AN APPRAISAL OF THE DECOMMISSIONING OF OIL AND GAS FACILITIES INSTALLATIONS IN NIGERIA UNDER THE PETROLEUM INDUSTRY ACT 2021

Author: O. M. Atoyebi S.A.N FCIArb. (U.K.)., Contributor: CYRIL SAMUEL DANDISON

August 2, 2023
10:14 am

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Nigeria’s oil-rich environment has positioned it as a significant energy producer in Africa, boasting one of the largest oil reserves on the continent, along with substantial proven gas reserves.[1] The commercial-scale discovery of oil in Olobiri, a rural village in Bayelsa state, in 1957, exemplifies the nation’s growing petroleum activities, resulting in the creation of over 170 offshore oil and gas installations.[2]

As petroleum activities continue to flourish, the pressing question arises – how will Nigeria handle the inevitable disuse and abandonment of onshore and offshore oil and gas infrastructure? The answer lies in decommissioning, a concept that addresses the sustainable removal and disposal of these facilities, safeguarding the environment and public safety.

This article explores the significance of decommissioning in Nigeria, and how the Petroleum Industry Act 2021 addresses these critical issues.

Definition of Decommissioning

Decommissioning refers to the decision and procedure made, regarding the condition of oil and gas installations after they are no longer in operation, to minimize their impact on the environment and other legitimate interests.[3]

According to the United Kingdom Energy Act 2008, decommissioning is the physical removal and disposal of outmoded installations at the end of their useful life, which includes the operator’s and the government’s plan of action.[2]

Types of Decommissioning

There are two categories of decommissioning, namely; Onshore and offshore decommissioning.[5]

a. Onshore decommissioning encompasses the comprehensive process of extracting all surface equipment, production tubing, and uncemented casing from a well. To effectively seal the well, specific segments of the wellbore are injected with concrete material to establish isolation between reservoir fluids and ensure their confinement both within the reservoir and to prevent their migration to the surface.[6]

b. Offshore decommissioning is quite complicated, Offshore production facilities comprise two distinct components. Firstly, there is the topside, commonly referred to as the platform, which denotes the visible structure positioned above the waterline. This component is typically transported to shore to recycle or repurpose it. Secondly, there exists the substructure, encompassing the components submerged beneath the water’s surface and the equipment situated on the seabed, commonly referred to as the mudline. The substructure is generally separated approximately 15 feet below the mud line, extracted, and subsequently transported to shore for recycling or refurbished for utilization in an alternative location. The well is effectively plugged by employing cement, as described earlier for onshore wells. Subsea pipelines or power cables are often allowed to remain In-situ. Nevertheless, their removal may become necessary if they pose environmental risks or impede navigation or commercial fishing operations.[7]

DECOMMISSIONING UNDER THE PETROLEUM INDUSTRY ACT 2021

The aim of the Petroleum Industry Act (PIA) is to establish a comprehensive legal, governance, regulatory, and fiscal framework for the Nigerian petroleum industry, which also addresses matters related to the development of host communities. To achieve these objectives, the PIA establishes two principal regulatory bodies: the Nigerian Upstream Petroleum Regulatory Commission and the Nigerian Midstream and Downstream Petroleum Regulatory Authority.[8]

The Nigerian Upstream Petroleum Regulatory Commission is entrusted with the duty of overseeing the technical and commercial aspects of upstream petroleum operations. This includes the implementation of environmental statutes and policies related to upstream activities.[9]
The Nigerian Midstream and Downstream Petroleum Regulatory Authority is responsible for regulating the technical and commercial aspects of midstream and downstream operations, including decommissioning.[10]

The procedure for decommissioning is contained in Sections 232 and 233 of the Petroleum Industry Act (PIA), which require:

1. Prior approval from the Nigerian Upstream Petroleum Regulatory Commission or the Nigerian Midstream and Downstream Petroleum Regulatory Authority to carry out decommissioning;[11]

2. Licensee must submit a decommissioning program with cost estimates, measures, methods, and environmental impact assessment. Consultations with stakeholders are essential. The approval criteria include individual circumstances, potential reuse, comparative assessments, sustainable environmental development, and adherence to international practices;

3. The licensee or lessee must establish and maintain a decommissioning fund with an independent financial institution in the form of an escrow account accessible by the Nigerian Upstream Petroleum Regulatory Commission or the Nigerian Midstream and Downstream Petroleum Regulatory Authority. This fund is exclusively for decommissioning in Nigeria;[12]

4. Licensee or lessee must inform the Nigerian Upstream Petroleum Regulatory Commission or the Nigerian Midstream and Downstream Petroleum Regulatory Authority of the fund’s establishment within three months from the commencement of the operation and provide annual statements of accounts.[13]

