1. Key Success Factors
and Potential pitfalls To
Avoid when bidding for
an Oil Mining Lease
By Olufola Wusu Commercial /Oil and Gas Lawyer
folawusu@gmail.com

2. Introduction
•It is naught, it is naught,
saith the buyer: but
when he is gone his
way, then he boasteth.
•-The Holy Bible

3. Outline• Outline for presentation.
• Introduction
• Nigerian Oil and Gas Industry Statistics
• Upstream Legal and Regulatory frame work
• Success factors
• Legal requirements to acquire an OML
• Possible criteria for Bid Evaluation
• Top Tips for successful bidding
• Asset acquisition tips
•
• Pitfalls to avoid
• Cherry picking
• Bid litigation that may freeze the transaction
• Delay in sourcing funds -Oando took over a year to raise required funds.
• Be vigilant and use equitable remedies well if the bid goes awry.
• Don’t buy incomplete assets.
• Other pitfalls include:
• Litigation with technical partners; many awardees have ended up in litigation with their
technical partners.
• Capacity Building and Technology Limitations; There have been capability and capacity
issues as well as technology limitations.
• Asset acquisition and management – many of the assets were not bankable and they could
never have raised funds on them and agreements were delayed among other problems.
• The non-bankability of some Oil Field assets; has led to the inability to raise funds for the
development of the fields.
• Environmental Issues; Many Oil companies have had environmental issues such as
community unrest.
• Thank you for listening.

4. Nigerian Oil and Gas
Industry Statistics
• 37.2 billion barrels of proven oil reserves;
42.1% Oil reserves-to-production ratio as at
2012; the second largest proven oil reserves in
Africa. (Source: BP statistical Review of World
Energy)
• Over 182 trillion cubic feet(Tcf.) of proven gas
reserves. The largest in Africa and 9th largest in
the world.(Source: BP statistical Review of
World Energy)
• Nigeria Rig count for 2013: 41-46 rigs. (Africa
Oil and Gas Report).

5. Upstream Legal and
Regulatory frame work
Law/Regulations
• Petroleum Act 1969
• Petroleum(Drilling and Production) Regulations 1969
• Deep Offshore and Inland Basin production Sharing Contracts Decree
1999 (PSC Decree)
• Petroleum Profit Tax Act, 2004 (PPTA)
• The Nigerian Oil and Gas Industry Content Development Act 2010.
• The Oil Pipelines Act 1965 (Oil Pipelines Act).
Licenses/Leases/Farm outs
• Oil Exploration License (OEL)
• Oil Prospecting License(OPL)
• Oil Mining Lease (OML)
Main Regulatory bodies
• Minister of Petroleum Resources
• Department of Petroleum Resources

6. Upstream Legal and
Regulatory frame work
• Tax Regulation
• Petroleum Profits Tax Act (PPTA)
• Deep Offshore and Inland Basin production
Sharing Contracts Decree 1999 (PSC Decree)
• Section 39, Companies Income Act Act(CITA)
Regulators
• The Minister
• DPR
• Federal Inland Revenue Service (FIRS)
• National Petroleum Investment Management
Service(NAPIMS)

7. Upstream Legal and
Regulatory frame work
• Tax Regulation
• Petroleum Profits Tax Act (PPTA)
• PPT applies to the chargeable profit of
companies engaged in upstream petroleum
operations as provided for in the PPTA.
• A general PPT of 85%. A PPT of 65-75% for the
first five years of petroleum operations.
• PPT applicable to PSC is 50% flat rate for the
contract area.

8. Upstream Legal and
Regulatory frame work
Other regulations include:
• The Mineral Oils (safety) Regulations
• Petroleum Refining Regulations
• National Domestic Gas Supply and Pricing Regulations
2008
Licenses/Leases/Farm outs
• OEL is a non-exclusive license to explore for oil. It
expires on the 31st December of the year granted.
• OPL is an exclusive right to exploration and production.
(It is for 5 years in onshore and shallow waters); (It is for
10 years in deep off shore and inland basins) includes
periods of renewals
• Restrictions
• The right-holder of an OPL or OML cannot create a lease
over its rights in the relevant license/lease.
• However, a right-holder may assign its rights with the
consent of the Minister (see next slide).

9. Legal requirements to
acquire an OML• Oil Mining Lease exclusive right to(a) ‘conduct exploration and
prospecting operations’ (b) ‘win, get, work, store, carry away, transport,
export’ (c) ‘otherwise treat petroleum discovered’ (Para 11 of First
Schedule to Act
• Rights or interests in an OML or OPL may be transferred by
assignment.
• However, assignment can only be valid where the consent of the
Minister has first been obtained following the fulfillment of the relevant
conditions. These conditions include:
• That the proposed assignee is of good reputation, a member of a group
of companies of good reputation, or is owned by a company or
companies of good reputation.
• That the proposed assignee has sufficient technical knowledge and
experience, and sufficient financial resources to effectively operate
under the license or lease.
• The holder of an OML is allowed to farm out a marginal field lying
within the leased area, with the consent of and on terms and conditions
approved by the President.

10. Legal requirements to acquire
an OML
Condition for grant of Oil Mining Lease:
• Minister ‘may’ grant ‘only’ OPL holder an OML
• If oil is found in commercial quantity (10,000 barrels per day)
• If all conditions in license satisfied
• Two separate leases may be granted from single OPL(Oil
Prospecting Licenses (Conversion to Oil Mining Leases, ETC.)
Regulations)

11. Legal requirements to acquire
an OML
• Over compact area not exceeding 500sq miles for duration not
exceeding 20 years
• Note “All oil mining leases deriving from an oil prospecting
license shall be in compact blocks or units; and where more
than one block or unit is so derived, each block or unit shall be
the subject of a separate and distinct lease”(Reg. 293)
Petroleum(Drilling and Production) Regulation)
• 50% of area to be relinquished after 10 years of grant
• OML may be renewed indefinitely
• Note recent controversy over renewal of IOC’S blocks

12. Legal requirements to acquire
an OML
• Note case law
• South Atlantic Petroleum v Min of Petroleum Resources
• The Moni Pulo case-
-Acquisition of controlling shares in concession owning company
requires prior ministerial consent-Sections 194(1) & 2 of the PIB
• The Famfa v NNPC case
-Supreme Court held that the government must follow due
process of negotiation before exercising back in rights.

13. Possible criteria for Bid
evaluation
Company Details
• Information on their structure, composition, activities
and experience in the areas of oil and gas exploration
and production.

14. Possible criteria for Bid
evaluation
• Evidence of Company’s Technical and Managerial
Capability
• The applicant may wish to demonstrate ability to fully
meet the objective of undertaking expeditious and
efficient development of an OML in a PSC, Marginal
Field or JV.
• Where there is little or no track record of petroleum
operations, interested companies may wish to
demonstrate ability to secure the participation of a
capable technical partner or access to funds that
would enable the company operate the asset in a
business-like manner.

15. Possible criteria for Bid
evaluation
Nature of Company
The indigenous company shall be substantially
Nigerian and shall be registered solely for
exploration and production business. During
the bid, perhaps at the pre-qualification stage,
attention may be paid to the composition of the
promoting team, their background and
experience with exploration and production at
sufficiently high level.

16. Possible criteria for Bid
evaluation
Premium
• Company may wish to indicate willingness to
pay all required fees or willingness/ability to
raise the required fees promptly. Note
Britannia v Chevron, the case is subjudice, I
shall comment no further. Note that Oando
took over a year to raise funds to acquire
Conoco Phillips upstream assets…

17. Possible criteria for Bid
evaluation
Nigerian Content
• Local content in terms of the commitment of
the company to the training and growth of
indigenous capability, manpower and local
input in the provision of goods and services
to the industry shall be indicated.

18. Possible criteria for Bid
evaluation
Local Community/State Participation
• Consideration for local Community
involvement in the operation of the Company
as stakeholder in the business as well as
commitment to social projects for the socio-
economic development of the communities.

19. Possible criteria for Bid
evaluation
Evidence of Payment
• Evidence of payment of applicable fees.
Fields
• The company shall indicate clearly the oml it
wishes to bid for and in respect of which they
will be required to pay the appropriate fee for
leasing the respective data.

