Faculty of Law, Madonna University, Nigeria.

Name:

Ikpo, David Nnanna C.

Registration Number:

LL|08|217
Course:

Oil and Gas Law

Title:

Over the years various theories have been propounded for the ownership and control of Oil and Gas resources worldwide. As controversial as they have come to form the basis upon which ownership rights are today exercised in various countries. Nigeria inclusive.

Of what relevance is the contention of ownership of oil and gas in situ?

In a multi trillion dollar enterprise such as that of Oil and Gas it is not inapt that the issue of ownership be in contention. This may to some extent be consequent of the fact that internationally, and equally applicable on municipal grounds, it has been the subject of a large fraction of the economic and commercial activities that transpire in the course of daily dealings. Thus taking into cognisance that marketability of good title is clearly of paramount importance to commercial companies. The contention of ownership may also be as a result of the transitory nature of crude oil as a resource in its natural state in its natural place. The latter is rather pegged on the notion that owing to the impossibility of oil and gas in situ to permanently remain at a certain spot in the earth crust it is quite incapable of ownership. Albeit the case, this may safely be deemed as merely academic in the light that despite the fugacious nature of oil and gas, it is still capable of being owned. It is a widespread notion that ownership denotes the exclusive right to enjoy or dispose a thing in the most absolute manner. Thus for an individual to own oil and gas in situ, it is fair to say that such an individual ought to have the requisite exclusive right to enjoy or dispose a thing in the most absolute manner (this of course denotes de jure and de facto control). The contention of ownership of oil and gas in situ draws its salience from the fact that certain states are heavily dependent on their resources (minerals and hydrocarbons), and thus their fates and existence are commensurately constrained and regulated by the control, management, disposition and ownership of these resources. In the light of this, various jurisdictions and states of the world uphold varied, however conflicting, notions and theories of what the ownership of oil and gas in situ denotes. These varied theories are considered below:

Theories of Ownership of oil and gas in situ Absolute Ownership Theory:

Basically, this theory posits that oil and gas in situ can be owned by an individual in fee simple, regardless of it fugacious nature, so long as it is found in such an individuals land. This theory has its roots from Texas which is the largest oil

producing state in the United States of America. It somewhat suffices to say that it is a relic of feudalism as it confers exclusive ownership of the oil and gas in situ on the owner of the land under which it is found. This theory is pays regard to the common law doctrine of Quid Quid Plantatur Solo Solo Cedit which affirms that he owns land owns that beneath it.1 This equally conforms to the legal maxim cujus est solum, ejus est usque ad coleum et ad inferos2- the owner of the surface owns everything from the skies to the centre of the earth. However, one of the flaws of this theory is that an individual is not cannot claim ownership of oil and gas in situ after it, due to its fugacious nature, straddles to another land which is not subject to such an individuals ownership. Recently, in light of the fact that hydro carbons such as oil and gas have a fugacious nature and straddles between lands and zones , states and international oil companies have developed agreements such as joint development and unitization to attend to contention of ownership in the event of hydro carbons straddling between zones. This theory is also challenged by its not taking into regard that a fair percentage of the worlds petroleum deposit is found in the continental shelves or Exclusive Economic Zones of states. Thus which ever individual owns such deposit can not lay claim to the ownership of these areas other than the states as contained in the 1982 United Nations Convention of the Law of the Sea (UNCLOS)3. In the light of this, it is perhaps fair to posit that the theory is tailored towards political convenience, particularly in the administration of petroleum revenue.

Qualified Interest Theory:

This theory likens oil and gas in situ to animal farea natural which cannot have anyone lay any exclusive claim on it until it is captured and kept in the exclusive control and custody of the captor thus in strict compliance with the rule of capture in the United States of America. Here the fugacious nature of oil and gas in situ is equated to wildness consequently ownership only begins after the oil is captured and extracted from its natural position and kept in the exclusive custody of such an individual who may now be referred to as the owner. This theory has its roots in

Akpo, M., True Federalism and the Resource Control in Nigeria. Quadro Impressions Ltd, 2002. Page 370. 2 Ownership of Oil and Gas, http://www.fhoa.ca/ownershp.htm. 3 Part 5 and 6 of the law of the Sea, on the Exclusive Economic Zone and Continental Shelves.

Pennsylvanian history and the interest of the individual on whose land oil and gas in situ is found is qualified by his ability to reduce it to captivity.

Non-ownership theory:
This theory draws light from the mere fact that since oil and gas in situ is fugacious it is incapable of being owned absolutely or in a qualified mode. This theory originated from O klahoma. However, today it has proven that despite the transitory nature of oil and gas in situ, it is still capable of ownership.

