Nigeria’s oil and gas sector is taking proactive steps to mitigate the risks associated with divestment, drawing lessons from costly global cases. According to Engineer Gbenga Komolafe, Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the country has secured over $400 million in decommissioning liabilities and implemented stricter rules for recent asset transfers.
Komolafe made this disclosure at the Nigerian Extractive Industries Transparency Initiative (NEITI) Companies Forum in Lagos, where he spoke on the theme “Divestments, Liabilities, and the Impact of Ongoing Reforms on Extractive Companies in Nigeria.” He cited examples of divestment cases in the North Sea, Gulf of Mexico, and Canada’s Alberta, which have resulted in significant decommissioning costs.
The NUPRC has applied these lessons to recent divestment approvals, including those from NAOC to Oando Energy Resources and TotalEnergies to Telema Energies. Komolafe emphasized the importance of a robust framework for abandonment and decommissioning, stating that without it, divestment transitions can create lasting financial and environmental burdens.
In line with the Petroleum Industry Act (PIA), the NUPRC has placed full responsibility for decommissioning and abandonment on licensees and lessees. The Commission has also established specific obligations for host community development and environmental remediation. Each of the 2024 divestments has been subject to rigorous assessment, verification of financial strength, and securing of decommissioning and abandonment obligations through upfront escrow arrangements.
The results of these efforts have been significant, with over $400 million in pre-sale decommissioning and abandonment liabilities secured through Letters of Credit and escrow accounts. Additionally, host community development trust obligations are being fully honored, and environmental remediation commitments worth over $9.2 million have been pledged.
The NUPRC has also approved 94 Decommissioning and Abandonment plans since April 2023, representing total liabilities of $4.424 billion. These liabilities will be remitted progressively over the production life of the respective fields into designated escrow accounts. The Commission has addressed concerns with international oil companies regarding the domiciliation of escrow accounts and has developed a regulatory framework awaiting gazetting by the Ministry of Justice.
These developments demonstrate Nigeria’s commitment to responsible management of its oil and gas sector, prioritizing environmental sustainability and financial prudence. As the country continues to navigate the complexities of divestment, the NUPRC’s proactive approach is expected to yield long-term benefits for the industry and the environment.