Resolving Litigations in Oil Industry

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By  Peter Uzoho

The introduction of Alternative Dispute Resolution mechanism into the Nigeria oil and gas industry will held address conflicts amongst industry players, writes Peter Uzoho

Last Thursday, the Department of Petroleum Resources (DPR) in collaboration with stakeholders across the upstream, midstream and downstream value chains of the Nigeria oil and gas industry formerly activated the Alternative Dispute Resolution Centre (ADRC) in Lagos.

The ADRC is one of the five flagship centres of the Nigeria Oil and Gas Excellence Centre (NOGEC) flagged off in January by President Muhammadu Buhari.
ADRC is a veritable settlement platform in which oil and gas players in Nigeria can voluntarily approach to resolve their disputes in a more amicable, cost efficient and time saving manner, instead of going to courts.

The centre which has modern facilities and resources, was flagged off with the inauguration of its six-man Advisory Council and the 20-man Body of Neutrals. Members of the two committees comprised competent professionals and practitioners with vast experience in dispute resolution, who possess very reach knowledge of the oil and gas industry.

Conflict and ADR

Conflict has been understood to be a natural phenomenon that is always present and expected in every human relation especially when interests and ‘who gets what’ are in the picture.

Oil and gas industry all over the world is always faced with conflicts ranging from commercial, contractual, technical and even host community related issues that often lead to court actions, with attendant disruption of industry activities and loss of value in various forms.

To this end, the Nigeria oil and gas industry has faced and continues to face its own conflicts and disputes as can be seen by the large number of cases that had gone through the murky waters of the judicial process and those that are currently undergoing the process both locally and internationally.

In each of the court cases, the judgment rarely brings perfect closure as the winning party goes home rejoicing for having decimated its opponent while the looser leaves the courtroom disgruntled and disappointed, and plans for a comeback.

In such situation, the usual friendship and conviviality existing between the two parties is lost and an eternal enmity is established.

The parties lose so much in monetary value, and cost of operation skyrockets, Nigeria’s revenue is negatively affected, jobs are either lost or kept in abeyance, with enormous negative social impacts. The situation no doubt compounds the industry’s funding risks, and heightens uncertainties and fear in investment.

However, when the ADR channel is deployed or explored, it saves so much for the industry -the parties, the government and those that directly or indirectly depend on the industry operation for their daily survival and sustenance.

According to experts, ADR offers a resolution process that has a human face; that is not only concerned about the verdict but also pays greater attention to the feelings of both parties at the end of resolution.

The DPR and the industry stakeholders believe that the advent of ADR in the industry will put an end most of the animosity that exist in the industry as a result of previous legal wrangling.

Litigations Over

While flagging off the centre and inaugurating the Advisory Council and the Body of Neutrals, the Director of DPR, Mr. Sarki Auwalu, who was described by the industry stakeholders as the coach and chief enabler of business, declared that the era of unnecessary litigation in the Nigeria oil and gas industry arising from conflicts was completely over with the institutionalisation and application of the ADR mechanism.

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Auwalu stated that unnecessary litigations in the industry was uncalled-for as it retards the growth of the oil and gas industry and creates a lot of conflicts amongst the parties.

“It is completely over; unnecessary litigation is uncalled for, it really retards the growth of the industry. It creates a lot of issues within the parties, whether it is contractual parties, technical parties, commercial parties.

“All these, the centre is there to address and make sure that it mediates, it arbitrates, it reconciles so that the industry will grow,” he said.

He said the ADRC was established with the principal aim of providing a platform where disputes in the oil and gas industry could be settled in a timely, cost-effective, and mutually agreeable manner.

He added that the department had noted the several oil and gas related disputes that were currently pending before the Nigerian and international courts and tribunals.

These disputes, according to him, usually take a considerable amount of time and cost to resolve.

Auwalu noted that a typical dispute in court runs for a significant period prior to the rendering of a final judgement which might not be to the satisfaction of any of the parties.

