DETERMINATING THE VALUE OF AN OIL/GAS BEARING LAND FOR COMPENSATION IN A DEREGULATED ECONOMY

100

Journal Of Nigerian Environmental Society (JNES), 2007, Vol.4 No.1 Page

*Akujuru, V.A et. al.- Determining the Value Of An Oil/Gas… pages 100-112

Accepted

8th June, 2006

DETERMINATING THE VALUE OF AN OIL/GAS BEARING LAND FOR

COMPENSATION IN A DEREGULATED ECONOMY

* Akujuru, Victor A. and **Baridoma, Moses B.

Department of Estate Management,

University of Science and Technology

Nkpolu, Rivers State.

ABSTRACT

Compensation for valuation in the Niger Delta has evoked so much controversy that valuers now question the

relevance of the methods adopted for determining such payments. While most compensation payments are

determined by negotiations, such negotiations are hardly done professionally. Both the acquiring authorities and

the land owners need to know the actual value of such land before agreeing to any compensation. This paper will

define wetlands and seek to determine the value of crude oil and natural gas bearing land applying professional

approaches to value determination ajier reviewing the relevant legal provisions for value determination. It will

ascertain what the value of such land is in a free market or in a restricted market and attempt to describe how

such values should be determined when seeking to establish the compensation payable. The paper asserts that

there is no legal provisions for land acquisition for crude oil/natural gas purposes. Values for such acquisitions

must be based on market considerations of what the land values are and not based on the use of predetermined

compensation rates. It is only this basis that will allow the Estate surveyors and Valuer to exercise his professional judgement and be relevant. •

INTRODUCTION

Crude oil and natural gas are deposited

underground and is being extracted in the

onshore area (including sea, islands and

marine and riverine areas extending up to a

water depth of about 5 meters). The crude

oil (oil) is obtained by exploration

operations" all work carried out to find oil-

bearing traps by various means such as

geological, geophysical and geochemical.

Furthermore, drilling of exploration wells,

as well as other works carried out to

determine whether a discovered petroleum

trap has commercial value. Geologically, it

is not always possible to distinguish crude

oil bearing land from natural gas (gas)

bearing land. Most geological wells drilled

for oil end up as gas well and some contain

both oil and gas. Hence land value for

compensation cannot be designated

separately, as oil or gas bearing land but a

mixture of both, consequently the discourse

on the development of Nigeria's wetlands, the Niger Delta region.

Nigeria's economy is hardly capitalistic of

socialistic. Some aspects of the economy

are regulated while others are not. The

international economy is becoming

increasingly capitalistic with most aspects

becoming deregulated. Some countries

practice complete privatization of the

whole economic system, others like Nigeria

adopt a piecemeal approach. This is why

the Nigerian Government talks of

deregulated of the downstream sector of

the oil industry while keeping the upstream

sector completely regulated.

If Nigeria is practical with its deregulation

policy, then its implementation must be

comprehensive. It therefore follows that,

the Nation's reluctance to review the land

Use Act prior to this time is a confirmation

of the regulated nature of the upstream

sector of the oil industry. It is in the hope of

complete deregulation of the economy, that

it has become imperative to examine the

process of value determination of an oil/gas

bearing land for compensation purpose, in Nigeria.

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The need for the examination, within the

title of this paper Conference, is very apt as

the Niger Delta region contains the bulk of

the oil/gas deposits (proven and unproven),

on which the Nigerian economy hinges.

The Niger Delta Experience is the basis for

the formulation of an environmental

development strategy for the region.

DEFINITIONS

This discourse requires the understanding of some terms to put it in perspective.

Land

Sir Edward Coke stated that "Land in its

restrained sense, means soil, but in its legal

acceptation, it is a generic term

comprehending every species of ground,

soil or earth, whatsoever, as meadows,

pastures, woods, moors, waters, marshes

furze and heath; it also includes houses,

mills, castles and other buildings, for which

the conveyance of land, the structures upon

its pass also. And besides an indefinite

extent upwards, it extends downwards to

the globe's centre, hence the maxim, cugus

est solum ejus est usque ad coelum et ad

inferous ... " (The maxim means that the

owner of the soil is presumed to own

everything up to the "sky and down to the centre of the earth").