Domanial / National Ownership Theory:

Under this theory ownership rights of oil and gas in situ is vested on the state within whose territory the former is found. In other words, it advocates the vesting of complete and total ownership of petroleum resources in the government of the state. This dominance of this theory is prevalent in most sovereign states most of which are developing countries. It is often contended this is as a result of their colonial experience. But then it is an effective theory in terms of attracting foreign investment from countries. Countries such as Nigeria, South Africa, Bolivia, Venezuela and China pay regard to the Domanial theory. As a matter of fact, the South African mineral law4 provides that Mineral resources are the common heritage of all peoples of South Africa and the state is the custodian thereof for the benefit of all South Africans. The Chinese mineral law5 provides that Mineral resources shall be owned by the State. The States ownership shall be exercised by the State Council... They all reflect that control of the minerals is solely in the hands of the government. Internationally this position is upheld generally from the United Nations General Assembly Resolution 1803 of 1962 to the Rio Declaration on environment and development of 1992. In this light ownership has been recognised to be a sovereign right of a nation. Historically, this stemmed from the universal realisation of the right of the peoples to self determination, to national sovereignty and territiorial integrity, and of speedy granting of independence to colonial countries and peoples as

South Africa mineral law 2003, Section 3 (1); http://www.lexadin.nl/wlg/legis/nofr/oeur/lxwezaf.htm (last visited on the 3rd of January 2007). 5 1996 mineral law of china; http://www.lexadin.nl/wlg/legis/nofr/oeur/lxwechi.htm

imperatives for the enjoyment of human rights.6On this note, the rights of these citizens were to be affirmed through a plebiscite communicating to the government how they desired that their natural wealth be exploited. This is the principle of economic self determination and it is enunciated in the United Nations General Assembly Resolution of December 21, 1952. The real object of this Resolution seems, however, to have been to encourage under developed countries to make use of their own resources as a proper foundation for their independent economic development, and to prevent their depletion by the action of other states. This principle was further elaborated in United Nations General Assembly Resolutions of December 14, 1962, November 25, 1966, December 17, 1973 thus extending its scope to Permanent Sovereignty over Natural Resources. UNGA 1803 of 1962 in Article 1 provides that the right of the peoples and nations to the permanent sovereignty over their natural wealth and resources must be exercised in the interest of their national development and of the well being of the people of the state concerned7. While the Rio declaration which follows in line with the Stockholm conference, provides in Article 2, that States have, in accordance with the Charter of the United Nations and the principles of international law, the sovereign right to exploit their own resources pursuant to their own environmental and developmental policies, and the responsibility to ensure that activities within their jurisdiction or control do not cause damage to the environment of other States or of areas beyond the limits of national jurisdiction.8 As has been stated earlier Nigeria equally subscribes to domainal theory as is evident in Section 44(3) of the Constitution of the Federal Republic of Nigeria (as Amended) which provides that Notwithstanding the foregoing provisions of this section, the entire property in and control of all minerals, mineral oils and natural gas in under or upon any land in Nigeria or in, under or upon the territorial waters and the Exclusive Economic Zone of Nigeria shall vest in the Government of the Federation and shall be managed in such manner as may be prescribed by the National Assembly. This
6

United Nations General Assembly Resolution on Self- Determination of December 12, 1958; Declaration on the Granting of Independence to Colonial Countries and Peoples December 14, 1960; Declaration on Principles of International Law Concerning Friendly Relations and Co-operation Among States in Accordance with the United Nations Charter(1970). 7 Brief summary of UN Resolution, http://www.geocities.com/savepalestinenow/unresolutions/studyguide/sgunresgasum1960.html. 8 Rio Declaration on Environment and Development, http://www.unep.org/Documents.multilingual/Default.asp?DocumentID=78&ArticleID=1163

position also reflects in Section 1(1) of the Petroleum Act 1969 and Section 1(1) of the Mineral and Mining Act 1999. Nigeria also nationalised control and ownership of all resources within the state and extricating minerals from forming part of land(evident in Section 18 of the Interpretation Act as empowered by Section 318 of the Constitution of the Federal Republic of Nigeria(as Amended)). It is fair to say that Nigerias seeming conformity with the widespread acceptance of the domainial theory ownership of oil and gas in situ and permanent sovereignty over natural resources was not inspired by the incline towards the social welfare or protection of the human rights of the citizens of Nigeria. Historically, it is traced to early post-independence period when Nigeria was pitched in a civil war with the secessionist enclave of Biafra that it become of great import for the legal position to be made clear as regards the worship of mineral oil resources in the Niger Delta. Owing to this, the federal government promulgated the Petroleum Decree which has been adopted as binding legislation in the course of Nigerias present constitutional democracy by virtue of Section 315 of the Constitution of the Federal Republic of Nigeria(as Amended). Albeit the case the Nigerian oil market has blossomed under has become the core of most of Nigerias international economic activities. This is moreso the case as the Section 2(1)Petroleum Act 1969 empowers the Minister of Petroleum Resources to the right to grant Oil Exploration License(O.E..L.), Oil Prospecting License(O.P.L.) and Oil Mining Lease(O.M.L.) to International Oil Compnaies for a certain duration of time on the payment of application fee. All these done in target to improve Nigerias economy. Having all these in place, it is only fair to expect that there is a progressive realisation of certain rights and privileges which Nigeria ought to have since been benefitting from as one of the largest producers of petroleum in the world. When the status quo such as the 21st Century Nigeria is in contention, we cannot help asking-