He stated that in certain instances, court judgments and even arbitral awards did not adequately resolve disputes in a manner consistent with the regulatory and commercial interests of the industry.

“There was therefore an increasing awareness of the need to establish an Alternative Dispute Resolution (ADR) Centre specifically designed for use by the oil and gas industry in Nigeria.

“The setting up of the ADRC is in consonance with the provisions of the Petroleum Act Cap P10 Laws of the Federation 2004, which emphasises the settlement of disputes through alternative dispute resolution mechanisms without recourse to litigation,” he said.

Auwalu said the oil and gas industry expects the ADRC to ensure that all the disputes in the industry are resolved amicably to increase sustainability and investment and reduce risks and uncertainties in the sector.

He affirmed that the oil sector was always faced with lots of litigation across the value chain and that this litigation reduces profitability and increases reduction in investor confidence in the industry.

“But today, with the establishment of the Advisory Council and the Body of Neutrals for the Alternative Dispute Resolution Centre, with the calibre of people that are in this Advisory Council and the Body of Neutrals, it shows that the industry is lucky to tap from the wealth of experience of these learned individuals and experienced industry professionals.

“At least we know now that the litigation is going to be totally reduced or even eliminated, and we are happy with the gracious acceptance of this particular initiative by the industry as you can see from all the people present.”

The director revealed that 43 cases had already been received for settlement through the ADRC since the launch of NOGEC in January and that many more cases would be referred to the ADRC for resolution, mediation and arbitration.

Auwalu, however, stated that in accordance with its establishment principles and as part of the commitment towards building trust and transparency, the ADRC shall not entertain any dispute in which the DPR or any other ministry, agency or department of the federal government was a party.

He explained that the participation of parties or referral of a case to ADRC was voluntary and that parties reserved the right to seek settlement of conflicts through any legal means available to them.

He said there was no consequences attached to the refusal of parties or party to refer cases to the ADRC since it is voluntary and for the best interest of the business.

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Auwalu assured that with the resources and facilities available at the ADRC, referring cases to the centre would be very beneficial to the parties.

He believed that the ADR process would enhance investment as investor’s confidence depends on how quick and how best cases could be resolved without going into any litigation.

According to him, “Because it is in your best interest to do so, so that you make profit, reward on the business, return on investment as well as capacity development that is the key.”

Auwalu also hinted about the consideration by the federal government for ADR to be embedded in the Petroleum Industry Bill (PIB) currently at the National Assembly, pointing out that such move showed that government was keen about repositioning the industry through the PIB.

He listed the functions of the ADRC Advisory Council as approval of membership into the Body of Neutrals, setting administrative direction, operational scope, standards and procedures for case management, data submission and other matters incidental thereto.

He said the Advisory Council will also be responsible for the approval of the ADRC budget, approval of operational, business, and financial models for the purposes of managing and generating revenue, as well as undertake periodic review and approval of fees charged by the ADRC.

On the other hand, the director said the Body of Neutrals were well-trained in dispute resolution and will therefore ensure that parties were assisted to arrive at mutually agreeable outcomes.

OPTS Backs Initiative

At the occasion, the Oil Producers Trade Section (OPTS), an association of major local and international upstream companies and an arm of the Lagos State Chamber of Commerce and Industry (LCCI), saw the adoption and institutionalisation of the ADR in the Nigeria oil and gas industry as a welcome development.

The Chairman of OPTS and Managing Director of Total Exploration and Production Nigeria Limited, Mr. Mike Sangster, who gave an audio goodwill message at the event through the Vice Chairman of OPTS and Managing Director of Chevron Nigeria Limited, Mr. Richard Kennedy, pledged the association’s support to the initiative.

“OPTS congratulates the Director of DPR and the staff of the agency on the flag-off of the ADRC.

“As the cornerstone of exploration, development and production of Nigeria’s petroleum resources, our objective is to strengthen the long term health of the industry and the growth of the Nigerian economy.