It is important to note that the above

definition include water as being a type of land.

Statutorily, Section 205(1)(ix) LPA 1925

define land as include,

"Land of any tenure, and mines and

minerals, whether or not held apart

from the surface, buildings or parts

of buildings (whether the division

is

horizontal, vertical, or made in any

other way) and other corporeal

hereditaments; also a manor, an

advowson, and a rent and other

incorporeal hereditaments, and an

easement, right, privilege, or

benefit

in, over, or derived from land; but

not an undivided share inland and

"mines and minerals" include any

strata or seam of minerals or

substances in or under any land and

powers of working and getting the

same, but not an undivided shore thereof. .. "

Section 18( 1) of the Interpretation Act 1964 states that in Nigeria,

"land includes any building and any

other thing attached to the earth or

permanently fastened to anything so

attached, but does not include minerals."

But Okorodudu-Fubara (1998) states that if

our Environmental Protection Policy is to

serve its purpose of preserving the

wholesomeness and sustainability of

physical, economic, cultural and aesthetic

factors which make up the earth, land

should be defined broadly to include

minerals as well as all the resources natural

or man-made attached to the earth or

permanently fastened to anything so attached.

In Nigeria, minerals, petroleum and natural

gas are vested in the Federal Government

and cannot be the subject of ownership by individuals, families or communities, by

virtue of Section 3(1) of the Minerals Act

Cap 226 LFN 1990 and Section 1 (1) of the

Petroleum Act: Cap 350 LFN 1990 and Section 44(3) of the 1999 Constitution.

This means that landowners are not entitled

to compensation for the mineral itself but·

have a right to compensation with respect

to the land enclosing the mineral,

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petroleum or natural gas. It is this view that

will guide a valuer who intends to value an oil or gas bearing land.

Wetlands

While the study of wetlands is sparse in

Nigeria, it is well developed in most

advanced economies like the United States.

The Emergency Wetlands Resources Act of 1986 defines a wetland as:

" ... Iand that has a predom inance of

hydric soils and that is inundated or

saturated by surface or groundwater

at a frequency and duration

sufficient to support, and that under

normal conditions does sustain, a

prevalence of hydrophilic

vegetation typically adapted for life in saturated soil condition."

Wetlands can also be described as antique

transient ecosystems falling between true

aquatic .systems and terrestrial systems.

The water table is usually at or near

surface; or the land is covered by shallow

water. About 6% of the total surface area

of the World is covered by wetlands.

Wetlands are among the earth's most

productive ecosystems and produce twice the productivity of tropical rainforests.

Types of Wetlands

Wetlands occur in five basic forms namely;

Marine, Estuarine, Riverine, Lacustrine

and Pauline Systems.

Marine System: Consists of the open

ocean overlying the continental shelf and

its associated high-energy coastline.

Marine habitats are exposed to the waves

and currents of the open ocean and the

water regimes are determined primarily by the ebb and flow of ocean tides.

Estuarine Systems: Consists of deepwater

tidal habitats and adjacent tidal wetlands

that are usually semi-enclosed by land but

have open, partly obstructed, or sporadic

access to the open ocean, and in which

ocean water is at least occasionally diluted

by freshwater run off from the land. The

salinity may be periodically increased

above that of the ocean by evaporation. '

Along some low-energy coastlines there is appreciable dilution of seawater.

Riverine System: Includes all wetlands and

deepwater habitats contained within a

channel with two exceptions: 1) wetlands

dominated by trees, shrubs, persistent

emergent, mosses or lichen, and 2) habitats

with "water containing salts in excess of

0.50/00. a channel is an open conduit either

naturally or artificially cre~ted which

periodically or continuously contains

moving water, or which forms a connecting link between two bodies of standing water.

Lacustrine System: These are usually

associated with lakes and reservoirs and

includes wetlands and deepwater habitats

with all of the following characteristics: i)

situated in a topographic depression or a

demmed river channel; 2) lacking trees,

shrubs, persistent, emergent mosses or

lichens with greater than 30% aerial

coverage; and 3) total area exceeds 8ha (20

acres). Similar wetland and deepwater

habitats totally less than 8ha are also

included in the Lacustrine System if an

active well formed or bedrock shoreline

feature makes up all or part of the

boundary, or if the water depth .in the

deepest part of the basin exceeds 2m (6.6

feet) at low water.

