Wednesday, February 13, 2013 6:26 AM / Olumide Olusegun-Obayemi
This paper examines the rights of indigenous to petition the Nigerian Minister of Petroleum to revoke oil exploration licenses granted foreign oil corporations—especially where the rights of the Nigerian indigenous landowners are being trampled upon. For instance, assuming arguendo that, in December 2012, a large residue of high-value crude oil is discovered under the family lands belonging to the Olusegun-Obayemi family in Ijebu-Jesa and the Minister decides to grant the license for exploring the same mineral oil to Chevron. Thereafter, continuing with our example, Chevron’s oil exploration activities harm the farmlands of the Olusegun-Obayemis and their neighbors. The issue is whether the injured Ijebu-Jesa indigenes can petition for revocation of the license granted to Chevron under sections 24, 25, 26, 27, 28, 29, and 30 of the First Schedule of the Nigerian Petroleum Act which make provisions for revocation and termination of Oil exploration licences, oil prospecting licences and oil mining leases
As the law exists presently in Nigeria, the answer is in the negative
But the law has changed in the United States. In Chesapeake Exploration LLC v. Oil and Gas Commission et al, Case No. 12-207 (2012), the Ohio Court of Appeal on January 30, 2013 held that the neighbors and landowners can appeal to the Oil and Gas Commission (equivalent to the Nigerian Minister of petroleum) to revoke such licenses. We submit that such should be the case in Nigeria, as well.
As Andrew Trafford and Jeff Fort rightly noted, in the United States, especially, in most States, when an operator wants to drill a new well, it has to obtain a drilling permit from the State agency charged with regulating those activities. Those permits affect other parties, namely landowners, neighbors, and other oil companies. Thus, landowners have been asking courts to recognize a right of appeal to challenge the issuance of an oil and gas well drilling permit.
II. Oil Exploration in Nigeria.
Nigeria is the largest oil producer in Africa and the eleventh largest in the world, averaging 2.5 million barrels per day (bbl/d) in 2004. Oil was discovered in Nigeria in 1956 at Oloibiri in the Niger Delta after half a century of exploration. The discovery was made by Shell-BP, at the time the sole concessionaire. Nigeria joined the ranks of oil producers in 1958 when its first oil field came on stream producing 5,100 bpd. After 1960, exploration rights in onshore and offshore areas adjoining the Niger Delta were extended to other foreign companies. In 1965 the EA field was discovered by Shell in shallow water southeast of Warri. In 1970, the end of the Biafran war coincided with the rise in the world oil price, and Nigeria was able to reap instant riches from its oil production. Nigeria joined the Organisation of Petroleum Exporting Countries (OPEC) in 1971 and established the Nigerian National Petroleum Company (NNPC) in 1977, a state owned and controlled company which is a major player in both the upstream and downstream sectors.
Nigeria produced an average of 2060.7 thousand barrels of crude oil per day in 2009, 2.59% of the world total and a change of -3.5 % compared to 2008. Nigeria, Algeria, Angola and Libya made up the bulk of Africa's oil production. Thus, according to the 2010 BP Statistical Energy Survey, Nigeria had proved oil reserves of 37.2 billion barrels at the end of 2009 or 2.79 % of the world's reserves. African countries with the largest oil reserves are Libya, Nigeria, Angola and Algeria. Thus, in January 2005 Nigeria earned a total of US$2.6 billion, an equivalent of N345.8 billion from the sale of crude oil alone, at an average of US$46.86 per barrel and with an estimated daily sale of 1.79 million barrels The majority of Nigeria's crude exports are destined for markets in the United States and Western Europe, with Asia and Latin America becoming increasingly important as well.
Despite its major problems of civil unrest, political instability, border disputes, corruption and poor governance, international oil companies have always seen Nigeria as an attractive area for upstream investment. Exploration has taken place in five major sedimentary basins, namely, the Niger Delta, the Anambra Basin, the Benue Trough, the Chad Basin and the Benin Basin. The most prospective basin is the Niger Delta which includes the continental shelf and which makes up most of the proven and possible reserves. All oil production to date has occurred in this basin
Two (2) decisions are highly instructive on the rights of Nigerian citizens and communities to challenge the grant of oil exploration licenses in Nigeria. The first is Chesapeake Exploration LLC v. Oil and Gas Commission et al, Case No. 12-207 (2012). This is presently pending before the Ohio Supreme Court. The second is the case Martin v. Hamblet, Case No. 11-1157 (2012) also pending before the West Virginia Supreme Court.
These two (2) cases raise the following legal issues:
a.Nigerian citizens, landowners and communities’ day in court to resolve constitutional problems.
b.The State regulatory agency (Nigerian National Petroleum Company—NNPC--seeing threats to its jurisdiction.
c.Foreign Corporations (Shell, Chevron, and Agip, etc)—these operators seeing regulations that are designed to fast-track production and wondering whether the Oil and Gas laws and regulators are the appropriate forum for issues like title disputes
III. Obtaining Oil Exploration Licenses in Nigeria
In Nigeria, oil exploration is governed by the Petroleum Act, Chapter P10, (Chapter 350 LFN 1990), Laws of the Federation of Nigeria (1999) and it confers (subject to the Petroleum Industry Bill) the right to grant licenses on the Minister of Petroleum. Thus, sections 1 and 2 provide thus:
Section 1. (1)The entire ownership and control of all petroleum in, under or upon any lands to which this section applies shall be vested in the State.
(2)This section applies to all land (including land covered by water) which—
(a) is in Nigeria; or
(b)is under the territorial waters of Nigeria; or
(c)forms part of the continental shelfs; or
(d)forms part of the Exclusive Economic Zone of Nigeria.
(3)In this section references to "territorial waters” are references to the expression as defined in the Territorial Waters Act.
Section 2. (1)Subject to this Act, the Minister may grant—
(a)a licence, to be known as an oil exploration licence, to explore for petroleum;
(b)a licence, to be known as an oil prospecting licence, to prospect for petroleum; and
(c)a lease, to be known as an oil mining lease, to search for, win, work, carry away and dispose of petroleum.
(2)A licence or lease under this section may be granted only to a company incorporated in Nigeria under the Companies and Allied Matters Act or any corresponding law.
The First Schedule of the Petroleum Act also makes provisions for Oil exploration licences, oil prospecting licences and oil mining leases, and thus: sections 5, 6 and 7 of the First Schedule dealing with Oil prospecting licences provide thus:
Also, the Nigeria Minister of Petroleum has a right to revoke the licenses granted to oil exploration corporations operating in Nigeria.
IV. Revocation of Oil exploration licences, oil prospecting licences and oil mining leases in Nigeria
The First Schedule of the Petroleum Act also makes provisions for revocation and termination of Oil exploration licences, oil prospecting licences and oil mining leases, and thus: sections 24, 25, 26, 27, 28, 29, and 30 of the First Schedule providing thus:
Section 24. (1)The Minister may revoke any oil prospecting licence or oil mining lease if the licensee or lessee becomes controlled directly or indirectly by a citizen of, or subject of, or a company incorporated in, any country which is—
(a)a country other than the licensee’s or lessee’s country of origin; and
(b)a country the laws of which do not permit citizens of Nigeria or Nigerian companies to acquire, hold and operate petroleum concessions on conditions which in the opinion of the Minister are reasonably comparable with the conditions upon which such concessions are granted to subjects of that country.
(2)In this paragraph "Nigerian company” means a company incorporated in Nigeria or a company controlled directly or indirectly by citizens of Nigeria.
Section 25. (1)The Minister may revoke any oil prospecting licence or oil mining lease if in his opinion the licensee or lessee—
(a)is not conducting operations—
(ii) in a vigorous and businesslike manner in accordance with the basic work programme approved for the licensee or lessee; and
(iii) in accordance with good oil field practice; or
(b)has failed to comply with any provision of this Act or any regulation or direction given thereunder or is not fulfilling his obligations under the special conditions of his licence or lease; or
(c)fails to pay his due rent or royalties, whether or not they have been demanded by the Minister, within the period specified by or in pursuance of this Act; or
(d)has failed to furnish such reports on his operations as the Minister may lawfully require.
(2)Paragraphs 26 to 30 of this Schedule shall apply where there is revocation under this paragraph.
Section 26. The Minister shall inform the licensee or lessee of the grounds on which the revocation is contemplated and shall invite the licensee or lessee to make any explanation if he so desires.
Section 27.If the Minister is satisfied with the explanation, he may invite the licensee or lessee to rectify the matter complained of within a specified period.
