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11 May 2020
After the president issued regulations directing a lockdown of areas where oil and gas companies' head offices are located, the Department of Petroleum Resources (DPR) issued a circular to ensure the safety and welfare of all personnel and contain the spread of COVID-19, directing, among other things, that:
The circular effectively extended the presidential regulations to the operational locations of operators and contractors.
This declaration, or interpretation, of 'force majeure' by a regulator in a regulatory context raises the question of whether operators and contractors can rely on such a declaration or interpretation in their contracts with third parties. An additional question is whether operators and contractors can avoid or suspend the fulfilment of their regulatory obligations based on the industry regulator's declaration of force majeure.
The concept of force majeure ordinarily relates to contracts. It is typically a contractual provision that allows a party to suspend, and sometimes ultimately avoid, the performance of its obligation due to supervening circumstances. During the suspension period, the party whose performance is suspended must normally take steps to safeguard its ability to perform the suspended obligation in the future. For an event or circumstance to qualify as force majeure, it must fall within the contract's definition of such. Typical force majeure provisions include acts of God and acts of governmental authorities. Sometimes, they may also include epidemics and pandemics.
Therefore, a party seeking to rely on a contractual force majeure provision must prove the event or circumstance on which it is relying and that such an event or circumstance is included in the contractual definition of force majeure. In the context of the DPR circular, the reference to a force majeure situation appears to relate to the measures implemented by governmental authorities to deal with the COVID-19 pandemic. For such a plea to be sustainable against a party to a contract, the contract must have included actions by governmental authorities in its definition of force majeure. Otherwise, the declaration by a governmental authority that its action constitutes force majeure would not, in itself, suffice.
While 'force majeure' is not specifically defined in any oil and gas industry statute or regulation, events or circumstances that would normally constitute contractual instances of force majeure may be taken into account by regulators in determining how to act towards an operator or contractor. For example, under Paragraph 25 of the First Schedule to the Petroleum Act, in considering whether to revoke an oil prospecting licence or oil mining lease on the grounds of, for example, a failure to conduct operations in accordance with good oilfield practice or a breach of the act, the minister of petroleum resources must inform the licensee or lessee of the ground on which revocation is contemplated and invite them to provide an explanation. In this context, such a licensee or lessee may validly plead circumstances that amount to contractual force majeure.
In the specific example of force majeure due to compliance by an operator or contractor with the directions of governmental authorities, it would seem unreasonable for a regulator to penalise the operator or contractor for such compliance.
For further information on this topic please contact Chiagozie Hilary-Nwokonko at Streamsowers & Köhn by telephone (+234 1 271 2276) or email (firstname.lastname@example.org). The Streamsowers & Köhn website can be accessed at www.sskohn.com.
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