Palustrine System: These are generally

associated with swamps and bogs separate

from other wetlands systems. It includes all non-tidal wetlands dominated by trees,

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shrubs, persistent emergent, mosses or

lichens. It also includes wetlands lacking

such vegetation, but with all of the

following four characteristics;

1. area has less than 8ha (20 acres);

2. active well-formed or bedrock

shoreline features lacking;

3. water depth in the deepest part of

basin less than 2m at low water;

and

4. salinity due to ocean-derived salts

less than 0.50/00.

It should be noted that wetlands are

characterized by distinct soils, vegetation

and hydrology, and their identification is a

specialist assignment.

Oil/Gas Bearing Land

The occurrence of oil and gas in the soil

appears thus:

Soil

Gas

Oil

Water

If land is defined as the soil and all that is

attached to it and all that is below it, then

oil and gas commonly occur on most land

in the Niger Delta. This is because both oil

and gas always occur together. What has

happened in Nigeria is that until recent, no

conscious effort has been made to exploit

the nation's gas reserve but only associated

gas is flared from oil wells. Those lands

through which oil and gas pipelines

traverse could also be said to be oillgas

bearing land as such areas provide the

channel through which the drilled oil/gas is

transported.

Value

Market value is an objective value created

by the collective patterns of the market. It

may be simply referred to as what the

property can be sold for on the open

market. The International Valuation

Standards Committee defines market value as:

"The estimated amount for which a

property should exchange on the

date of valuation between a willing

buyer and seller in an arm's-length

transaction after proper marketing

wherein the parties had each acted

acknowledgeably, prudently, and without compulsion.

Valuation is the professional process of

objectively estimating value of an

identified interest or interests in a specific

parcel of real estate as of a given date.

Valuation is often used interchangeably with appraisal.

Compensation

Dixon, J. of the High Court of Australia in

the case of Nelungaloo Pty., Ltd v Commonwealth stated thus:

Compensation is a very well

understood expression. It is true that

its meaning has been developed in

relation to the compulsory

acquisition of land. But the purpose

of compensation is the same,

whether the property taken is real or

personal. It is to place in hands of

the owner expropriated the full

money equivalent of the thing of

which he has been deprived.

Compensation prima facie means

recompense for loss, and when an owner is to receive compensation for being deprived of real or

104



personal property his perfumery loss

must be ascertained by determining

the value to him of the property

taken from :him. As the object is to

find the money equivalent for the

loss or, in other words, the

pecuniary value to the owner

contained in the asset, it cannot be

less than the money value into

which he might have converted his

property had the law not deprived

him of it. You do not give him any

enhanced value that may attach to

his property because it has been

compulsorily acquired by the

governmental authority for its

purposes ... equally you exclude any

diminution of the value arising from

the same cause. The hypothesis

upon which the inquiry into value

must proceed, is of his ownership

and of his consequent rights of

disposition existing under the

general law at the time of acquisition. "

The above statement embodies all the

principles that should govern the issue of compensation.

COMPENSATION PROBLEMS

The basis of liability is generally thought to arise from

- Land Use Act 1978 Cap 202 of 1990

- Oil Pipelines Act 1956 Cap 338 1990

- Petroleum Act 1969 Cap 350 1990

- Mineral Act Cap 226 of 1990

Section 29(2) Cap 202 of 1990 excludes

compensation for acquisition under the

Mineral Act or the Petroleum Act. Section

20(5) Cap 338 of 1990 provides that "in

determining compensation in accordance with the

provisions of this section, the court shall apply the

provisions of the Land

Use Act so far as they are applicable and

not in conflict with anything in this Act as

if the land or interests concerned were land

-or interests acquired by the President for a

public purpose."

It is argued by Fekumo J. F. (2001) that the

purport of incorporating by reference in

Section 29(2) the Minerals Act and the

Petroleum legislation, is to exclude the

application of the provisions of the Land

Use Act to those legislations. Also that the

provisions of the Land Use Act are

seriously in conflict with the provision of the Oil Pipelines Act on compensation.

