Types of Assignment

According to the Guidelines, a valid transfer of interest shall include but not be limited to;

• An assignment by way of exchange or transfer of shares;
• Assignment by way of private placement or public listing in any Stock Exchange of the shares of an interest holding company[2];
• Assignment by way of merger of an interest holding company and another company;
• Assignment by acquisition of an interest-holding company;
• Assignment to a company in a group in which the assignor is a member; and
• Assignment by reason of devolution of share ownership, operation of law or testamentary device; etc.[3]

These parameters have been included in the guidelines to capture the important means through which controlling interest in oil & Gas assets might be ceded into the hands of another person or company. The term “interest” as used in the Guidelines is defined to mean the following;

• A party’s interest in a Production Sharing Agreement
• A Production Sharing Contractor’s interest in a Production Sharing Contract (PSC)
• A Concessionaire’s interest as a participant in an OML, OPL, MF, or OGPL
• A Farmer’s interest in an MF
• A sole Risk Concessionaire’s Interest in an OML, OPL, or MF
• A Service Contractor’s interest in a Strategic Alliance Agreement
• Other business arrangements that confer a right, privilege, power, benefit, gain or advantage in a Licence of Lease.

Procedure for an Assignment

The procedure to be followed by an assignor of interest in an oil & Gas asset is set out in the fourth section of the Guidelines, which details a step-by-step process starting from the notification to the Department of Petroleum Resources of the Assignor’s intention to assign to obtain the consent of the Minister for the completion of the assignment. Section 4.2 of the Guidelines require that an assignor notifies the DPR of an intention to carry out an assignment before taking action either directly aimed at or incidental to the assignment of the asset; this includes making any announcement, advertisements, publications or press releases without prior DPR approval. This section also obligates the proposed assignor to state the reason for the assignment, method for conducting the assignment and a technical/economic postulation of the value of the proposed assignment would bring to the licence or lease. The DPR is, in turn, obligated to respond within 10 working days of the receipt of the Assignor’s notice of intention – if no response is gotten from the DPR after the expiration of the 10 day period, the Assignor is allowed to proceed to the next stage of the assignment process.

An added layer with respect to the Assignor’s intention to assign was added by the Guidelines in section 4.3. The Assignor is obligated to transmit a list of companies shortlisted for the assignment to the DPR which is then scrutinized. A shortlisted company must be deemed acceptable to the Federal Republic of Nigeria by the DPR before the Assignor can be allowed to proceed with the transaction. No company can validly participate as an assignee in any assignment without prior sanction from the DPR as acceptable. After successful completion of the Notification and Acceptance stages, the Assignor must follow a process of application for the Minister’s consent. The Assignor is required to submit a written application accompanied with a list of documents and agreements detailed in section 5.2 of the Guidelines, as they apply.

The Guidelines also provide that the fees applicable thereunder shall be as provided in the Petroleum (Drilling and Production) Regulation (Amendment) Regulations, 2019, to be paid by way of telegraphic transfer to the DPR’s Account. They are as follows;

General Provisions

T he Guidelines’ general provisions in paragraph 6 provides the rules of engagement in assignment of oil & Gas assets. Section 6.1 provides for assignments by divestment, the highlights of which are as follows;

• Assignors may not impose crude Handling/purchase agreements, or other conditions that might impede the takeover, as a condition for the consummation an assignment
• Where the assignment is ofan asset held in Joint Venture (JV) with the NNPC and involves the execution of a crude Handling/purchase agreement, the assignor must submit a copy of the draft agreement to the DPR before it is executed
• An Assignor who is the operator in an asset in which the NNPC is a JV partner or concessionaire, the Assignor cannot purport to transfer right of operatorship to the assignee without prior DPR approval and cannot make the right of operatorship part of the commercial consideration in the transaction.
• Where the 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 right is to be separate and distinct from the application for consent to the transfer of interest in any associated pipelines.
• Where the Assignment is by way of transfer of interest in an Asset held in JV with the NNPC, the Assignor must 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 the abandonment and decommissioning liabilities and such costs shall be deducted pro-rata from the transaction purse.

Finally, the Guidelines outline conditions under which the Minister’s consent may be granted. Section 7 provides that consent will only be given when the Minister is satisfied that the proposed assignee is of good reputation, acceptable to the Federal Government and is likely possessed with the technical knowledge, experience and financial resources to work on the licence being assigned. Once the Minister’s consent has been obtained, the DPR is obligated to maintain a register of the Assignment consented to.

Our Commentaries

The DPR Guidelines are a welcome development for the upstream sector of the Oil and Gas Industry. The Guideline has expanded the scope of assignment and provided more clarity on key areas. We have as well identified some areas that will require more clarity.

