s an offshoot to the GEP Law Focus Report on

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

NIGERIA GAS FLARE COMMERCIALISATION PROGRAMME –GUIDELINES FOR FLARE GAS ACTIVITIES

21 3

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 proposal-

processing 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.

3

Producers

Producers are to measure gas according to the following

classification:

Ÿ Associated Gas production per flare site and oil field

Ÿ Associated gas for Utilisation:

o For its Own Consumption

o For existing off take commitments

Ÿ Liquids extracted from Associated Gas

Ÿ Flare Gas

o Producers Approved flare out project

o Third party commercialization project

o Flare gas going to stack or incinerator per flare

site and per oil field

Permit Holders

Under the guidelines, companies who have gone through

the open bid & selection process (Third Party Flare

Gas Commercialisation Project) and Producers

undertaking the Producer's Approved Flare Out

Project are classified as Permit Holders. Permit Holders

are required to measure gas in the following manner:

Ÿ Flare Gas Consumption

Ÿ Flare Gas Vented

Refineries and other Processing Facilities

Refineries and Processing Facilities should measure gas

as Flare gas volume vented or flared

B. Metering

Another key provision under the guidelines is the issue of

Metering. This is covered under Section 3.6 of the

guidelines. The section provides the types of meters that

should be used in measuring gas by the classified

stakeholders (Producers, Permit Holders and Refineries)

and lays down the criteria/standards used in selecting

those meters. The section also makes provision for the

type and level of data to be recorded by the classified

stakeholders using the selected meters.

The three (3) types of meters provided for are

Ÿ Production Meters – These are to be used by the

Producers to measure high-pressure, medium

pressure, low-pressure associated gas quantities

and liquid condensates.

Ÿ Fiscal Meters – These are to be used by Producers

and Permit Holders. Producers are to use fiscal

meters to measure flare gas delivered to Producer's

flare out project and flare gas sent to the stack or

incinerator. Permit Holders are to deploy fiscal meters

at the delivery point where flare gas is delivered to

Third Party Flare Commercialisation Programme and

the Header where Project Gas is sent to Flare Stack or

Incinerator. The purpose of the fiscal meters is to

measure any gas (Associated or Flared) that

generates payment.

Ÿ Allocation Meters and meters used by

processing facilities - Allocation meters are used

to measure gas allocated for various purposes: gas

allocated for power generation, gas used for re-

injection, gas used by heaters, gas used by

mechanical driven pumps etc.

C. Producers Unaccounted Flare Gas

The Guidelines provide for unaccounted flare gas, which

is any gas that cannot be accounted for under any

specified purpose. Unaccounted flare gas is calculated

as follows:

Unaccounted Flare Gas Quantities = (A*B) – C - D- E - F –

G - H

Where:

A = Associated Gas Production quantities (metered or

accounted)

B = Shrinkage Factor;

C = Own Consumption quantities (metered or

accounted);

D = Gas for Existing Off-Take Commitments (metered);

E = Liquids extracted from Associated Gas (metered or

accounted)

F = Flare Gas delivered to Third Party under the

Commercialization Projects (metered);

G = Flare Gas delivered to Producer's Approved Flare

Out Projects (metered)

H = Measured or Accounted Flare Gas quantities going

to the flare stack

D. Meter Malfunctioning Calibration and Cure

Period

The guidelines provide for situations where Meters are

offline due to malfunctioning and what should be done in

those instances. Where a meter is down due to a

malfunction, the Producer and Permit Holder are to

4

account for the data during that period and the DPR, in

determining the flare payment for that period, is to use; (i)

Accounted Data and (ii) The highest value recorded by

the meter over a 12-month period preceding the

malfunction being identified and reported.

The guidelines provide for a period of 90-calendar days to

cure meter calibration and repairs for each of the

classified stakeholders.