“OPTS wishes to acknowledge and commend the continued efforts by the DPR and the various initiatives the department is deploying to secure value in the oil and gas industry in Nigeria.

“This initiative which DPR has clarified is providing Alternative Dispute Resolution mechanism to which parties may voluntarily subscribe without prejudice to their right to explore other forms of dispute resolution available to them”, Sangster said.

According to him, the initiative was commendable as it seemed to address the industry’s need for more robust dispute resolution mechanism that would strengthen investor confidence.

He added that the OPTS remained committed to continuously supporting the DPR in the achievement of the objectives of the federal government in a sustainable manner and to operate in compliance with regulatory guidelines.

Operators Support Initiative

The Petroleum Technology Association of Nigeria (PETAN), represented at the ADRC flag-off by its Chairman, Mr. Nicholas Odinuwe, also commended the DPR for achieving such significant milestone and declared commitment to ensuring the success of the centre for the greater good of the industry and the nation.
He described ADR as a method and procedure to resolve commercial disputes, civil, without resort to the tardy judicial process of litigation.

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He noted that in the past, governments over the years had been looking for ways to push contractual wrangling with the inherent cost to expert stakeholders for time-bound resolutions.

This, according to him, would surely help to shore up production at a lower cost in line with the aspiration of President Buhari and the federal government for a lowered cost of operation in the industry.

Odinuwe stated that with an overwhelming dispute choking investment in the country, including potential Final Investment Decisions (FIDs), the centre would assist government and the industry to reduce cost, conflict in the oil and gas industry, save time and eliminate the cumbersome nature of litigations, inherent costs and conflict of interests that usually lead to frauds.

“The PETAN, like we always say, is fully committed to supporting the DPR to actualise this aspiration and to put into action, the ADRC immediately, as it will greatly help the local service industry, for which the DPR has graciously asked PETAN to represent, move forward,” he noted.

Also represented by its Chairman, Mr. Ademola Adeyemi-Bero, the Independent Petroleum Producers Group (IPPG), pledged its support to the DPR and to the five centres in NOGEC which ADRC is a part of.

“We have given DPR the commitment that IPPG will participate in all the five sectors of the NOGEC and not just participate as members, but participate actively.

“What is asked for us is not just to be members of each of the centres but actually to be actively involved. I know for a fact that the director does not think it’s a DPR activity alone but activity of the entire industry, that’s what he constantly tells us.

“And it behooves on us to play that role in participating actively. But I must congratulate DPR again on the establishment of NOGEC,” Ademola-Bero said.

According to him, NOGEC and ADRC could not had come at a better time, considering the passage of the PIB, which was imminent and which aimed to attract investments into the industry.

He affirmed that funding remained the major challenge for the industry and that it was becoming more difficult to attract investors due to growing regional and global competition for funds in recent years.
He noted that issues between contractors and clients, amongst contractors, amongst clients would always come up which they always took to DPR as the first port of call.

On its part, the Major Oil Marketers Association of Nigeria (MOMAN) expressed optimism in the potential of ADR to significantly transform dispute resolution methods and therefore pledged to support the ADRC for the industry’s overall benefit.

The Chairman of MOMAN and Managing Director of 11Plc, Mr. Tunji Oyebanji, who delivered a goodwill message at the occasion through the Company Secretary/Head of Legal, 11Plc, Mr. Chris Meseko, described ADR as an appropriate dispute resolution rather than alternative dispute resolution.

He expressed his dislike for litigation as a dispute resolution mechanism, describing its processes as adversarial and capable of destroying relationship between parties.

Oyebanji said: “In the past, the system had relied heavily upon adversarial processes to resolve disputes and involving the public. Experience teaches us, however that there are many cause to this approach.

“Even when the government wins a case, it can find that victory has come at too high a price. Litigation can destroy the underlying relationship between the parties and this can be far more harmful in the long run.

Culled: Thisday

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