1.   According to the Guidelines, assignment by devolution of ownership of shares to “a receiver, receiver/manager or administrator” appointed under the Companies and Allied Matters Act Cap C20 LFN 2004 or “any comparable legislation in a foreign jurisdiction” is valid form of assignment. It would follow then, that the Minister’s consent is required to complete such assignment, and this could add some level of tedium and likely protract the appointment process beyond business-friendly timeframes.

2.   The DPR Guidelines include a new concept called reassignment. Essentially, the Guidelines now make it possible for a valid assignee of interest in an asset to revert its interest to the original assignor, with the Minister’s consent. It is important to note that a reassignment must be made to the party that initially assigned the interest to reassignor; interest cannot be reassigned to a third party. A situation where a reassignment would be instrumental is one where the assignment is part of a time-bound contract agreement between both parties with a termination clause that reverts interest to the original assignor. To release the asset to the initial assignor, a reassignment must be effected. While it is unclear if a reassignment process will attract a fresh consent fee, it is expected that the process will be a less complex than that of a fresh assignment.

3.   The DPR is obligated to lift the corporate veil and determine the nature of the transaction and whether it constitutes an assignment or not where parent company of a company holding interest in an asset in Nigeria is taken over or merged with another company overseas. The Guidelines does not provide a roadmap on how the veil will be lifted, however, nor does it provide direction on the actions to be taken by the parent to facilitate the determination of the nature of the transaction. This is an ambiguity that will require resolution if the Guidelines’ provisions are to be effectively administered going forward.

4.   The Guidelines also introduce a provision prohibiting an assignor from imposing a crude handling or crude purchase agreement on an assignee as a condition for an assignment. This provision also prohibits any “other conditions that may impede the takeover and / or operation of the asset in a business-like manner”. This provision has, presumably, been added to protect new entrants from bearing the burden of legacy contracts and liabilities. According to the Guidelines, where an assignment via direct transfer of interest held in a joint venture with the Nigerian National Petroleum Corporation (NNPC) involving the execution of a crude handling or crude purchase agreement is to be carried out, the DPR must be served with a copy of the draft before it is executed. This adds an extra piece of documentation required to be submitted in connection with divestment of interest by International Oil Companies (IOCs) with the added effect of granting assignees more bargaining power in the negotiation of divestment agreements (seeing as agreements must first be vetted by the DPR before execution).

5.   With respect to abandonment and decommissioning liabilities, the Guidelines provide that the assignor is obliged to submit to the DPR an agreement between the parties on the mode of treatment of the assignor's abandonment and decommissioning liabilities. The agreement must quantify the cost of the abandonment and decommissioning liabilities and said cost must be deducted on a pro-rata basis from the transaction value. This provision is quite novel and presumably exists to make certain that these liabilities are not dumped on the assignee and the NNPC. The DPR needs to provide the clarity that is required on the mode for computing the cost of the liabilities, the tax treatment of the cost deducted, etc.

6.   The Guidelines have created a distinction between assignment involving transfer of subsurface rights, and interests in associated pipelines where interest in assets is jointly owned by the assignor and the NNPC. The Guidelines oblige the assignor to make separate applications for the Minister’s Consent where interest in associated pipelines is to be assigned and for transfer of subsurface rights. This means that two separate applications must be tendered for consent, attracting differing consideration for the two kinds of application and creating the possibility that one application may be approved while the other is denied. Separate agreements may also need to be drafted between assignor and assignee to reflect the peculiarity of this new provision of the Guidelines.

7.   The DPR is mandated to conduct due diligence on the assignee for the purpose of  determining the legal status of the assignee, the history of compliance with the Petroleum Act and Oil Pipelines Act, the assignor's relationships with previous assignees, the assignor's track record on the operation of the asset as well as establishing the assignee’s technical competence and financial capability. The due diligence exercise must be conducted within sixty (60) calendar days from the date of receipt of the complete application

Conclusion

The new Guidelines are set to usher in a new regime for the assignment of Oil & Gas Assets in Nigeria. Its provisions have introduced measures geared towards the protection of new entrants into the industry, as well as recognizing a wider range of avenues for the transfer of interest in Oil & Gas assets unrecognized by the DPR’s 2014 Guidelines. On the other hand, the regulatory/documentary burden on companies in the petroleum industry may have been increased based on the introduction of concepts such as reassignment and assignment to Receiver/Managers or Administrators, according to the Guidelines. Companies affected by the Guidelines are advised to stay abreast of its provisions and tailor their activities to remain compliant going forward.

[1] Guidelines and Procedures for Obtaining Minister’s Consent to the Assignment of Interest in Oil and Gas Asses, 2014

[2] A company which holds an OPL, OML, MF or OGPL

[3] Operation of law refers to a judgment of a competent court of law, award from an arbitration panel, appointment of receiver, etc.