Group Managing Director of the Nigerian National Petroleum Company Limited (NNPC), Mele Kyari, yesterday, said international oil companies (IOCs) divesting from Nigeria’s upstream sector must address abandonment and decommissioning of oil assets.
Kyari said this in Abuja at the opening session of the fifth edition of the Nigerian International Energy Summit. This followed about six months after he highlighted key guidelines that would guide the evaluation of would-be replacement of divesting partner in the oil and gas industry.
He had also in August last year, while speaking at the Nigeria Annual International Conference and Exhibition, said learning from previous experiences, the NNPC had developed requisite Divestment Policy that would provide clear guidelines and criteria for divestment of partners’ interest in all its Joint Ventures (JVs) and production sharing contracts arrangements.
To ensure that the NNPC sustains a prosperous business environment for Nigeria, he had said the national oil company would pay particular attention to abandonment and relinquishment costs; severance of operator staff; third party contract liabilities and competence of the buyer.
On the wave of divestments from Nigeria’s upstream sector, Kyari told participants at the conference that while the country understood the right of companies to freely divest, it was however, critical to ensure that the right thing was done so as to avoid disruptions.
He further said that issues and obligations relating to abandonment and decommissioning must be addressed and discharged in line with global best practices, regulations, convention and law. He said: “Companies that are divesting are leaving our country literarily and that’s the way to put it. But they are not leaving because opportunities are not here, these companies are shifting their portfolios where they can add value and not just that but where they can add to the journey of net carbon zero emissions.
“We understand this perfectly, but also, we cannot afford to realize that this country must benefit from the realities of today. We will work with our partners, we understand the necessity for their investments and we know that there are issues. We understand that this must take place, but it must also be done in such a way that we can deal with issues around abandonment and decommissioning.
“We will also make sure that whatever arrangement that is put in place, will show that we are also alive to the energy transition journey that we have embarked on.”
He acknowledged the need for cleaner energy globally, but stressed that the African continent must reshape its narrative to reflect on its realities, including the high level of energy poverty, deficiency of critical infrastructure for electricity and transportation.
He confirmed that NNPC and its partners were working together to ensure the attainment of Nigeria 2060 target for carbon neutrality, adding that the NNPC was adopting various strategies towards the attainment of a carbon-neutral economy, while ensuring that the industry remains viable.
He listed some of the measures so far taken to include adoption of low carbon technology across operations, deepening natural gas utilisation to reduce energy poverty through the National Gas Expansion Programme (NEGP) and intensifying the use of petrochemicals.
Kyari also stated that the NNPC was making concerted efforts in the gas sector through various projects – NLNG Train 7, AKK, OB3 and ELPS, among others.
He added that the expansion and integration of domestic/regional power grids and growing the domestic gas markets via Autogas/Compressed Natural Gas/Liquified Petroleum Gas to power vehicles remain key to revitalizing the industry.
He noted that passage of the PIA remained a key enabler and laudable reform in the Nigerian Energy sector clearly delineating various stakeholders’ roles to enhance value realisation in the sector.
The NNPC GMD further explained that government has also intensified policies to increase gas utilisation and eliminate flaring in recognition of the transition from carbon intensive production towards cleaner alternatives.
Within the last decade, the Nigerian upstream sector had witnessed significant transactions involving the sale of interests in oil licenses. Some of the transactions were concluded in the time of high oil prices and in some instances involved asset transfers from International Oil Companies with long years of carrying on exploration and production activities in Nigeria, to smaller indigenous companies with limited experience in the upstream sector.
Expectedly, decommissioning obligations and the potential liabilities are also transferred to the new holder of the licence. In August last year, Shell launched divestment of its 30 per cent stake in Shell Petroleum Development Company (SPDC) of Nigeria Limited subsidiary.
Few days ago, Seplat Energy Plc announced an agreement to acquire the entire share capital of Mobil Producing Nigeria Unlimited from Exxon Mobil Corporation, Delaware for $1.28 billion.
The transaction entails the acquisition of ExxonMobil Nigeria’s entire offshore shallow water business. According to the deal, ExxonMobil Nigeria’s shallow water business is an established, high-quality operation with a highly skilled local operating team and a track record of safe operations, producing 95 kboepd in 2020 (92 per cent liquids).
SPDC and ExxonMobil are presently facing huge remediation costs over their failure to properly decommission and cap oil and gas assets in the Niger Delta, especially those sold to Nigerians in the recent divesture programmes.
This has created severe environmental risks and pollution to host communities in the oil-rich Niger Delta.
The recent case of Aiteo’s Nembe wellhead blow out, has also revealed the need to enforce the relevant laws and ensure that the multinationals that sold assets to Nigerian companies pay remediation charges.
Findings also revealed that many of the oil and gas assets sold to Nigerians, mostly by the International Oil Companies, are rarely decommissioned or properly abandoned, a development that clearly breaches existing laws regulating the industry.
International conventions guiding decommissioning operations include the Geneva Convention on the continental shelf, 1958; United Nations Convention on Law of the Sea (UNCLOS), 1982; and Convention on the Prevention of Marine Pollution by Dumping of Wastes and other Matters, 1972.
But despite extant regulations and the provisions of the Petroleum Industry Act (PIA), it was learnt that there was rarely any adherence to full decommissioning for the infrastructure that had been sold and there might be no such arrangements for those for which buyers were being sought.
Section 232, (1) of PIA states: “The decommissioning and abandonment of petroleum wells, installations, structures, utilities, plants and pipelines for petroleum operations on land and offshore shall be conducted in accordance with good international petroleum industry practice.”
Section 233 (1) equally states: “Each lessee and licensee shall set up, maintain and manage a decommissioning fund held by a financial institution that is not an affiliate of the lessee or licensee in the form of an escrow account accessible by the commission.”