Q&A – 8 June 2015

Without prejudice on lease

On a lease that I am signing, the top reads without prejudice. I find this quite awkward. What guidance can you give me?
FD, Mtwara

Just as you do, we also find this awkward and inappropriate, especially if you are entering into a binding lease agreement.

When used in a document or letter, without prejudice means that what follows (a) cannot be used as evidence in a court case, (b) cannot be taken as the signatory’s last word on the subject matter, and (c) cannot be used as a precedent. Contents of such documents normally cannot be disclosed to the courts but, when a party proposes to settle a dispute out-of-court, it is the genuineness of the effort that determines whether the proposal can disclosed or not, and not whether the words without prejudice were used.

Other synonyms of without prejudice are without abandonment of a claim, privilege, or right, and without implying an admission of liability.

The insertion of without prejudice in the lease means that it is not binding and cannot be used in Court. This is exactly opposite of what is trying to be achieved. We recommend that the without prejudice be removed, or if your landlord is obsessed with the term, then it be changed to with prejudice.

Development licence for petroleum

If I am able to tell, without conducting exploration, that a certain area has petroleum, can I directly apply for a development licence for that area.
VI, Dar

As provided for under section 35 of the Petroleum (Exploration and Production) Act (PEPA Act), you can make such an application.

However that area should not have an existing exploration or development licence and the Minister must be convinced that your “psychic” skills are real and not illusionary.

Companies spend billions of dollars in exploration to get to development if they find a discovery. If you are able to do this without having to conduct exploration, your skills can make you one of the richest persons on earth.

For your reference section 35 states the following:
A registered holder of an exploration licence whose licence is in force in respect of the blocks that constitute a location may, within two years after the date on which the blocks were declared to be a location, or such further period as the Minister allows, make application for the grant of a development licence in respect of such of the blocks as the holder satisfies the Minister contain a petroleum reservoir or a part of a petroleum reservoir. (2) registered holder of an exploration licence may, during the term of the exploration licence, make application for the grant of a development licence in respect of any block or blocks within the exploration area (a) if he satisfies the Minister that the block contains or the blocks contain, as the case may be, a petroleum reservoir or part of a petroleum reservoir; and (b) if the block does not or the blocks do not, as the case may be, at the time of the making of the application constitute a location. (3) A person who is not the registered holder of an exploration licence in respect of the block or blocks may make application for the grant of a development licence in respect of a block or blocks (a) if he satisfies the Minister that the block contains or the blocks contain, as the case may be, a petroleum reservoir or part of a petroleum reservoir; and (b) if the block is not a block or the blocks are not blocks, as the case may be, in respect of which an exploration licence or a development licence is in force at the time of the application.

The PEPA Act further provides under section 38 conditions for the granting of a development licence. It states that: no development licence shall be granted to an applicant unless 1(a) the proposals of the applicant will ensure the most efficient beneficial and timely use of the petroleum resources concerned; (b) the applicant has adequate financial resources, and technical and industrial competence and experience to carry on effective production operations; (c) the applicant would be able and willing to comply with the conditions on which the licence would be granted; (d) the applicant’s proposal for the employment and training of citizens of Tanzania are satisfactory; (e) any relevant right given pursuant to section 23 (2) has been exercised and given effect to or that satisfactory arrangements have been made for that purpose, or the right has been waived; and (f) the applicant is not default.

(2) The Minister shall not refuse an application for the grant of a development licence on a ground referred to in subsection (1) unless he has (a) given notice to the applicant of his intention to refuse, to grant the licence on that ground (giving particulars); (b) specified in that notice a date before which the applicant may make appropriate proposals to remove the ground for refusal or, as the case may be, remedy the default, or, make representations in relation thereto, and the applicant has not, before that date (i) given notice to the Minister containing proposals or representations which the Minister accepts; or (ii) as the case may be, remedied the default.

One critical element in the oil and gas industry is having the financial and technical capacity, in addition to adequate experience, to carry out such operations. You will not qualify for a development licence if you do not have all these. For example drilling a well, which is not too dissimilar from going to the casino and playing billiards, costs hundreds of millions of dollars, which can end up being sunk costs if the well is dry.

It is one of the riskiest businesses in the world, and much as there have been discoveries in Tanzania, not all companies have had discoveries and those that have had them, have taken huge risks to reach the stage they are at today.