On 15 July 2015, Nigeria’s state oil company, Nigerian National Petroleum Corporation (NNPC) issued a list of 113 tankers prohibited, with immediate effect, from “engaging in crude oil/gas ... activities in any... terminals within...Nigerian territorial waters...”. The directive further provides that “the affected vessels have also been barred from movements within ... Nigerian territorial waters”.

The reason for the prohibition is not explained in the directive but the directive is said to emanate from the President of Nigeria, Muhammadu Buhari. Earlier this year, the Nigerian authorities introduced a requirement that all tankers loading crude from Nigerian terminals complete an out-turn verification exercise (OVE) at discharge ports. It is thought that the recent directive is linked to this initiative. However, the grounds for the ban have not been explained and it is quite unclear what rules or regulations the owners affected are meant to have breached. Moreover, some of the listed vessels have not traded in Nigeria for many years, others are mis-named, others are named twice.

The potential implications for owners and charterers of crude oil tankers operating within Nigerian waters are wide-ranging. Whilst steps are taken to understand the ban, we recommend the affected owners and charterers take action to protect themselves against the consequences of being included on the prohibited list. Looking forward, owners and charterers should also take action to ensure they reduce the risk of being included in any updated/amended prohibited lists.

Effects of the ban

Owners of vessels already on the prohibited list have a number of alternatives open to them. Commencing an action before the Nigerian Courts has been mooted, but given the current Nigerian Court summer recess and the often protracted nature of court proceedings in Nigeria, this is unlikely to provide a quick solution.

A more practical alternative is for representations to be made directly to the NNPC and the Nigerian authorities either individually or on a collective basis. Various international shipping associations, including INTERTANKO, are already involved in co-ordinating a collective response. This includes seeking confirmation from the NNPC of what steps an owner needs to take to be removed from the list, including perhaps owners/charterers having to gather and submit historical OVE data.

In the meantime, if a vessel is found to be acting in contravention of the NNPC directive, the vessel, crew and cargo may be subject to detention and penalties by the Nigerian authorities. Although the directive is stated to be restricted to Nigerian “territorial waters” which, under international law, ought to mean within 12 miles of the coast or within a 200 metre radius of an offshore installation, our recent experience is that the Nigerian authorities’ interpretation of “territorial waters” can be at odds with international law and there have been recent examples of the Nigerian authorities attempting to exercise sovereignty beyond the 12 mile territorial sea limit into the 200 mile Exclusive Economic Zone (EEZ). Accordingly, operators may still be at risk outside of the 12 mile limit.

Whether losses arising from a vessel being detained pursuant to the directive are covered by an insured peril is likely to be the subject of debate on a case by case basis, but given the common exclusions that exist in insurance polices for operating in breach of trading regulations, cover for such risks is far from clear.

In respect of charterparties, particularly voyage charterparties covering the carriage of crude oil from Nigeria, issues of frustration may arise. Alternatively, the practical issues of owners being unable to follow the orders of the charterers to load crude in Nigeria will need to be considered pursuant to the charterparty terms, with associated off-hire implications in time charters. For affected vessels that are currently loaded/loading in Nigerian waters, the risk of immediate detention is acute, with resulting bill of lading issues as well. The ban will also impact on oil major approval and raises the question of whether Nigerian ports/terminals have become legally unsafe.

Owners and charterers of crude tankers who intend to operate in Nigerian waters but are not caught by the ban need to be mindful of the OVE rules and the possible necessity to share out-turn information - many Nigerian terminals have issued precise instructions in relation to this.

Further, owners/charterers should consider a bespoke charterparty clause dealing with:

  • Compliance with the OVE, including any additional requirements the Nigerian authorities might impose, such as to survey the cargo.
  • The costs and expenses associated with dealing with the OVE.
  • Any time lost dealing with the OVE.
  • Warranting, in either absolute terms or qualified terms, that the vessel is not subject to a ban.

It is currently unclear whether the current list of 113 will be expanded to include other vessels. Given that the reasons why these particular vessels have been targeted is so unclear, this must remain as a possibility.