NIGERIA GAS FLARE COMMERCIALISATION PROGRAMME - GUIDELINES FOR FLARE GAS ACTIVITIES

A“Taking Advantage of the Flare Gas (Prevention of Waste and Pollution) Regulation 2018” published in December 2018, this report provides an analysis of the recently issued guidelines by the Department of Petroleum Resources. The guidelines are a by-product of the approved 'Flare Gas' regulation that was gazetted by the Federal Government of Nigeria in September 2018.The four guidelines provide the governance framework for the flare gas commercialization programme in the natural gas sector. The guidelines were issued pursuant to Paragraph 35 (b) of the First Schedule to the Petroleum Act and the Flare Gas (Prevention of Waste and Pollution) Regulations, 2018. They are as follows: I. Guidelines for Grant of Permit to Access Flare Gas II. Guidelines for Flare Gas Measurement, Data Management and Reporting Obligations III. Guidelines for Producers' Associated Gas Utilization Projects IV. Guidelines for Flare Payments I. GUIDELINES FOR GRANT OF PERMIT TO ACCESS FLARE GAS The guidelines give direction as to the competitive bid process for obtaining the permit to access flare gas. The guidelines also provide for the respective rights and obligations of permit holders, which if violated will put the permit at the risk of revocation. a. Competitive Bid Process Further to Paragraph 3(1) of the Flare Gas (Prevention of Waste and Pollution) Regulations, 2018, Section 6 of the guidelines provides that the grant of a permit to access flare gas shall be by way of an open and competitive bid process in accordance with the procedures outlined in the guidelines. The procedures are outlined in Schedule A to the guidelines The entire procedure as shown in the guidelines comprises a 24-stage process from registration on the programme portal to becoming a Permit Holder. However, key procedural steps include: Ÿ· Registration Stage–The first stage entails registration by a potential investor on the Nigeria Gas Flare Commercialisation Programme (NGFCP) Portal. Sections 7 of the guidelines provide that a Permit Holder must be a company in Nigeria. Therefore, it is advisable that at the point of registration on the portal, the company seeking the permit should have already been incorporated with the Corporate Affairs Commission. Ÿ· Qualification Stage - Once registered on the portal, an applicant will be eligible to download the Request for Qualification (RFQ) Package. Applicants will be required to submit a Statement of Qualification (SOQ) demonstrating their capability to develop a project by providing the information requested in the RFQ. To submit the SOQ form, a SOQ submission fee must be paid, and the applicant must sign a confidentiality agreement. Each SOQ will be evaluated against the criteria set out in the RFQ and applicants whose SOQs satisfy the criteria will attain 'Qualified Applicant' status and will have their names published on the programme portal. Ÿ· Access Stage–Qualified Applicants whose names have been published on the programme portal will be invited to another stage of the exercise, known as the Request for Proposal stage (RFP), where the Qualified Applicant is required to commence the preparation of the Bid proposal. In order to have more information about the proposed project, the Qualified Applicant may apply for Data Access Permit subject to payment of the required data access fees and following the data access procedures provided by the Department of Petroleum Resources. A Data Access Permit enables the holder of such permit to access data from flare sites. A data-prying fee is paid to pry flare gas data from flare sites, but to retain or download the data, a data-leasing fee must be paid. Ÿ· RFP, Evaluation & Selection of Preferred Bidders –At this stage, a qualified applicant submits a proposal to take flare gas at a designated flare site. Such applicant by submitting a proposal becomes a bidder. Section 2.5 of the guidelines provide for the proposal and how it should be submitted. Each proposal should contain 2 envelopes: Envelope 1 should contain Mandatory Information and a Technical & Commercial Proposal and; Envelope 2 should contain the Financial Proposal. Finally, each proposal must be accompanied by a proposalprocessing fee ($1000 per proposal as stipulated in Schedule B to the guidelines) and a bid bond. The evaluation of the proposal is threefold. Firstly, the Mandatory Information is evaluated and only bidders adjudged to have been compliant would move on to the next phase where the Technical & Commercial (T&C) proposal is evaluated. The T&C proposal is evaluated based on criteria in the RFP. Bidders whose T&C Proposal meet the evaluation criteria will proceed to the next phase to have their Financial Proposals evaluated. Finally, the Financial Proposals are evaluated and based on the set down criteria in the RFP the Preferred Bidders are selected. Once the selection process is complete the preferred bidders would need to satisfy some conditions precedent. (Section 2.8 of the Guidelines) One of such conditions precedent is the execution of the following agreements: Milestone Development Agreement, Gas Sales Agreement and Connection Agreement. Once all the conditions precedents have been satisfied, a Permit will be issued within 14 days and the Preferred Bidder shall become a Permit Holder. b. Rights and Obligations of Permit Holders The guidelines also provide for the rights of Permit Holders (Section 8). They have the right to take flare gas from one or more flare sites as specified in the permits and they also have a right to sustained and continuous operations with respect to the flare sites specified in the permit. The guidelines stipulate that the Permit Holder is responsible for the design and construction of Producer Gas Connection Assets and further stipulates the criteria which the Assets must meet. The guidelines place an obligation on the Permit Holder to conduct its operations in a safe and environmentally sound manner and in line with good oil field practice. c. Applicable Fees (Schedule B to the Guidelines) The guidelines also provide for the fees payable at various stages of the Bid process till the grant of the permit. The necessary fees are as follows d. Bonds (Schedule C to the Guidelines) The guidelines provide for three types of Bonds: Ÿ Bid Bonds – Which must accompany each proposal and is calculated as 1% of the estimated Project Capital Expenditure subject to a maximum of $1,000,000. A bidder must ensure that his bid bond is valid for a period of not less than six (6) months after the bid submission due date. A bid bond will only be returned in two instances; where the bidder was not selected as a preferred bidder and; where a preferred bidder provides a milestone bond as specified in the Milestone Development Agreement Ÿ Milestone Bond – This is calculated as 2% of the estimated Project Capital Expenditure subject to a maximum of $2,000,000 Ÿ Performance Bond – This is a bond paid by the Permit Holder to the Producer or flare gas seller to cover 3 months gas delivery payments. I. GUIDELINES FOR FLARE GAS MEASUREMENT, DATA MANAGEMENT AND REPORTING OBLIGATIONS These guidelines provide directions for the measurement, recording and reporting of all gas produced from Oil Mining Lease, Marginal Fields and Flare Sites. The relevant stakeholders who bear the obligation of recording and reporting gas data are classified into three (3) groups by the guidelines: Ÿ Producers Ÿ Permit Holders Ÿ Refineries and Other Processing Facilities In Section 2, the guidelines reiterate general obligations of the Producers and Permit Holders, which are stipulated in the Flare Gas (Prevention of Waste and Pollution) Regulations, 2018: Ÿ Permit Holder and Producer shall maintain their respective daily gas flaring logs, which must be submitted within 21 days Ÿ Producer and Permit Holders are required to keep copies of their logs for no less than thirty-six (36) months Ÿ Producers and Permit Holders are required to prepare and submit annual reports containing flare gas data with respect to each flare site. A. Data Measurement and Accounting Section 3covers the major crux of these guidelines. It provides for the type of gas that should be measured and recorded and how it should be measured and recorded. In general, all measurements of gas and reporting should be corrected to a standard temperature of 60oF and a pressure of 14.73 psi.