OIL PIPELINES ACT (OPA)

Section 11(I)(3) and (4) of the OPA

empower the holder of an Oil Pipeline

license to enter upon, take possession of or

use a strip of land specified in the license,

and thereon, thereover or thereunder to

construct, maintain and operate an Oil

Pipeline and ancillary installations. Any

damage caused by the exercise of the above

rights and powers is subject to liability to

pay compensation under Section 11(5).

Section 20(2) provides the basis of

assessment of compensation.

The head of claim are:

damages to buildings, crops &

economic tress,

disturbance and injurious affection.

PETROLEUM ACT AND

REGULATIONS

Paragraph 39 of the 1st Schedule to the Petroleum Act

provides that.-

"The holder of an oil exploration license, oil

prospecting license or oil mining lease shall

in addition to any liability for compensation

to which he may be subject under any of the

provision of this Act, be

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liable to pay fair and adequate

compensation for the disturbance to

surface or other rights to any person

who owns or is in lawful occupation of the licensed or leased land."

The totality of all the above provisions is

that the owner of an oil/gas bearing land is

only entitled to compensation for the

surface rights and any disturbance suffered

as land is restively defined in the Nigerian

scene. We can thus summarize the Nigerian compensation problems as:-

Inconsistency in legal definitions

Noncompliance with statutory

provision for

acquisition

Delays in effecting compensation

Incomplete heads of compensation as a

result of wrong value definitions

Inconsistent interpretation of economic

policies as it affects oil/gas operation.

VALUE OF OIL/GAS BEARING LAND

The combined effect of the Interpretation

Act, Minerals Act, Petroleum Acts and the

Land Use Act is to maintain the right of

individuals to own and use land for material

gain but at the same time, protect the right

of all people to use the land for special

good. This implies that there are two types

of value subsisting on any oil and gas bearing land viz:-

Economic value of private property

interest, and

Economic value of public interest.

A combination of both types of value will

indicate the Total Economic Value of the

Property.

Valuers assessing the value of an oil/gas

bearing land for compensation will usually

determine a value less than the total

economic value of such land, as they will

usually disregard the social benefits of

oil/gas exploration. A valuer advising a

claimant for compensation only seeks the

economic value of the private property

interest. This means that valuers acting for

oil/gas companies should determine total

economic value of oil/gas bearing land and

should arrive at a higher compensation

payable than the individual claimant should

require. Disagreements between valuers

should be expected, because valuation

(appraisal) is a mixture of art, science,

judgement and personal perspective. The

widest discrepancy in value opinion is

caused by blurring the line between private

and public interests. Some appraisers

allocate public interest value to a private property.

ACQUISITION OF OIL/GAS

BEARING LAND

Most acquisition of oil/gas bearing land are

done without any legal framework for

reference. Most oil companies hardly

publish the law under which the acquisition

is been undertaken and as such the enabling

law for valuation purposes become vague.

Once the landowners have been informed

of the intention to acquire their land,

valuers are retained to advice on the land

values by some companies. Others use

"Damage Clerks" and avoid professional

valuers like a plague. Even where the

claimants retain professional valuers, their reports are hardly countenanced.

In assessing compensation, the companies rely on two documents viz:-

i) the Shell Petroleum Development

Company of Nigeria Limited's

Land

Department Procedure Guide; and

ii) the Oil Producers Trade Section of

the

Lagos Chamber of Commerce and

Industry Corporation Rates (OPTS Rates).

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Both documents complement each other

and are. preferred to any State Government

Compensation Rates Use of these pre-

determined rates results in gross under-

valuation of the total economic value of the land.

HEADS OF COMPENSATION

The current practice identifies only two head viz:-

i) Surface Rights and Interests

These are resources which may be

damaged as a result of acquiring an

oil/gas bearing land and include

- Economic crops/tress

- Natural and man-made fishery and fishing

contrivances

- Wildlife sanctuaries, breeding and

spawning grounds.

ii) Structures, which may include

- Buildings of any description

- Roads and access ways

- Shrines and sacred places

The valuation technique being used only

addresses the private property interest

owner's viewpoint. No item listed above

affects the society at large hence the

difference between total economic value

and economic value of private property

interest. A survey of the Niger Delta region

n 2002 revealed that most compensation

claims are concluded by negotiation, since

the valuations from either claimants or

acquiring authorities are deemed

inadequate. The results were:

I. Negotiation 35.3%

2. Litigation Concluded 11.8%

3. Litigation Pending 5.9%

4. Arbitration -

5. Others 47.1%

(Source: NDES Survey 2002)

The study also revealed the various

methods used by Estate Surveyors and Valuers as shown in Table 1

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TABLE 1

OIL LOCATION VALUATION SPDC'S PAYMENT

COMPANY METHOD

Jones Creek Mtk. Value/unit Rate Negotiation

SPDC Utorogu Gas plant, Delta Investment method Negotiation

Jeremi Oil Well Spillage, Delta Replacement cost Unit rate determined by

the Co.

Chamoni Investment method Negotiation & litigation

SPDC/ELF Madangno Investment method Negotiation

Eleme Alimini, Rivers State Replacement cost Negotiation

Obunko Ndoki, Abia State Replacement cost Negotiation

Bere-Ogoni, Rivers State Replacement cost Negotiation

Umudike-ejemekworu, Imo Unit Rate Negotiation

State

Bomu Well II, Rivers State Replacement cost Litigation

Ogoda River, Rivers State Unit Rate Extra Judicial Negotiation

Okoloba, Bayelsa State Unit Rate Extra Judicial Negotiation

Well 5 plowline Ozoro, Delta Unit Rate Extra Judicial Negotiation

State

Oleh-Olomoro Oil field Delta Unit Rate Extra Judicial Negotiation

State

Odimodi Creeks Unit Rate Extra Judicial Negotiation

- Urwiamuge Ughili LGA Unit Rate Extra Judicial Negotiation

Odidi 1: Delta State Income Approach Extra Judicial Negotiation

NNPC Egwa II, Delta State Income Approach Negotiation

Auchi pumping station, Edo Unit Rate Negotiation

State

ELF Gberamatu Investment method Negotiation

Ukpeliede, Rivers State Market cost

Obagi, Rivers State Replacement cost Negotiation

Odimerenyi, Rivers State Replacement cost Negotiation

OML 59, Obagi, Rivers State Replacement cost Negotiation

Odiaye, Rivers State Replacement cost Negotiation

Rumouekpe, Rivers State Replacement cost Negotiation

Obite-Obiegbe, Rivers State Replacement cost Negotiation

Igburu-Akor, Obagi Rivers Replacement cost Negotiation

N.A.O.C State

Ukpelide, Rivers Stte Replacement cost Negotiation

Odual, Rivers State Replacement cost Negotiation

Mmahu, egbema, Imo State Replacement cost Negotiation

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INADEQUACY OF CURRENT

VALUATION METHODS

Generally, current valuation methods are

very inadequate as confirmed by responses

from practicing valuers

Very adequate 0.0

Somewhat adequate 11.8

Neither adequate or playing 5.9

Somewhat inadequate 17.9

Very inadequate 52.9

Not available 11.8

(Source: NDES Survey 2002)

If the valuation methods are inadequate, the

resultant valuation must be inadequate. The

inadequacy of the valuation method is due

to:-

the use of the wrong legislative basis

for determining compensations. The oil

companies hide behind the Land Use

Act whereas their operations are

contained in the Oil Mineral and

Petroleum Acts.

The prescription of unit rates by the Oil

Companies or the Federal and State

Governments, negates the principles of

value determination.

Oil Companies hardly rely on

professionally determined valuation

and values, as they rarely employ

professional valuers. Where they engage

consultants, they dictate limits

to the values that may be recommended

by such consultants.

most consultant valuers, in the bid to secure their retainership by the Oil

Companies, jettison

professionalism and adopt

unplanned methods in their

valuation.

Thus there is always a divergence between

the consultants to claimants and consultants

the

consultants to claimants and consultants to

the companies. The fear of the 'Police

Power' of the Oil Companies, which

prompts them to offer any paltry sum

bearing in mind that the government might

be behind them.

Besides the responses of the

professional valuers, most affected

Communities consider the current

valuation methods inadequate and

wish that valuation practices should

be modeled on international standards.

Lutz and Munasinghe point to the

shortcomings of the available valuation

techniques. They state that their role is not

to capture the long-term, global functional

value of natural resources. They suggest

that a systematic evaluation and adjustment

in the light of the concept of utilization

value, which includes functional values is

needed. It is in the light of this and the

observed inadequacies of our current

valuation methods that we suggest the

concept of Total Economic Value.