Does Nigeria really own oil and gas in situ in Nigeria?

The Nigerian governments de jure ownership of oil and gas in situ in Nigeria is not in question.9 There are strict procedures(as stipulated by the Petroleum Act 1969) that must be adhered to by anyone who wants access to it, such access being only validly granted by the
9

Section 1(1) of the Petroleum Act 1969 and Section 1(1) of the Mineral and Mining Act 1999

federal government through the minister of petroleum resources.10 This authority has been further consolidated by the inclusion of the condition that government shall participate in any oil venture jointly with the subsidiary of any International Oil Company that seeks access to Nigerias oil. The government may also relinquish half of the area leased out for mining under an Oil Mining Lease(O.M.L) after ten years of the grant of such a lease.11 This undoubtedly is a fair evidence of exercise of ownership however still being limited by the fact that Nigeria is still a developing state that still needs the support of foreign investors, International Oil Companies to grow develop the resources we have. This is moreso the case as owing to the nature of oil ventures, singlehandedly exploiting our oil is capital intensive and requiring specialized skill and technology which is unfortunately not within our means for now. In the light of this a good fraction of the explorations, prospecting and mining of oil resources are carried out by foreigners who have the commensurate capital, skill and technology within their means. On this note it is almost not out of place to submit that Nigeria has to some extent ceded its a certain degree of its exclusive ownership of its oil and gas in situ to foreigners. In other words foreigners are to some extent in physical control of the oil(de facto ownership) while the Nigerian government still holds on to the regulation and control of the foreign investors control by virtue of the formers legal control (de jure ownership). Nonetheless it is submitted that the Nigerian governments inability to be in complete ownership and control of the oil resources does not negate the fact that they still enjoy permanent sovereignty over natural resources. There have been other Resolutions of the General Assembly on the subject of Permanent Sovereignty, and these together with the 1962 and 1966 Resolutions, reflect not only the idea of a states sovereign control over its own resources, not to be surrendered but to be safeguarded even when foreign capital is imported to promote development, but also a strong incline, invariably, towards the notion that it is the responsibility of the international community to assist in maximising the exploitation and use of the resources of developing countries and also to revamp their capability to promote their economic development. This also pays much regard to domainal theory of ownership. It is salient to state at this point that the conventions establishing the principle of permanent sovereignty over natural resources did not prohibit ownership of resources by individuals/ citizens; instead they stressed the protection of the individuals interest.

10 11

Section 2(1) of the Petroleum Act of 1969. Paragraph 12(1) of the Schedule 1 of the Petroleum Act.

Considering the protection of Individual interest, it has often been argued that in a country as big and as diverse as Nigeria, the trend should apparently be towards vesting more regulatory powers in the state and local government, in line with the subsidiary principle(this requires that decisions should as much as possible be made by communities affected or on their behalf by the authorities closest to them)12 as they are nearer the resources and can conveniently forge partnership with local communities. In further pursuance of the above, jurists have posited that a tripartite system of ownership should be adopted in Nigeria under which 10% of the revenue realized from the oil sector goes to the federal government, 30% goes to the state government. On the other hand 60% ought to be given to the local government where these oil wells are located. It is submitted that this sharing formula would attend to the development needs of the oil producing communities, gives them a sense of belonging, cushions the adverse effects of exploratory activities in that community, and also permit national participation in the proceeds from the oil venture. Whatever be the case, it is of great import that the Nigerian governments exercise of its ownership rights to oil and gas resources is directed towards colossal regard for the principle of intra-generational equity(this requires that different groups of people within the present generation have the right to benefit equally from the exploitation of resources and that they have a right to a clean and healthy environment)13 and the principle of intergenerational equity(this requires that the needs of the present generation are met without compromising the ability of future generations to meet their own needs) .14

12 13

Section 7(a) of the National Environment Standards and Regulations Environment Agency Ibid. 14 Ibid.