20. Top Tips for successful
bidding
• Comply with all reasonable requests from the
OML holder.
• Provide information and answers to questions
in full and in formats required.
• Submit a compliant bid. If necessary, be clear
about any technical and commercial
assumptions and/or exclusions. Don't 'hide'
them and put them in one place.

21. Top Tips for successful
bidding
• In the post-bid, negotiation phase, avoid introducing
changes not covered in your bid as the bid could rapidly
become non-compliant.
• Don't assume that the OML holder's past experience of
you is a substitute for answering questions- often the
OML holder can only use the information presented.
Always provide examples and evidence to support
answers. Accept that there may be frustrations in working
in the environment the OML holder works in.
• Seek ways in your bid to illustrate your knowledge and
understanding of the OML holder's working environment.
• Look at information provided by the OML holder e.g. web
sites, procurement plans.
• Providing unrequested information can be frustrating for
the OML holder and may be seen as 'padding'.

22. Top Tips for successful
bidding
• Accept that some requirements flow down from the
OML holder's customer or regulators.
• Balance selling your company in the tender with
detail of what is going to be delivered and how it
will be done.
• If you have no Oil and Gas experience, counteract
this by stressing work you have done in a related
industry and show a partnership with a capable
technical partner in the Oil and Gas Industry.

23. Top Tips for successful
bidding
• Draw parallels with the Oil and Gas Industry.
• When invited to present the tender by the OML
Holder, use this as an opportunity to explain a
written answer in more detail. Stick to what is
required (as this is what is of real interest) and
don't 'pad' the presentation out with
information not requested.
• Answer any Requests for Clarification in full -
don't restate what you have already written in
your tender. Requests for clarification are
made for a reason; the original answer wasn't
adequate.

24. Asset acquisition tips
• Oil majors in Nigeria seem to be selling off their “onshore
assets” while acquiring “offshore oil blocks”; this may be
in support of Nigeria’s increased local content,
participation policy or it may be a practical solution in
response to the challenges faced onshore and in the
shallow waters; possibly due to the “Emergence of
Social Normative Norms in Oil Pollution” due to lax
enforcement of the law in the area of environmental
degradation which may have resulted in prolonged host
community hostility targeted at the International Oil
Companies.

25. Asset acquisition tips
• “Off Shore Deep Water Oil Blocks” seem to be devoid of
community issues, relations, corporate social
responsibility obligations, oil theft and other
“disruptions” which have seemingly unsettled the IOC’S.
• Piracy is however a real threat in shallow waters.

26. Asset acquisition tips
• 7 (seven)phases in “ acquisition and sale
transactions”.
• Seller's preparation for a sale,
• Buyer's preparation for a purchase,
• Due diligence search,
• Negotiation of the Purchase and Sale
agreement,
• Pre-closing,
• Closing and
• Post-closing.

27. Asset acquisition tips
• “Due diligence examination” covers the buyer's
examination of the property and seller's
records as regards the oil blocks for sale. These
clauses often provide that the buyer will have
both the access and right to examine the
property (oil blocks) and pertinent files, books
and records of the seller.

28. Pitfalls to avoid
• Cherry picking(Bid in consortia, bid for all
lots)
• Bid litigation that may freeze the transaction.
• Delay in sourcing for funds-Oando took over
a year to raise required funds.
• Be vigilant and use equitable remedies well if
the bid goes awry. See Britannia’s case.
• Don’t buy incomplete assets. Shares in a
certain Gas project…
• Failure to obtain ministerial consent even
when acquiring controlling shares in
concession owning company…

29. Pitfalls to avoid
• Litigation with technical partners;
• Capacity Building and Technology
Limitations; There have been capability and
capacity issues as well as technology limitations.
• Asset acquisition and management
• The non-bankability of some Oil Field assets;
has led to the inability to raise funds for the
development of the fields.
• Environmental Issues; Many Oil companies
have had environmental issues such as
community unrest.

30. Thank you for listening
• Thank you for listening.
• Questions?
• When will the PIB be passed?
• What will be the impact of shale gas on Nigeria’s
energy market?
• Impact of East and West African Oil and Gas
discoveries?
• What is the impact of increased acquisition, by
indigenous companies of concessions dumped by
IOCS?
• What is the impact of emerging indigenous
Energy companies?