Adopting the conceptual framework for

Valuing Wetlands benefits, we can derive

better acceptable compensation values thus:-

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Indirect use values Options

values Direct use values Existence

values

Bequest

values

Total economic value

Use values Non-use values

Outputs -flood control

-storm protection

-ecological functions

-recreation

etc

-fish

-fuel

-wood

-recreation

-transport

-meat, etc.

Functional

Benefits CVM CVM CVM

Fig. 2: Conceptual framework for valuing Wetland benefits

An Oil/Gas bearing land has both use and

non-use values. These can be grouped as

follows:-

a) Direct Use Values - Food crops/Trees

- Non-Timber Forest products

- Fuel- wood

- Hunting Amenity

b) Indirect Use Values - Sacred Forests,

Shrines,

Ecological balance, etc

c)Option Values - Development

d)Non-Use - Existence Values and the

Psychic

values.

While our current techniques handles types

(a & b) above, we need a methodology that

can accommodate all types. When an

oil/gas bearing land is acquired

compensation is only payable for the land

without any oil/gas. The operations of

oil/gas activities will change the

productivity of the land, lead to a loss of

earnings for the landowners and other

expenditures to adapt to the presence of oil

exploration activities.

Development projects can affect local

production and productivity either

positively or negatively. Where production

is increased, the increase can be valued

using economic prices.

The forests of the Niger Delta roughly

constitute the freshwater swamp rainforests

in the Upper delta and the mangroves in the

lower delta. The deforestation of the

freshwater swamp rainforest causes loss of

traditional uses of the rainforest and

biodiversity and the habitats through

erosion. These. affects are irreversible

environmental impacts, The mangrove

vegetation is fast receding, so also is the

fish resource it supports.

Forest reserves are designated, and are

poorly managed. It is worse in Rivers State.

Besides timber, non-timber forest products

amounting to five times the estimated value

of timber and fuel wood production also exist.

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Most of these consequences of acquisition

are environmental and the method being

proposed is an attempt to incorporate these

environmental costs in the compensation

value equation. Thus besides the subsisting

heads of compensation, we suggest that we incorporate

Preventive expenditures

Option value - using contingent

valuation which seeks to ascertain

consumers' preferences about

future use of the 'subject land' and

the existence values of such land.

Loss of the acquired site need not

be represented only by the

loss of surface rights but by the

addition of the value of the

opportunity cost of the land. This

can be established by using implicit

markets to establish value

foregone. These may be the use of

travel cost or wage

differential.

ILLUSTRATION

Assume a parcel of oil bearing land

measuring approximately 2.5 hectares

containing both a rain forest and a fishing

swamp. Within the forest there are

economic trees and hunting amenity. In the

fishing swamp, there may be fish ponds

and fish fences. Since the land is oil bearing

and it is to be acquired, what are the heads

of compensation for which value could be attached?

Assuming all the legal requirements have

been met as to publication of Notice and

'Invitation to threat', Section 29(2) refers

this acquisition to the Minerals or

Petroleum Act. Under these laws, the heads of claim will be:-

i. Disturbance to Surface Rights

ii. Injurious Affection to the

Land

iii. Loss of Economic

Trees/Crops

iv. Loss of Structures (like fish

ponds

and fences)

v. Loss of Hunting Amenity

vi. Loss of Non-Timber Forest

Products

vii. Destruction of the Eco-system.

All the above heads of claim will only apply

if what is being sought is the Total

Economic Value of the land. A valuer

representing the landowner may only seek

the Economic Value of the Private Property

Interest. In this case, only items (i) to (iv) can be effectively proved.

We can derive values for these heads of

claim thus:-

Disturbance to Surface Rights: this

will be determined by the direct use

value of the land. If used for

agriculture, what is the value of the

subsisting crops? What is the future

use for the land considering the

farming practice in the locality?

The OPTS rates may not be

relevant as they are not provided

for by any law. The Shell Land

Acquisition Manual is also not

relevant as it is only a guide to

Shell workers. The valuer needs to.

adapt his income approach to value

determination to assess head of

claim. This must be determined for

each person and not as a group.