Section 28. If—
(a)the licensee or lessee makes no or no sufficient explanation; or
(b)does not rectify the matter complained of within the specified period, the Minister may revoke the licence or lease.
Section 29. A notice sent to the last-known address of the licensee or lessee or his legal representative in Nigeria and published in the Federal Gazette shall, for all purposes, be sufficient notice to him of the revocation of the licence or lease.
30.The revocation shall be without prejudice to any liabilities which the licensee or lessee may have incurred, or to any claim against him which may have accrued to the Federal Government.
These provisions dealing the rights of revocation are the focus of this paper—i.e., because the Petroleum Act makes no provisions for the communities, individuals and/or landowners affected by oil exploration to appeal for revocation of oil licenses being misused.
V. MARTIN V HAMBLET: The West Virginia Court of Appeals Ruled Against the Surface Owner's Right to Object to Gas Drilling Permit
On November 21, 2012, The West Virginia Court of Appeals held that the Surface Owner had no right to object to Gas Drilling Permit. This is the case of Martin v. Hamblet, Case No. 11-1157 (2012). In a decision that was closely watched in West Virginia, the West Virginia Supreme Court also has ruled that surface owners do not have a right to object to the issuance of an oil and gas drilling permit.
In Martin v. Hamblet, 11-1157 (Nov. 21, 2012) the Court of Appeals ruled that the statutory right to object was given to the operator of a coal seam the well would run through, not the owner of the land on which the well was located. There, Matthew Hamblet is a fractional owner of a large surface estate in West Virginia and claims that previous wells drilled on his land by EQT Production Company, an operator, caused "substantial damage” in his words. This included heavily eroded and rutted access roads, silted streams, and felled timber left in inaccessible hillside locations. EQT applied for, and received, a permit for a new well. EQT contends that they have followed the statutory procedure for obtaining a permit and will comply with all safety and environmental regulations. The issue was whether the West Virginia statute does not allow for appeals from surface owners (or is at least more clear about it than the Ohio statutes), but Mr. Hamblet argued that appeal rights have been recognized by a previous West Virginia Supreme Court ruling. Moreover, Mr. Hamblet argued that denying his right to appeal violates his constitutional right to due process.
Earlier, the Circuit Court of Doddridge County had certified the following question to the Court:
"Does the West Virginia Supreme Court of Appeal’s [sic] opinion in State ex rel. Lovejoy v. Callaghan, 576 S.E.2d 246, 213 W. Va. 1 (2002) interpret the relevant statutes, when read in para materia, to permit a surface owner to seek judicial review of the West Virginia Department of Environmental Protection, Office of Oil and Gas’s issuance of a well work permit for a horizontal Marcellus well?”
The Court of Appeals answered this question thus: The right of judicial review with regard to the issuance or refusal of a well work permit as provided by W. Va. Code § 22-6-41 (1994) (Repl. Vol. 2009) does not extend to owners of the surface rights of the property upon which the proposed well is to be drilled. To the extent that State ex rel. Lovejoy v. Callaghan, 213 W. Va. 1, 576 S.E.2d 246 (2002), indicates otherwise, it was overruled. The Court also addressed Mr. Hamblet's Due Process and Equal Protection arguments, even though they weren't part of the certified question, and found no public action to condemn. Mr. Hamblett, having entered into a lease with EQT that allowed it access to his land for the purposes of drilling a well, was adversely affected by that agreement, not the issuance of the well permit.
Mr. Hamblet's constitutional arguments were premised upon the notion that surface owners have an unrestricted right to enjoyment in their property. A surface owner's rights, however, are subject to the mineral owner's rights. A mineral owner generally has the right to utilize the surface for "purposes reasonably necessary for the extraction of the minerals." Buffalo Mining Co. v. Martin, 165 W. Va. 10, 14, 267 S.E.2d 721, 723 (1980). In other words, "'[t]he owner of the mineral underlying land possesses as incident to this ownership the right to use the surface in such manner and with such means as would be fairly necessary for the enjoyment of the mineral estate." Squires v. Lafferty, Pt. 1, Syl., 95 W.Va. 307, 121 S.E. 90 [(1924)]." Syllabus, Adkins v. United Fuel Gas Co., 134 W.Va. 719, 61 S.E.2d 633 (1950).
