An Overview of the Nigerian Oil and Gas Sector and Dispute Resolution
The oil and gas sector are mainly the backbone of the Nigerian economy. Nigeria made their first oil and gas exploration in 1956, in Niger Delta. Thereafter, oil and gas operations fully commenced in 1956 and oil and gas were explored in commercial quantity by the then oil company Shell D’Arcy.
Shell played a dominant role in the oil industry for several years until 1971, when Nigeria joined membership with the Organization of Petroleum Exporting Countries (OPEC). Once they formed a membership with OPEC, they subsequently took a greater and firmer control of our oil and gas resources.
Causes of Disputes in Oil and Gas Industry in Nigeria
Causes of oil and gas dispute in Nigeria usually stems from unequal appropriation of what accrues from oil to host communities after oil explorations. However, there are other causes of oil and gas dispute in Nigeria. We shall examine each cause extensively.
Inadequate Compensation for Environmental Damage:
Host communities and oil companies usually dispute for this reason. Due to environmental damage caused by one of the parties, this usually results in violent demonstrations and the instituting litigation claims.
The reason why such dispute escalates is due to the fact that, the companies may not have acted accordingly with their Environmental Impact Assessments; during their oil exploration activities. In Umudje v Shell BP Development Company, where the claimants sued the defendants for 50,000 pounds’ compensation for blocking the original Utefe stream waterway which adversely caused crude oil and chemicals to scape and sip into the claimants’ ponds and lakes. The trial court held in favour of the claimants.
Oppressive Legal Regime in Oil Production in Nigeria:
Often times, the legal regime that regulates the mining exploration of oil in Nigeria, is quite oppressive and the host communities usually find the regime to be harsh. The host communities feel marginalized because they believe that the persons who enact such oppressive laws are from major ethnic groups; thus, this leaves the host communities to feel like the minorities.
In SPDC (Nig.) v Tiebo VII, the defendant plaintiff sued the appellants for N64 million compensation for allowing crude oil to spill into their farm land, shrines, ponds and creeks. However, the appellants argued that they have the legal right to discharge crude contaminants in the area. But the respondents claimed total ownership of that land.
Lack of employment of the Youth of the host communities:
It is common to find that youths after youths have graduated after studying in the oil and gas field, but are not given much employment opportunities by the oil companies. If the youths in the oil producing communities were employed and given basic social amenities, there would be no tension between the host communities and oil companies to give rise to a dispute.
The impact that oil exploration activities brings on host communities:
The continuous gas flaring has a negative impact on human habitat such as pollution, acid rain, heat waves, oil spillage in the process of loading may result in a mass destruction of the farm land and sea water pollution which are the main sources of livelihood of the Niger Delta host community. In Okpabi v Shell PB, where in 2015, the Nigerian communities of Ogale and Bille respectively filed a law suit against the defendant for oil spills in Ogale and Bille communities.
Inadequate Provision of Community Assistance Projects:
Host communities are very passionate about community projects. Thus, they get aggravated when the oil companies fail to provide these projects in their host communities. This subsequently results in the people of the oil companies launching attacks on these oil companies.
Government Reaction to the Problems of Oil-Bearing Communities:
The attitude of the government towards the plight the of host communities, as a result of the negative impact of oil exploration activities, is extremely passive. Thus, this aggravates the host communities as they start having the notion that the government is also exploiting them.
Available Mechanisms for Resolving Oil and Gas Disputes in Nigeria
In the oil and gas industry, there are two major ways to resolving disputes. It can be done through the court, or voluntarily agreed by the disputants to settle the dispute through a well-known alternative dispute resolution mechanism.
If the dispute is settled by the court such is referred to as an adjudication scheme but if parties to the dispute agree to settle it voluntarily, such can be done through the scheme of negotiation, mediation, neutral evaluation, arbitration.
The Adjudication Scheme:
If the parties opt for this method, their lawsuit will be brought to court. As there are so many regulations in the oil and gas industry, some legal scholars may advise that any dispute that occurs in the oil and gas sector should be settled by the court and that the court will make, pronouncement in the cases on a point of law; whilst offering injunctive or protective remedies.
This scheme is usually agreed voluntarily by the disputants, it usually involves an interaction between the disputants, who have the intention of settling their dispute in a more peaceful manner without the court’s intervention. They include:
Negotiation: With this method, the parties in dispute have control over the process and its outcome. During negotiations, the parties will discuss how to reconcile their differences and reach a compromise that will bring about an agreement that will mutually benefit the parties. Negotiation has been greatly utilized whenever an oil & gas dispute arises in Bayelsa state. It is not binding on the parties because it does not have the force of law.
Mediation: Oil and gas disputes are usually commercial investment in nature between parties that are equally engaging in the same commercial investment. In the mediation process, there is usually a neutral third party where the mediator plays the role of a facilitator and usually will avoid imposing any kind of recommendation or evaluation on the parties because his mode of questions to the parties would be more of suggestive in nature but not persuasive. The decision of the mediation is not binding on the parties but in situations where it is registered with court the defendant would not be able to derange from the bound.
Conciliation: This method affords the opportunity for parties in the oil and gas industry to settle their dispute. It is usually done in a friendly and non-argumentative manner. The conciliator will meet separately with the parties to the oil and gas dispute, in a bid to resolve their differences.
The role of the conciliator is to reduce the tension, improve communication, interpret the issues that the disputants are having. The ICSID Convention provides for the Rules and Regulations for both Conciliation and Arbitration. The decision of the conciliation is only binding if the parties agree to it and have it registered in court.
Arbitration: The arbitration method entails the parties referring their oil and gas dispute to an impartial third party. The parties are usually in control of the process in the sense that they have the latitude to select their arbitrator by themselves.
Arbitration is usually of three types: voluntary arbitration, arbitration by the order of court and finally statutory arbitration. Voluntary arbitration is basically the circumstance where the parties to the oil and gas dispute refer their dispute to a tribunal of their choice as opposed to a court.
Arbitration by the order of court is when the court has been given the power to refer any matter to arbitration, while the statutory arbitration is one that is imposed by a statute. The Award decision of the Arbitral Tribunal is legally binding on all the parties in dispute.