Injurious Affection to the Land: to

determine this, value before

acquisition and value after will be

established. A landowner who

knows that his land contain oil/gas

deposits will require a higher

111



compensation to relocate from the land, than

one who knows that the

only use of his land is for farming.

Hence value before for oil bearing

land is supposed to be higher, and

thus any injurious affection will

also be higher. The Land Use Act

provides for resettlement where

agricultural land is acquired. Thus

the loss will approximate cost of an alternative land.

* Loss of Economic Trees/Crops: the income

approach to value determination should be

applied and not any prescribed compensation

rates. The use of OPTS rates amounts to the

Oil Companies being accused and judges in

their own courts.

* Loss of Structures: the replacement

cost approach to value

determination should be used.

* Loss of Hunting Amenity: this is purely a

public economic good, which cannot be

captured by a private claimant. It is a

component of the total economic value of

land being advocated. It is a direct us of any

forest. It can be valued by assessing the loss

of earnings arising from not hunting on the

land or traveling a longer distance to find

game by each hunter.

* Non-Timber Forest Products

(NTFPS): this is a public good not

reorganized by the present compensation

practice. It encompasses medicinal herbs,

snails, ropes, vegetables,

building/construction materials usually

gathered from a forest. A contingent

valuation method where

people are asked questions to

discover their earnings from this

source can be used. The

questionnaire must be well

structured to elicit the necessary

information.

* Destruction of the Ecosystem: the

ecological system and biological

services of a forest is a public

good, and any damage to it should

be remunerated. While it is

impracticable to place a value on

the ecosystem, we can use a value

for the destruction of the ecological

balance. In its most simplistic

form, we can derive the value of

the timber to be lost and ascribe this to the ecosystem.

An examination of the above heads of

claim reveals that the current compensation

practice disregards the presence of oil/gas on

any land. The Oil Companies who should

adopt a holistic view by determining the total

economic value of oil bearing land, rather

adopt the private property interest value

approach and under assess the compensation

payable. This anomaly lies at the heart of discontent among oil being communities.

CONCLUSION

The Niger Delta wetlands sustains a large

extent of non-market informal activities

supporting human livelihood like artisanal

fishing, hunting, and firewood collection,

gathering of sea foods, building materials,

etc. Unlike temperate wetlands, recreation

and tourism are less important. Economic

values of wetlands emanate from natural

functions an economic uses. These values

may be:

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Direct Use Values - (the values

derived from economic uses like

fish harvest, timber logging etc)

Indirect Use Values - (protection

and supportive functions provided

to the economic uses), and

Non-Use/Preservation Values

(values not directly related to any use).

Compensation for oil bearing land as

currently practiced, disregards the value

composition of wetlands. While the oil

companies ought to adopt the total-

economic value concept and reflect public

goods in their compensation, they use the

private property interest value and pay less

compensation than they ought. It is

submitted that· our current valuation

techniques can be modified to derive the

total economic value of an oil bearing land.

Valuation of an oil bearing land should be

seen as an Environmental Management aid

that will lead to better decision making in

our quest to ensure a sustainable

development of the Niger Delta region.

Since most of the resources are non-

renewable, their development must take

cognizance of the need to protect if

possible and restore the balance of the

ecosystem. This is necessary to manage the

region optimally.

REFERENCES

Curzon, L.B. (1975): Land Law M & E

Hand books.

Eaton, J. D. (1995): Read Estate Valuation

in Litigation, Appraisal Institute,

Chicago.

Fekumo, F. J. (2002): Principles of

Nigerian Customary Land Law, F

& F Publishers Port Harcourt

Keating, D. M. (2002): The Valuation of

Wetlands Appraisal

Institute, Chicago.

Okorodudu-Fubara, M. T. (1998): Law of

Environmental Protection, Caltop

Publication (Nigeria) Limited.

Pajoto, P.: Ocean Governance: Sustainable

Development of the Seas.

Humanity Development Library

Document Text.

World Bank (AF41R), (1995):

Environmental Economic Study

of the Niger Delta, Nigeria Carl

Bro. International a/s.

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DETERMINATING THE VALUE OF AN OIL/GAS BEARING LAND FOR COMPENSATION IN A DEREGULATED ECONOMY

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