E. Reporting

Section 4 of the guidelines expatiates on the already

stated reporting obligations in section 2 and in the flare

gas regulations. It further provides for the types of Annual

and Monthly reports that are to be submitted in a timely

manner by the classified stakeholders.

F. Data Reconciliation and Resolution

Section 5 provides for reconciliation meetings to be held

between the DPR and each of the classified stakeholders

(Producers, Permit Holders and Production Facilities) to

reconcile oil & gas production volumes and flare gas

volumes. Producers are to meet with the DPR on a

quarterly basis while Permit Holders and Production

Facilities are to meet on an annual basis.

G. Non-Compliance

The final section provides that where either the Producer

or Permit Holder fails to comply with any of the guidelines

stipulated, paragraph 22 of the flare gas regulations shall

apply.

II. GUIDELINES FOR PRODUCER'S ASSOCIATED

GAS UTILIZATION PROJECT

The Guidelines for producer's associated gas utilization

(Guidelines) applies solely to producers under the gas

flare commercialization regime. According to the

Guidelines: “A producer is defined to be a holder of Oil

Mining Lease or allottee of a Marginal Field or contractor

under a Production Sharing Contract”

The objective of the Guidelines includes to:

Ÿ Describe the process applicable for granting Permits

to Access Flare Gas to Producers for Producers'

Approved Flare Out Project (PAFOP) in order to take

flare gas at any flare site on behalf of the Federal

Republic of Nigeria;

Ÿ Provide the framework for Producers Associated Gas

Utilization Projects for commercialization; and

Ÿ Provide the framework for Producers Associated Gas

Utilization Projects for Own Consumption.

For the purpose of the Guidelines, Associated Gas

Projects are categorized as follows:

A. Own consumption projects;

B. Commercialization projects and

C. Greenfield projects

A. Own Consumption Projects

Associated Gas Utilization Projects for own consumption

by the Producer will be limited to sustaining and or

improving oil recovery in the producer's oil field. The

5

Associated Gas Utilization Projects under this category

shall however not reduce or affect any Flare Gas Volume

that is subject to a bid process conducted by the Federal

Government of Nigeria or that has been assigned to any

Permit Holder and the Department of Petroleum

Resources (DPR) must have approved the project in the

Field Development Plan (FDP).

The Guidelines further require that the Reserve Gas for

Own Consumption shall be reported to the DPR. It is

instructive to note that under this type of projects, the

producer may, subject to the regulations and Guidelines,

use associated gas free of charge and emission credit

belongs to the producer.

B. Commercialization Projects

In this regard, the guidelines apply both to projects

initiated before and after the Flare Gas (Prevention of

Waste and Pollution) Regulation, 2018.

Ÿ Pre-Regulation Projects: These include projects

with existing off-take commitments that are in

operation prior to the effective date of the regulation

or that have been approved prior to the effective date

of the regulation but have not begun commercial

operations. The gas prices of projects are agreed

and communicated to the Department of Petroleum

Resources otherwise a price imposed by DPR

becomes applicable where no such communication

has been made to DPR after 4 months of the

Guidelines becoming effective. It is instructive to note

that the project shall be part of a field development

plan (FDP) approved by DPR, the producer should

have concluded Front End Engineering Design

(FEED) and achieved Final Investment Decision (FID)

prior to the effective date of the regulation and

Commercial Operation date prior to January 1, 2020.

The emission credit under this type of project belongs

to the producer.

Ÿ Post-Regulation Projects: These are projects

after the effective date of the regulation which require

Permit to Access Flare Gas and are designated either

as:

o Producer's Approved Flare Out Project;

o Third Party Flare Gas Commercialization Project.

It is instructive to note that this Guideline requires that in

applying for Permit to Access Flare Gas, applicants for

Third Party Flare Gas Commercialization projects must

follow and comply with the procedure established under

the Guidelines For Grant of Permit to Access Flare Gas,

while the procedure for obtaining a Permit to Access Flare

Gas by an applicant for Producer's Approved Flare Out

Project must follow and comply with the Guidelines. It is

also worthy of note that Producers Approved Flare Out

Projects are exempted from bid process which therefore

removes it from the procedure for obtaining Permit to

Access Flare Gas under the Third-Party Flare Gas

Commercialization arrangements.

