DPR GUIDELINES AND PROCEDURES FOR OBTAINING MINISTER’S CONSENT TO THE ASSIGNMENT OF INTEREST IN OIL AND GAS ASSET 2021 – HAS ANYTHING CHANGED?

The Department of Petroleum Resources (DPR) recently approved the Guidelines and Procedures for Obtaining Minister’s Consent to the Assignment of Interest in Oil and Gas Assets 2021 (2021 Guidelines). The 2021 Guidelines repeals the Guideline and Procedures for obtaining Minister’s Consent to the Assignment of Interest in Oil and Gas Assets 2014 (2014 Guidelines).

In this briefing note we highlight the changes introduced in the 2021 Guidelines as compared to the 2014 Guidelines and lend our thoughts to the import and impact of some of the provisions of the 2021 Guidelines.

Ditching of Local Content

The 2014 Guidelines provided that a divesting party must include the plans for effecting aspects of the Nigerian Oil and Gas Content Development Act 2010 with respect to a divestment process. This provision has been expunged in the 2021 Guidelines. This may have been removed to allow more participants in a divestment process in other to encourage foreign direct investments in Nigeria. This notwithstanding, it is necessary to mention that to the extent that the provisions of the Local Content Act apply to a divestment, such provisions should be complied with bearing in mind that the Local Content Act is a subsisting Act of the Nigerian National Assembly.

Provisions on Asset Pricing

In arriving at the valuation of an asset, the 2021 Guidelines provides that where the investment on surface facilities has been fully amortised through cost recovery, the Assignor shall not include such facilities as part of its valuation of the asset.

Furthermore, where the Assignment is by way of transfer of interest in an Asset held in JV with the NNPC, the Assignor shall submit to the DPR an agreement between the parties on the treatment of the Assignor’s abandonment and decommissioning liabilities. The agreement shall contain the cost of abandonment and decommissioning liabilities and such costs shall be deducted pro-rata from the transaction purse.

Separation of Interests to be transferred

Where an Assignment is by way of transfer of interest in an asset held in JV with the NNPC, the application for consent to the transfer of the sub-surface rights shall be separate and distinct from the application for consent to the transfer of interest in any associated pipelines.

Applicability of Ministerial Consent to Reassignment

While the 2021 Guidelines provides what constitutes an assignment which is not significantly different from the various instances listed under the 2014 Guidelines, the 2021 Guidelines further places the concept of Reassignment within the basket of transactions to which Ministerial Consent is required. The 2021 Guidelines defines a Reassignment as “a situation where there has been consent to an assignment of interest and the parties subsequently, whether by mutual consent or by operation of law, sever their relationship and the Assignor wishes to obtain the consent of the Minister to revert the interest. A Reassignment, under these circumstances, can only be made to the original Assignor and not a third party.”  The 2021 Guidelines further provides for the various documents required to be presented before the DPR where an application for Ministerial Consent is made in the event of a Reassignment. Such documents include: (i) contractual documents between the parties evincing such termination and reassignment or (ii) certified true copy of the final award, order or judgement terminating the relationship between the parties. This shall be applicable in the event the reassignment is by operation of law and not contractual.

Notification of Intention to Assign and Timelines for Approval by the DPR

The notification provisions of the 2021 Guidelines as compared to the 2014 Guidelines remain unchanged as assignors are expected to notify the DPR in writing of an intention to carry out an assignment prior to the commencement of the transaction.

The 2021 Guidelines provide that upon technical evaluation of shortlisted companies, an assignor shall submit to the DPR a list of qualified companies to the approval of the DPR before proceeding to the commercial state of a transaction. The 2021 Guidelines further provides for a period of 10 working days for which the DPR is required to respond to an assignor with respect to confirmation of acceptability or otherwise of a proposed assignee. Due to the bureaucratic nature of government establishments of which the DPR is not immuned, a pertinent question to answer will be what is the consequence of non-approval within the period stated under the Guidelines?

It may be recalled that on 18 May 2017, the Nigerian Vice-President signed an Executive Order on the Promotion of Transparency and Efficiency in the Business Environment (the “Order”). One of the major highlights of the Order is the concept of default approval. The Order states that where a relevant agency or official fails to communicate approval or rejection of an application within the time stipulated, such application not concluded within the stipulated timeline shall be deemed approved and granted (“Default Approval”).

On the basis of the foregoing, it is arguable that where an approval of a proposed assignee is not received within 10 working days from the DPR, a proposed assignee may seek to rely on the Default Approval provisions of the Order. That said, it is prudent that an assignee seeking to rely on the Default Approval immediately notifies the DPR as this will engender further engagement with the regulator.

The 2021 Guidelines further provides a 60-day period within which the DPR is expected to conduct due diligence on a proposed assignee particularly with regards to legal status, technical competence, financial capability, history of assignor’s relationships with previous assignee(s), history of compliance with the provisions of the Petroleum Act or Oil Pipelines Act, and the assignor’s track record on the operation of the asset. However, the time frame within which Ministerial Consent shall be granted is unstated. This leaves an application open-ended and subject to the discretion of the DPR which may not be investor friendly.

Exclusion of Deed of Gift and Transfer of Interests through Receivership/Administration

The 2014 Guidelines included a Deed of Gift as part of the documents through which an assignment of shares may occur. This has been excluded in the 2021Guidelines. Does this mean that a Deed of Gift is excluded from transactions which would constitute an assignment? In our view, while it is not prevalent to have a transfer of interests in an upstream asset holding company by way of a Deed of Gift, where this is the case, such transfer should be subject to Ministerial Consent.[1]

Paragraph 3.1.1 of the 2021 Guidelines seeks to provide response to the question albeit partially as it deals with indirect transfer of interest particularly with regards to transfer of shares. Specifically, paragraph 3.1.1 of the 2021 Guidelines provides that an assignment by way of exchange or transfer of shares is a transaction for which Ministerial Consent should be obtained. Therefore, a Deed of Gift which seeks to transfer interests in shares in an upstream asset holding company will be subject to the provisions of paragraph 3.1.1 of the 2021 Guidelines. That said, we believe that where a Deed of Gift seeks to make an indirect transfer of interests by way of transfer of shares in an asset holding company, the trigger for Ministerial Consent should be a transfer of significant number of shares in the asset holding company and not any form transfer of shares. Unfortunately, the 2021 Guidelines does not provide this, and it is arguable that any form of transfer of share whether significant or not should be subject to the consent of the Minister of Petroleum Resources.

The 2021 Guidelines has also expressly recognized the possibility of a devolution or transfer of ownership of interests through the appointment of a Receiver/Manager or Administrator under the Companies and Allied Matters Act or any comparable legislation in a foreign jurisdiction which was not part of the 2014 Guidelines. This may have been included against the backdrop of recent happenings post the 2014 Guidelines where a foreign owned oil independent went into Administration. The legal framework under the 2014 Guideline may not have been adequate to address issues that may have arisen as a result of such occurrence.

The 2021 Guidelines also assumes (while not expressly stating so), that in the event of a Receivership or Administration, the responsibility to secure Ministerial Consent would be that of the new owners e.g., the Receiver/Manager or Administrator.

Additional Documentary Requirements, Fees and Premium on Assignment

In addition to the documents listed in the 2014 Guidelines, the 2021 provides for additional documents to be submitted when making an application for Ministerial Consent. Such documents includes (where applicable):

1.    Financial Services Agreement.

2.    In the case of an Assignment by way of a re-organisation of a company (through merger, acquisition, takeover, etc), a copy of relevant approvals, documents, and rules governing the re-organisation in the relevant jurisdiction.

3.    In the case of reassignment where the original Assignor and Assignee mutually agree to terminate their relationship, the resolutions of the board of directors of both companies and the contractual document executed by both companies evidencing the termination of the relationship.

4.    In the case of a reassignment by operation of law, the certified true copy of the final award, order or judgement terminating the relationship between the parties.

Whereas the 2014 Guideline provides for a flat fee of N500,000 via bank draft in favour of FGN/DPR Fees Account, as application fee for an assignment in an OPL or OGPL or OML and N50, 000 for an assignment of interest in a Marginal field, the 2021 Guidelines makes reference to the application fees provided in the Petroleum (Drilling and Production) (Amendment) Regulations, 2019. The Petroleum (Drilling and Production) (Amendment) Regulations, 2019, makes provision for the applicable fees as follows:

a.      Application to assign or sublet an OPL on contract: $5,000.

b.      Application to assign or sublet an OML on contract: $10,00.

c.       Application to assign interest in a Marginal Field: $2,500.

Premium on Ministerial Consent for assignment of interest has been increased to a range of 5% to 10% of the value of the transaction. This is a significant increase from the range of 1% – 5% of the transaction value imposed under the 2014 Guidelines however but in line with the provisions of the Petroleum (Drilling and Production) (Amendment) Regulations, 2019.

Maintenance of a Register of Assignment

The 2021 Guidelines provide that the DPR shall maintain a register of Assignment to which the Minister has given consent. It is expected that this register shall be a public record on which a public search can be conducted for due diligence purposes.

This publication is intended only for general discussion purposes only and should not be regarded as legal advice.