Furthermore, failure to comply with the decommissioning plan allows the Nigerian Upstream Petroleum Regulatory Commission or the Nigerian Midstream and Downstream Petroleum Regulatory Authority to access the fund and engage a third party for decommissioning.[14] The Contributions to the fund depend on approved plans for upstream and midstream operations. Yearly amounts are estimated and approved by the Nigerian Upstream Petroleum Regulatory Commission or the Nigerian Midstream and Downstream Petroleum Regulatory Authority.[15]

The contributions to the decommissioning fund are eligible for cost recovery and tax deduction, but decommissioning costs disbursed from the fund are not. Any excess in the fund after approved decommissioning will be considered income and returned to the licensee or lessee after withholding profit oil and taxes.[16]

The Nigerian Upstream Petroleum Regulatory Commission or the Nigerian Midstream and Downstream Petroleum Regulatory Authority has enforcement power and maintains a public database of installations.[17]

The Nigerian Upstream Petroleum Regulatory Commission and the Nigerian Midstream and Downstream Petroleum Regulatory Authority have issued separate regulations:

Upstream Decommissioning and Abandonment Regulations, 2021, and
Midstream and Downstream Decommissioning and Abandonment Regulations, 2022.

This means Licensee, (incorporated companies validly existing in Nigeria under the CAMA 2020) whose permit or license has been granted by the issuing authority must submit “decommissioning plans” to the Nigerian Upstream Petroleum Regulatory Commission or the Nigerian Midstream and Downstream Petroleum Regulatory Authority, complying with the regulations, within one year of their effective date. The plan’s approval implies approval of the decommissioning plan.[18]

In contrast to the well-established decommissioning regulations in the UK and other oil-producing nations, Nigeria has lacked adequate legislation under the previous Petroleum Act for decommissioning of onshore and offshore oil and gas installations, for example:

1. Nigerian license holders were only obliged to plug unused wellheads to prevent water ingress and egress;

2. The decommissioning costs and disposal liability remained ambiguous as to who is to bear the liability for the process.

CONCLUSION

The PIA has significantly improved the situation by introducing regulations for both onshore and offshore decommissioning and establishing separate regulators for upstream and midstream/downstream sectors. The introduction of decommissioning funds addresses previous criticisms, and stiffer penalties for non-compliance align with international best practices. This enhances Nigeria’s approach to future decommissioning issues.

[1] U.S. Energy Information, ‘Country Analysis Brief: Nigeria’ (May 2016) Available @ https://www.eia.gov/beta/international/analysis_includes/Countries_long/Nigeria/Nigeria.pdf

[2] C. Nwapi, ‘A legislative proposal for public participation in oil and Gas Decision-Making in Nigeria, (2010) Journal of African Law 184, 189

[3] N.C. Ole, The Financial Securities for decommissioning of offshore installations in Nigeria: A Review of the Legal and Contractual Regime [2017] (15) (1) Oil, Gas & Energy law Intelligence 1.1.

[4] https://www.legislation.gov.uk/ukpga/2008/32/contents

[5] See, A. M. Adebayo, ‘Environmental Risk and Decommissioning of Offshore Oil Platforms in Nigeria’ (2011) 1 (1) Nigerian Institute of Advance Legal Studies Journal of Environmental Law

[6] https://www.bing.com/ck/a?!&&p=80a84e83ef0319f5JmltdHM9MTY4OTI5MjgwMCZpZ3VpZD0xMjUwYTAxZi05MTQzLTZiMWQtMzk3YS1iMmQ2OTA1ZTZhZDEmaW5zaWQ9NTIzOA&ptn=3&hsh=3&fclid=1250a01f-9143-6b1d-397a-b2d6905e6ad1&psq=Ekt+interactive+upstream+oil+and+gas+production+decommissioning+was+written+in+what+year&u=a1aHR0cHM6Ly9la3RpbnRlcmFjdGl2ZS5jb20vb2lsLWFuZC1nYXMtcHJvZHVjdGlvbi8&ntb=1

[7] J. Patterson supra

[8] Ibid

[9] Akpambang, E. M., ‘An Appraisal of Upstream Petroleum Licensing Regime in Nigeria under the Petroleum Industry Act 2021’ (2022) 89 The Juridical Current, 30-50.

[10] Ibid

[11] Section 232 (1) Petroleum Industry Act 2021

[12] Section 233 (1) Petroleum Industry Act 2021

[13] Section 233 (9) Petroleum Industry Act 2021

[14] Section 232 Petroleum Industry Act 2021

[15] Section 233 (5 )& (6) Petroleum Industry Act 2011

[16] C.O. Akenbor, “Decommissioning Costs in Oil and Gas Operations in Nigeria: Theoretical Reflection” (2022) Vol 17 Nigeria Academy of Management Journal 30-38

[17] Section 232 Petroleum Industry Act 2021

[18] The Upstream Decommissioning and Abandonment Regulation 2021, and the Midstream and Downstream Decommissioning and Abandonment Regulations 2022.

AN APPRAISAL OF THE DECOMMISSIONING OF OIL AND GAS FACILITIES INSTALLATIONS IN NIGERIA UNDER THE PETROLEUM INDUSTRY ACT 2021

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