Requirements for Permit for Producer's

Approved Flare Out Project:

In order to obtain a Permit to Access Flare Gas under a

Producer's Approved Flare Out Project scheme, the

following procedure under the Guidelines must be

observed:

a. Application for a Permit to the Minister of Petroleum

Resources must be done through a subsidiary of a

Producer or Midstream Company;

b. The application shall be accompanied with the

following information and documentation:

Ÿ Project Description;

Ÿ 10-year Associated Gas Production Forecast and

Flare Gas Quantities;

Ÿ 10-year Forecast of the Flare Gas Volumes to be

contracted for by the Permit Holder, the Flare Site(s)

that will supply the gas, Flare Gas-to-Market Product

(Power Generation, LNG, CNG, LPG/Condensate

extraction, methanol, a combination of products, etc.

proposed and the technology to be utilized.

Ÿ A list of Flare-Gas-To-Market Product Off-Taker;

Ÿ Investment cost and proof of economic viability;

Ÿ A project implementation schedule which shall

indicate, among other things that Commercial

Operations Date will commence no later than 36

months after being granted an approved PAFOP

Applicant status;

Ÿ A list of shareholders in the subsidiary or midstream

company that will execute the PAFOP.

Ÿ Documentation that shows that the Project Flare Gas

Consumption volumes are within the Flare Gas

Forecast Quantity and that the PAFOP does not

reduce or affect any Flare Gas volume that is subject

to a bid process being conducted by the Federal

Government of Nigeria or assigned to any other

Permit Holder.

6

Conditions Precedent to Grant of Permit:

Following the approved PAFOP, the applicant will have to

comply with certain stipulated requirements in the

Guidelines before the Minister of Petroleum Resources

grants a Permit to Access Flare Gas. The requirements

are as follows:

a. Execute a Milestone Development Agreement (MDA)

with the Federal Government of Nigeria for monitoring

the performance of the applicant within 60 days of the

award of the Approved PAFOP after which a

Milestone Bond will be posted in accordance with

table 2 of schedule C to the Guidelines for Grant of

Permit to Access Flare Gas;

b. Execute a Gas Sale Agreement (GSA) with the

Federal Government of Nigeria within 60 days of the

award of the Approved PAFOP. It is instructive to note

that the GSA will contain take or pay provisions for the

Permit Holder;

c. Execute a Connection Agreement with the relevant

producer within 60 days of the award of the Approved

PAFOP;

d. If applicable, execute a Deliver or Pay Agreement with

the Producer within 60 days of the award of the

Approved PAFOP, however the Federal Government

of Nigeria is not obligated to provide any backstop

guarantee in the event of a Buyers shortfall;

e. Payment for the permit shall be made within 60 days

of the award of the Approved PAFOP.

By virtue of the Guidelines, the emissions credit belongs

to the Federal Government of Nigeria.

It is instructive to note that failure to meet the above

requirements of the Guidelines will attract a revocation

notice and if default persists after 30 days, the Approved

PAFOP will be deemed forfeited. However, where the

applicant succeeds in meeting the requirements, a

Permit to Access Flare Gas shall be granted, and the

applicant becomes a Permit Holder by virtue of the

regulation. Following the issuance of the Permit, the

Milestone Bond shall be replaced with a Performance

Bond which will be valid for the duration of the Permit.

Greenfield Projects

The Guideline reiterates the position of the regulation

under section 12(3) by prohibiting the producer from

engaging in Routine Flaring or vent of natural gas from

any Greenfield Projects. In developing a Greenfield

project, the producer shall demonstrate in the field

development plan (FDP) that Associated Gas will be

optimized for own consumption and that upon start-up of

the production facility, it will be commercialized over and

above the volumes that are needed for own consumption.

