What You Must Know About Oil Production Licenses in Nigeria

The Federal Government of Nigeria recently announced the commencement of its 2020 marginal fields bid rounds.

The regulatory agency – Department of Petroleum Resources, DPR within whose purview the coordination of the exercise falls, disclosed that a total of 57 fields are on offer.

According to the DPR, the bid round exercise is open to indigenous companies and investors interested in participating in exploration and production (E&P) business in Nigeria.

The regulatory agency said that the fields are located on land, swamp and shallow offshore terrains.

“The Department of Petroleum Resources, DPR on behalf of the Federal Government of Nigeria is pleased to announce the commencement of 2020 Marginal Field Bid Round exercise.

“The Bid Round exercise is open to indigenous companies and investors interested in participating in Exploration and Production (E&P) business in Nigeria, DPR stated.

Inviting interested investors to participate in the ongoing bid round, the DPR Director, Engr Sarki Auwalu said: “Interested parties are invited to visit the DPR dedicated portal for the exercise; marginal.dpr.gov.ng to access the Guidelines for the Award and Operations of Marginal Fields in Nigeria, 2020, and the requirements for participation,” DPR stated.

Types of Oil Production Licenses

There are two types of licenses issued to oil producers in Nigeria which are Oil Prospecting License (OPL) and Oil Mining License (OML). The validity periods for the licenses ranges from 5 to 20 years respectively.

The Federal Government of Nigeria is vested with the sole responsibility to control petroleum (crude oil) resources and only permits their exploitation under the licenses as earlier stated. This it does in accordance with the Petroleum Act of 1969.

Upon fulfillment of the stipulated guidelines and criteria, the FG allocates acreages (Licenses) to operators in such areas deemed to have potential for petroleum accumulation and at the discretion of the Minister of Petroleum Resources.

In other words, the allocation of licences for exploration of oil to investors is based on the fulfillment of a set of criteria usually made known to interested investors at the time such blocks are open for bidding.

It must be noted that the FG reserves the right to participate in the operations of any block and to determine the type of contractual arrangements between the Allotee(s) and the Government.

 Difference between OPL and OML

Oil Prospecting License (OPL)

An OPL confers exclusive rights of surface and subsurface exploration for the production of petroleum in an area not more than 2590 km2. (1000 m2) in size. Oil Prospecting License is granted in inland basins for an initial period of 3 years with the option of renewal for a maximum period of 2 years.

However, the exploration period for deep water blocks and frontier basins is 10 years. It is broken into two 5-year periods which automatically roll over unless otherwise withdrawn due to non-performance.

Note that an OML is granted upon confirmation of potential for commercial production of petroleum from the License. 

Oil Mining Lease (OML)

This category of licenses is given to organization(s) that fulfilled the work commitment according to Petroleum (Drilling and Production) Regulations of 1969. It is granted upon confirmation of potential for commercial production of petroleum from the License.

The OML grants exclusive rights to explore, win, produce and carry away petroleum from the relevant area.

The regulation size is 1295 km2. (500 m2) and the specified duration is 20 years. Only the holder of an OPL is entitled to apply for conversion of Oil Prospecting License to an Oil Mining lease, through the Department of Petroleum Resources (DPR) for approval.

The production of 25,000 barrels per day is required as the minimum production level (commercial quantity) for conversion of a deep offshore OPL to an OML. However, for other areas, a production level of 10,000 barrels per day is required.

It is also important to note that an OML is granted upon confirmation of potential for commercial production of petroleum from the License. Only the holder of an OPL is entitled to apply for conversion of Oil Prospecting License to an Oil Mining lease, through the Department of Petroleum Resources (DPR) for approval.

By Peace Obi