:~:text=The%20new%20Petroleum%20Industry%20Act%202021%20which%20was%20recently%20assented,and%20
stakeholders%20in%20the%20oil accessed on 27th April 2022.

12. See https://www.nuprc.gov.ng/department-of-petroleum-resources-flags-off-of-alternative-dispute-resolution-centre-adrc/ accessed on 1st May 2022.

13. Emphasis supplied.

14. Ibid.

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