Here, EQT has a legally binding lease that grants it explicit rights of access to the oil and gas underlying Mr. Hamblet’s property. It is this contractual obligation burdening Mr. Hamblet’s surface estate that deprives him of an unrestricted right to enjoyment of his property, not the issuance of the well work permit at issue. As such, the constitutional guarantees of due process and equal protection do not apply. Article III, § 10 of the Constitution of West Virginia "protects the individual from deprivations by the State, but not from actions of private persons.” Queen v. West Virginia University Hospitals, 179 W. Va. 95, 103, 365 S.E.2d 2d 375, 383 (1987).
The West Virginia Supreme Court issued its opinion on November 21, 2012, denying Mr. Hamblet a right to appeal the well drilling permit. The Court said that the West Virginia Code "is clear and unambiguous with regard to who may object to the well proposed to be drilled. Notably absent from the statute is any mention of the surface owner of the subject property.”
VI.Chesapeake Exploration LLC v. Oil and Gas Commission et al, Case No. 12-207 (2012).
The Ohio Court of Appeal on January 30, 2013 held that the neighbors and landowners can appeal to the Oil and Gas Commission (equivalent to the Nigerian Minister of petroleum) to revoke such licenses.
In Chesapeake Exploration LLC v. Oil and Gas Commission et al, Case No. 12-207 (2012), the Ohio Court of Appeal on January 30, 2013 held that the neighbors and landowners can appeal to the Oil and Gas Commission (equivalent to the Nigerian Minister of petroleum) to revoke such licenses. There, Chesapeake was the lessee of an oil and gas lease for land owned by Summitcrest. When Chesapeake was issued a drilling permit in February 2012, Summitcrest appealed to the Ohio Oil and Gas Commission to vacate the permit arguing that the lease is invalid. The Division of Oil and Gas Resources Management and Chesapeake both moved to dismiss the appeal on the grounds that the Commission did not have jurisdiction, which is the issue currently before the Supreme Court of Ohio.
Chesapeake had argued that the language under Ohio Statute--R.C. 1509.06(F) removed drilling permits from the appellate jurisdiction of the Oil and Gas Commission since it had stated that for oil and gas wells, a permit to drill a new well, drill an existing well deeper, reopen a well, convert a well to any use other than its original purpose, or plug back a well to a different source of supply, including associated production operations, is not considered to be an order of the chief of the division (Oil and Gas Commission). R.C. 1509.06(F) ("The issuance of a permit shall not be considered an order of the chief [of Oil and Gas Commission]”).
In opposition, the Oil and Gas Commission argued that R.C. 1509.06(F) was insufficient, by itself, to remove their power to hear an appeal in the face of two general grants of jurisdiction in R.C. 1509.36 and R.C. 1509.03(B). This is because, under R.C. 1509.36, "[a]ny person affected by an order by the chief of the division of oil and gas resources management may appeal to the oil and gas commission for an order vacating or modifying the order.”
Also, R.C. 1509.03(B) provided thus: "Any order issuing, denying, or modifying a permit or notices required to be made by the chief pursuant to this chapter shall be made in compliance with Chapter 119. of the Revised Code * * *. Every order issuing, denying, or modifying a permit under this chapter and described as such shall be considered an adjudication order for purposes of Chapter 119. of the Revised Code.” See 2011 Am.Sub.H.B. No. 153. A version substantively the same was first enacted in 1982. Am.H.B. No. 745, 139 Ohio Laws, Part II, 4374.
The substantial dissent in the case expressly noted that the statutes provided that any personadversely affected by an order of the chief of the Division of Oil and Gas Resources Management may appeal to the commission to vacate or modify the order.
"Any person” in this instance would apparently cover all affected parties, namely landowners, neighbors, communities and other oil companies. In the example given above, all residents of Ijebu-Jesa contiguously close to the Olusegun-Obayemi land being mined by Chevron would be entitled to petition the Nigerian Minister of Petroleum in so far as explorations by Chevron constitute dangers to their health and well-being
Nobody would doubt subject to the rules of Standing (locus standi) every person, group, and/or communities affected by oil exploration should have a right to petition for the revocation of oil licenses granted to big oil corporations in Nigeria. This is moreso where environmental degradation and marine pollution issues are concerned. The new Petroleum Industry Bill must make necessary provisions for the raised herein
Olumide K. Olusegun-Obayemi, LL.M.; SJD, is an attorney based in California, and he offers consultancy services in Oil and Gas Laws