III. GUIDELINES FOR FLARE PAYMENTS

By virtue of section 13 (1), (2) and (3) of the Flare Gas

(Prevention of Waste and Pollution) Regulation, 2018 (the

regulation), a flare payment regime for routine and non-

routine gas flaring is established.

The flare payment regime applies to any natural gas that

is flared and or vented at the production facilities of the

Producers. The Guidelines for Flare Payment (the

Guideline) issued by the Department of Petroleum

Resources is therefore intended to provide the

account ing procedure for underpinning the

implementation of the flare payment regime under the

regulation. The procedures for flare payments are put in

two categories, viz:

A. Transition Period;

B. Post-transition Period.

A. Transition Period

According to section 3.1 of the Guideline during the

transition period, the accounting procedure used for the

calculation of flare payment shall be the Accounted Flare

Gas Quantity which is calculated as follows:

Accounted Flare Gas Quantities= (A*B)-C-D-E-F-G,

Where:

A=Associated Gas Production quantities (metered or

accounted)

B=Shrinkage Factor;

C=Own Consumption quantities (metered or

accounted);

D=Gas for Existing Off-Take Commitments (metered);

E=Liquids extracted from Associated Gas (metered or

accounted)

F=Flare Gas delivered to Third Party under the

Commercialization Projects (metered);

G=Flare Gas delivered to Producer's Approved Flare Out

Projects (metered)

While Chargeable Flare Gas Quantity equals the

Accounted Flare Gas Quantity less Contracted

Guaranteed Flare Gas Buyer Shortfall.

7

The Guidelines provides that the Flare Payment amount is

calculated by multiplying the Chargeable Flare Gas

Quantity by the applicable Flare Payment rate in

Us$/Mscf as contained in the regulation. The Guidelines

draws a difference in the terminology between Accounted

flare gas quantities, unaccounted flare gas quantities and

chargeable flare gas quantities in arriving at the flare

payments.

B. Post Transition Period

In arriving at the flare payment, the applicable principle is

by multiplying the Chargeable Flare Gas Quantity by the

applicable Flare Payment rate in Us$/Mscf as contained

in the regulation. However, the Chargeable Flare Gas

Quantity is the Compounded Flare Gas Quantity less the

Contracted Guaranteed Flare Gas Buyer Shortfall, where

the Compounded Flare Gas Quantity is the sum between

the unaccounted flare gas quantities and flare gas

quantities. The computed flare payment shall be paid by

the producer in accordance with the procedures for

payment of royalties to the Federal Government of

Nigeria in line with section 3 of the Associated Gas Re-

injection Act while the reporting shall be done in line with

paragraph 19 of the regulation. However, no flare

payment is due where the producer has committed to

deliver an agreed volume of flare gas to the Permit holder

under a Deliver and Pay Agreement. The Guideline

reiterate the provisions of the regulation and the

Petroleum Act with respect to delayed remittance and

non-compliance with the regulation which attracts

additional payment.

CONCLUSION

The above guidelines provide guidance to stakeholders

and investors on how to take advantage of the Flare Gas

Commercialisation Programme pursuant to the Flare Gas

(Prevention of Waste and Pollution) Regulations, 2018.

With the guidelines and Regulation now in place, the gas

industry has now been positioned to experience renewed

growth and development as envisaged by the National

Gas Policy.

Syncrest Energy Limited in partnership with Geplaw

Consults Limited and George Etomi & Partners is

organizing a 2-Day Workshop in March 2019 on

“Taking Advantage of the Flare Gas Regulations

2018”. This training will provide practical insights

into the flare gas programme as well as the

opportunities for investment under the programme.

For enquiries and bookings, kindly contact: WALE

OGUNBUFUNMI 09096476796 //DIANAABASI OKOP

08184777065: