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Sanctity of contracts: Wading through Nigeria’s murky oil sector

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The oil and gas sector in Nigeria has been engrossed in legal battles, especially with landmark cases that involved the government through its agencies. From the Malabu oil deal scandal to the $9.6 billion P&ID judgment delivered by a UK court, the issues of contract drafting, negotiations, and adherence to the provisions of agreed terms raise concerns. FEMI ADEKOYA and KINGSLEY JEREMIAH write on why the nation keeps being involved in several litigations that should never exist.

In the past few weeks, Nigeria’s oil and gas sector has been in local and international news for many reasons, especially the judgment delivered by a UK court, which awarded a judgment debt of $9.6 billion against the Federal Government.

While the P&ID issue is lingering, with the government seeking ways to appeal the judgment, other legal battles continue to emerge.

In what could be described as a season of court cases in the oil and gas sector, especially against government agencies, a United States Southern District Court of New York discharged the Nigerian National Petroleum Corporation (NNPC) of paying another $2.7 billion in case involving ESSO Exploration and Production Nigeria Limited and Shell Nigerian Exploration and Production Company Limited.

The many legal actions that followed the award of Oil Prospecting Licence (OPL) 245 to Malabu Oil & Gas Limited has kept Nigeria in the eyes of the storm,  exposing the level of corruption, lack of accountability and transparency condoled in a sector, which provide the chunk of the country’s revenue.

NNPC had earlier disclosed that it recorded a $1.6 billion savings from arbitration between its flagship upstream subsidiary, the Nigerian Petroleum Development Company (NPDC), and the Atlantic Energy Drilling Concept Nigeria Limited.

Across the cases, there are indications of corruption, poor sanctity of contracts and relationship management, lack of accountability, transparency and blatant disregard for due process and commitment to national development as well as bad leadership.

The cases were also an indication that notable Nigerians, charged with the responsibilities of promoting national interests and defending causes that would lead to the common good in a nation have been found wanting.

Years of promoting rackets that served private interests have led to a situation where poverty and unemployment are rising to an alarming rate backed by a background of weak regulations, opacity and obsolete systems.

To mention a few, recalled that in 2011, as a former Minister of Petroleum under military dictator General Sani Abacha, Dan Etete Etete, was allegedly found guilty of money laundering by a French court in 2007, facilitating the transfer of payment of $1.1 billion to Malabu Oil and Gas. The firm was reportedly set up in 1998 by Etete using a false identity so as to award himself a lucrative oil block, OPL 245.

Similarly, Diezani Alison-Madueke, appointed in April 2010, as Minister of Petroleum Resources, has been indicted for huge corruption, misappropriation of over $20 billion and abuse of power when she was a Minister of petroleum in Nigeria.

To many experts, the root causes of the prevailing problems, which threaten the nation’s economy, investment drive, and national development are directly linked to the inability of present and successful government to reform the oil and gas sector to a globally competitive industry.

With the growing uncertainty, which has created a dearth of investment into the nation’s oil and gas sector, Patrick Okigbo, founder and principal partner of Abuja-based advisory firm, Nextier said the prevailing development heightened Nigeria’s approach towards managing relationships with investors.

Former President of the Nigerian Association of Petroleum Explorationists (NAPE), Abiodun Adesanya, believes that the growing situations were propelled by the lack of respect for contract terms, lack of accountability and openness in the oil sector, adding that the development would continue to affect the inflow of investment into the country.

Coming as a hard lesson for public office holders to know that any element of negligence and carelessness in the handling of transactions could easily mortgage the present and future of the country, Adesanya insisted that passing the long-awaited Petroleum Industry Bill could help address some of the challenges.

Describing the challenges as a major concern in to the growth of the sector, a professor of law with expertise in petroleum, energy and environmental law, Damilola Olawuyi, said: “This is a significant development that highlights the need for greater responsibility and care in the negotiation and implementation of petroleum contracts in Nigeria.”

The Chancery Associates, Emeka Okwuosa stressed the need for continuity in government as the need to adopt a holistic approach to problems instead of a blame narrative.

“I respectfully suggest that in future, lawyers for the Federal Government should do their due diligence properly and vet contracts properly before advising the federal government to sign. We should also in the future be wary and apprehensive about sacrificing the jurisdictional clause in contracts to foreign jurisdictions when the contract performance is in Nigeria,” he said.

Speaking on the recent judgments, Okwuosa described the development as a wakeup call to the government to change their mindset and modalities in contract executions without proper due diligence.

“I honestly hope this is sorted out in a positive manner because of the obvious negative impacts it will have in Nigeria and internationally,” he added.

The Managing Director of Shell Nigeria Exploration and Production Company, SNEPCo, Bayo Ojulari urged the Federal Government to pass the Petroleum Industry Bill (PIB) and address cost competitiveness challenges in order to aid the flow of investments into the oil and gas sector

Just like its counterpart, Egina that was built by oil major, Total, Ojulari noted that Bonga southwest Akparo is expected to pave the way for other projects in the oil industry in Nigeria while surpassing the former’s local content record to achieve 80 per cent Nigerian content.

On the need to enforce sanctity of contracts, the Head, Legal, Department of Petroleum Resources (DPR), Joseph Tolorunse, described how sanctity of contract stimulates investments in the commercial operations of the industry, noting that most of such contracts don’t have provisions for conflict resolutions, as such matters always end up in court.

He added that such an issue was the major reason why the country’s judicial system is a vital stakeholder in resolving such issues.

The regulator advanced that even though it’s not in the Department’s purview, most of the conflicts it settles borders round contract settlement, saying that “we only try to delve into it to enhance investment flow.”

He further maintained that it was very important for all parties to a contract to make provisions for conflict resolutions in case of conflict to avoid landing in court.


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