The Group Managing Director of the Nigerian National Petroleum Company Limited (NNPC), Mallam Mele Kyari has said international oil companies (IOCs) that divest from Nigeria’s upstream sector must address issues of 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.
The comment by the NNPC boss comes about six months after he had highlighted key guidelines that would guide the evaluation of would-be replacement of divesting partner in the oil and gas industry.
The GMD had last August 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 venture 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 competency of the buyer.
On the wave of divestment of international oil companies from Nigeria’s upstream sector, the NNPC boss told participants at the conference that while the country understands the right of companies to freely divest, it was, however, critical to ensure that the right thing is done so as to avoid disruption.
He further said that issues and obligations related to abandonment and decommissioning must be fully addressed and discharged in line with global best practices, regulations, convention, and law.
He said, “Companies that are divesting, they 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 emission.
“We understand this very 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 do know that there are issues, we understand that this must take place, but also it must be done in such a way that we are able to 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.”
The NNPC CEO acknowledged the need for cleaner energy globally, but said that the African continent must shape its narrative to reflect on its realities, including the high level of energy poverty, deficiency of critical infrastructures for electricity and transportation.
He confirmed that NNPC with partners were working together to ensure the attainment of Nigeria 2060 target for carbon neutrality.
Kyari said currently, the NNPC was adopting various strategies towards the attainment of a carbon-neutral economy, while ensuring that the industry remains viable.
He gave some of the measures so far taken to include adoption of low carbon technology across operations, deepening natural gas utilisation to reduce energy poverty – via the National Gas Expansion Programme, and intensifying the use of petrochemicals.
He also stated that the NNPC was making concerted efforts in the gas sector through various projects – NLNG Train 7, AKK, OB3, ELPS and others.
He added that the expansion and integration of domestic/regional power grids and growing the domestic gas markets via Autogas/Compressed Natural Gas/Liquefied 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 explained further 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 these transactions were concluded in the time of high oil prices and in some instances involved asset transfers from IOCs 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 30per cent stake in Shell Petroleum Development Company 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 $1.28billion.
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 95kboepd in 2020 (92per cent liquids).
Shell Petroleum Development Company of Nigeria and ExxonMobil are presently faced with huge remediation costs over their failure to properly decommission and cap oil and gas assets across the Niger Delta, especially the ones sold to Nigerians in recent divesture programmes.
The situation has created severe environmental risks and pollution to host communities in the oil-rich Niger Delta.
The recent case of Aiteo’s Nembe wellhead blowout has also brought to the fore the need to enforce the relevant laws and to ensure that the multinationals that sold the assets to the Nigerian companies pay remediation charges.
Findings revealed that many of the oil and gas assets sold to Nigerians, mostly by the IOCs, 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.
According to Section 232, (1) of the new Petroleum Industry Act, “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.”
In Section, 233 (1), the new law stated, “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”.