Nigeria Cancels ExxonMobil’s Oil Licenses:The Limits of Negotiated Rights Regime

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Exxon Mobil

Exxon Mobil


Nigeria’s Petroleum Industry Bill (PIB), introduced 2009, is unlikely to be passed before the current administration ends May 29th. International oil companies–Royal Dutch/Shell, ExxonMobil, ChevronTexaco  Total–helped stall the bill praised for its clarity. For OICs, it threatens lucrative oil rights negotiated with previous officials, an instability-laden culture. The recent voiding of ExxonMobil’s oil rights is a wake-up call for a rational order in the interest of investors and Nigerians.


 The OMLs, originally granted to the IOCs in the 1950s and renewed subsequently in 1968 at no cost whatsoever, expired in December 2008. The government balked at renewing the leases under the 1968 terms, preferring to wait for the passage of the PIB which would compel the IOCs to pay fees for the renewal of those rights. Besides, the tender process introduced in Nigeria’s oil-licensing regime in 2008 requires bidders to pay a signature bonus before the award of oil leases.

In the interim, the petroleum ministry granted a one-year extension on all the expired OMLs. However, in March 2010, the IOCs negotiated a “settlement” with the then deputy petroleum minister who renewed the affected leases. Questions about the invalidity of the contract signed on behalf of the government by this junior official took a year of backroom politicking to be settled.

Sadly, more cancelations of OMLs are likely upon the enactment of the PIB, a task on the plate of a more democratic legislature starting in June 2011. On May 5th, Shell which had initially gone to court to challenge the 2008 non-renewal of the OMLs and had been the anti-PIB ring-leader, suddenly described the PIB as “a well balanced document that has taken care of the interest of all stakeholders,” saying it’s “ready to make major strategic investments in deepwater development if it’s passed into law.” ExxonMobil’s fate was in the shadows, but a business model based on preference for non-rational legal order fosters a worrisome vicious cycle of political risks and uncertainties, especially in an atmosphere of rising mineral resources nationalism in a more democratic Nigeria and elsewhere.

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