NUPRC Seeks to Amend the Production Curtailment and Domestic Crude Supply Obligation Regulations 2023

The Nigerian Upstream Petroleum Regulatory Commission (the “Commission”) released the Production Curtailment and Domestic Crude Oil Supply Obligations (the “Regulations”) in 2023 pursuant to section 8 (c) and section 109 of the Petroleum Industry Act 2021 (the “Act”). The Regulations are generally aimed at ensuring that licensees and lessees meet the production quotas set by the Commission, and ensure that the crude oil needs of domestic refineries are supplied by the licensees and lessees on a willing buyer, willing seller basis.

The Commission has released a notice dated 8 August 2024 inviting Lessees, Licensees, Permit holders, host communities, and other stakeholders to provide their comments and inputs on the proposed amendments to the Regulations (“Proposed Amendment”). This is in line with section 216 (1) of the Act which requires the Commission to consult with stakeholders prior to finalizing regulations or amendments to regulations.

We note that the Proposed Amendment to the Regulations is coming amid the alleged failures of crude oil producers to supply domestic refineries with crude oil.

The Proposed Amendment amends the sanctions and the currency sanctions payable by defaulting licensees/lessees under the Regulations. Specifically, the Regulations provide that a lessee that fails or is unable to utilise its allocated production quota for seven consecutive days must within 48 hours notify the Commission in writing stating the reasons for such failure or inability. The Proposed Amendment provides that failure to notify the Commission is a contravention of the Regulations punishable with an administrative penalty of N10,000,000 (Ten Million Naira) for every day the contravention subsists. We note that this penalty was previously a daily fine of US$5,000 (Five Thousand United States Dollars). An administrative fine of N20,000,000 (Twenty Million Naira) is payable to the Commission when a license or lessee fails to respond to a Request For Quotation (RFQ) issued by the Commission or responds to an RFQ outside the time specified. This was previously a fine of US$10,000 (Ten Thousand United States Dollars) under the Regulations. We note that the fines are now denominated in Naira which may be preferred by the licensee/lessees, as the foreign currency exchange rate risk is mitigated, although the fees are higher.

The Regulations provide that an RFQ shall indicate (i) the volume of crude oil required to address the shortage or inadequate supply condition, (ii) the location of the supply and the crude specification or grade required, (iii) the price at which the licensee or lessee shall supply the volume, and (iv) a specific time within which a response shall be submitted and the form in which the response shall be submitted., the price at which the licensee or lessee shall supply the volume. The Proposed Amendment expunges (iii) from the Regulations. This appears to be consistent with the rest of the Regulation which provides that the Commission shall provide the RFQ to the refineries experiencing inadequate crude supply to facilitate the crude purchase contract on a willing buyer, willing seller basis. It is expected that the buyer and seller will negotiate the price at which the crude will be supplied.

The Proposed Amendment includes a new clause on the termination of domestic crude supply obligation (DCSO). It provides that a DCSO may be terminated where (i) a lessee has fulfilled the supply obligation to a refiner under the DCSO; (ii) a lessee declares a force majeure; (iii) a buyer defaults in its obligation to the lessee under the supply contract to offtake the supply; or (iv) the Commission directs the termination of a DCSO. This clause will provide more clarity to licensees and lessees on how or when their DCSO is terminated.

For more information, please contact aoenergy@aluko-oyebode.com