Notable provisions of Nigeria’s upstream unitization regulations

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Notable provisions of Nigeria's upstream unitization regulations

This article is the first in a series of articles on the Nigerian upstream oil and gas sector, with a focus on the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) regulations on unitization, specifically:-

– Goals

– Scope

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– Hydrocarbon discovery notifications

– Joint development agreements

– Determination of overlapping reserves.

What are the objectives of the regulation?

– The regulations aim to establish rules, principles and procedures for the implementation of the initiation of oil and gas exploitation from a petroleum reservoir that extends beyond the boundaries of an area license or lease to which another permit or lease relates.

What is the scope of this regulation?

– The regulations apply to licenses and leases granted under the Petroleum Industry Act, where the petroleum reservoir extends beyond the boundaries of its license or lease area, which is held by a different person license or tenant and a declaration of commercial discovery has been made.

What are the preliminary activities to the discovery of oil under the regulations?

– A permit holder or lessee may, in the context of geophysical activities involving the acquisition of geophysical data within the limits of his permit or lease, extend beyond the limit, in any permit or lease area adjourned for a distance not exceeding 2 kilometers.

– Acquisition of geological data in accordance with these regulations shall be subject to prior approval of the NUPRC and notification to the licensee or lessee of the adjacent license or lease area.

– A permit holder or lessee must process and interpret all geophysical, geotechnical and geological data acquired under this Regulation and may make available to a permit holder or lessee a permit or a lease area adjourned the processed data or any interpretation of the data.

– A permittee or lessee shall map all geologic traps within its permit or lease area considered to overlap with one or more deferred permit or lease boundaries, to the knowledge of any other party.

What are the provisions of the regulations relating to the notification of hydrocarbon discoveries?

– A licensee or lessee who identifies a petroleum reservoir in a geological trap within its license or lease area, which appears to overlap with one or more adjacent licenses or leases, must notify the NUPRC of this discovery within 2 weeks of the suspension or abandonment of the well.

– The notification referred to above will be followed, within 60 days, by a complete report specifying certain information required for each straddling oil tank.

– When a petroleum reservoir mentioned above extends into an area which is part of a permit or lease issued to another permit holder or lessee, the permit holder or lessee must notify such other permit holder permit or tenant in writing of the extension.

– The NUPRC shall, in writing, notify permit holders or lessees of the adjacent permit holder(s) identified in the report that the reservoir extends into their permit or lease area.

What do the regulations say about determining overlapping reserves?

– The NUPRC will require the licensee or lessee in the license or lease area into which a reservoir extends to confirm whether the reservoir is straddling.

– A licensee or lessee may provide the confirmation required by –

A). carry out exploration activities, including drilling a confirmation well, or

b). provide a rebuttal based on existing information available to the licensee or lessee.

– Where the licensee or lessee carries out exploration activities including drilling a confirmation well and the result does not confirm that the reservoir is straddled, the NUPRC shall declare the reservoir as non-straddled.

– When the result confirms that the reservoir is straddling, the NUPRC will order the parties to enter into a unitization agreement.

What do the regulations say about joint development agreements?

– Where the NUPRC directs the joint development of a reservoir in accordance with this Regulation, the NUPRC shall require the licensee or lessee to do the following –

A). enter into a pre-unitization agreement (PUA) before executing a unitization agreement, and

b). sign a unitization agreement for the joint development of the reservoir.

– Notwithstanding the provisions of sub-regulation (a) above, the parties may enter into a Unitization and Unit Operation Agreement (UUOA) where the straddling reservoir is a brown-brown reservoir.

– Agreements under this Regulation shall be subject to the approval of the NUPRC prior to the execution of the agreement by the parties.

Section II

This article will examine the provisions of the NUPRC regulations on unitization regarding the following topics:

– Extension to areas not covered by a permit or lease

– Deadlines for completing co-development agreements

– Oil production before signing a pre-unitization agreement

– The appointment of independent consultants.

What are the provisions of the regulations extending to areas not covered by a permit or lease?

– When a petroleum reservoir extends beyond the limits of a permit or lease into an adjacent area which is not covered by a permit or lease and the permit holder or lessee has made a declaration of commercial discovery regarding this reservoir, the NUPRC may –

A). require the licensee or lessee to apply for an extension to cover the license or lease area and the commission may approve the application, where the applicant meets the conditions prescribed by the NUPRC, or

b). conduct a bold exercise in accordance with the Petroleum Industry Act for the unlicensed or leased area that the reservoir overlaps.

What do the regulations say about declarations under a pre-unitization agreement?

– Parties to a joint assessment program under a pre-unification agreement may make a commercial discovery declaration in accordance with Article 78(8) of the Petroleum Industry Law.

– When the above-mentioned declaration is made, the parties may request the NUPRC to approve that a unit agreement is not required and submit proposals for separate field development plans.

What is the implementation deadline for co-development agreements?

– Parties to a pre-unitization agreement will have a minimum period of 12 months to enter into and execute the agreement from the time the NUPRC directs the parties to jointly develop the reservoir as a unit.

– The launch agreement must have a minimum period of 12 months to enter into and execute the unitization and operation agreement from the time the NUPRC directs it.

What do the regulations say about oil production before signing a pre-unitization agreement?

– Where one or more parties to a pre-unitization agreement are engaged in independent production of oil from their respective areas prior to the decision to unify the area’s reservoirs, the parties will continue to produce from their areas respective until the execution of the pre-unitization. agreement.

– Notwithstanding the foregoing, the NUPRC may order the cessation of such operations until there is a pre-unification agreement if the commission finds that the operations may adversely affect the optimal recovery of petroleum reservoirs or the rights of other licensees or lessees.

What do the regulations say about the appointment of independent consultants?

– The NUPRC may issue a written directive to licensees or tenants to jointly appoint an independent consultant to draw up the terms and conditions of the unit agreement, where licensees or tenants are unable to achieve to an agreement within the time limit prescribed in these regulations.

– The terms and conditions of appointment of consultants will be as determined by the NUPRC.

What are the provisions of the regulations relating to the modification of share agreements?

– Parties to a unitary agreement may amend the agreement, subject to the approval of the NUPRC.

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