Shell, ExxonMobil Face Huge Remediation Charges in Nigeria Over Abandoned Offshore Assets

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. A situation that creates severe environmental risks and pollution to host communities in the oil-rich Niger Delta.

THISDAY gathered from stakeholders that the recent case of Aiteo’s Nembe wellhead blowout, 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.

While Aiteo is presently engaged in a legal tussle with Shell, seeking the sum of over $2.5 billion compensation over the sale of Oil Mining Licence 29, THISDAY gathered that the Nigerian oil and gas company is also considering fresh legal action against the multinational over the Nembe spill and other wells not properly capped.

On the other hand, Seplat Energy Plc last month announced that together with its partner, that it was in competitive discussions to acquire ExxonMobil’s Nigerian shallow water business. With this, stakeholders have expressed concern about what would happen if the deal is sealed and some of the ExxonMobil’s assets that were not properly capped causes another environment challenge.

“The present environment challenge is what is likely going to be faced when Shell sells it entire SPDC oil blocs in the Niger Delta without properly capping the oil wells and providing for remediation” an oil and gas expert who pleaded to remain anonymous stated.

Findings by THISDAY have revealed that many of the oil and gas assets sold to Nigerians, mostly by the International Oil Companies (IOCs), are rarely decommissioned or properly abandoned, a development that clearly breaches existing laws regulating the industry.

Decommissioning is the cessation of operations at an oil and gas platform and returning the seafloor to its pre-production state for installations and any relevant structures that have come to the end of their productive life.

Onshore decommissioning involves capping oil wells, clean-up and taking out all production and pipeline risers that are sustained by the platform, removing the platform and getting rid of it in a junk storage area or manufacturing yard.

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), THISDAY 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 (PIA), “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 affirms, “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.

“The decommissioning and abandonment fund shall exclusively be used to pay for decommissioning and abandonment costs.  Where a lessee or a licensee fails to comply with the decommissioning and abandonment plan, the decommissioning and abandonment fund shall be accessed by the commission to pay for the performance by a third party.”

Arising from one of the deals, Aiteo recently claimed in a suit that it paid $799 million to Shell for the acquisition of the NCTL pipelines and the assets and that $389.6 million had been lost by the company as a result of the leakages in the pipelines and the degraded conditions of the asset.

Aiteo also claimed that $933 million had been expended for the repairs of the pipelines and acquisition of equipment, including well-heads, generators, and pumps, as well as replacement of the flow lines within the NCTL, which it bought from Shell.

It was learnt that the big oil companies had continued to sell “dead” assets to the country’s local businessmen under the guise that they could no longer cope with militancy or community issues, especially in the Niger Delta.

What they have not told buyers is that there would be huge remediation cost down the line from over 30 to 40 years of neglect.

The recent case of Aiteo’s Nembe wellhead blowout, stakeholders said, brought to the fore the need to enforce the relevant laws and implement proper shutdowns of oil and gas assets in the abandonment and restoration process. Many experts believe that if the wellhead was properly and permanently plugged and decommissioned, since it was not commercially viable, the blowout that happened in Nembe would have been avoided.

It is believed that Nigeria’s transitory regulatory environment and inability of the authorities to strengthen environmental and petroleum laws for the deactivation of abandoned wells and aging oil facilities have also not helped matters.

Speaking with THISDAY, the immediate past Chairman of the Society of Petroleum Engineers (SPE), Nigeria Council, Joe Nwakwue, stated that the availability of regulations had not always been the problem, but enforcement. However, he explained that it was not wholly an IOC issue, noting that there are usually agreements with whoever is buying non-producing assets on steps to take to decommission them.

Nwakwue said, “There are regulations around assets that are no longer in use and it has nothing to do with the transfer of the assets. So, whether it’s Shell or Aiteo, for instance, there are rules.

 “When a wellhead is no longer producing, there are two steps: it is either there’s a TP&A, which is to temporarily plug and abandon it or you permanently plug and abandon.

“The problem was that neither of those happened, so that means that it was still theoretically operational. There was need to have abandoned the well when it was no longer in use. That didn’t happen and that’s why we had that spill.”

He said it did not matter who owned the assets because transfer was a different issue entirely, which should not be mixed up with the decommissioning process.

According to Nwakwue, “What happened to the commitments? When you talk about asset transfer you’re talking about decommissioning commitment, because when you are selling the assets that’s when the issue of who should decommission will come in because it goes into the pricing.

“If I’m buying an asset from you with what is called retirement obligation, I will have to deduct that cost from what I will pay you. I am sure that Shell transferred its commitment to Aiteo.”

Nwakwue maintained that the Aiteo facility was just one of several that had been left without proper decommissioning operation, noting that there are even many more assets that have not been sold.

He held, “There might be a lot of wellheads that are no longer producing but they are active, they are exposed to pressure. Whoever owns the asset should have a programme to temporarily abandon them to make them safer.

“There are regulations, but who is monitoring? That is the question. Who is ensuring that the regulations are followed? Those are the questions that need to be answered.

“The regulator should step up their game. They need to have a programme where facilities that are not no longer in use are temporarily or permanently abandoned and decommissioned to keep the environment safe.

“Irrespective of who is operating them, the primary issue is that there are regulations that have not been followed through and is important that the commission is alive to those responsibilities.”

Secretary General of the Niger Delta Ethnic Nationalities, Capt. Bassey Henshaw, told THISDAY that the oil companies must clean up the environment they had degraded over the years as well as pay compensation before any talk about leaving their onshore and shallow water operations in the region.

Henshaw said, “We do not dispute the fact that they can go green or whatever, but there has to be some closure. You have a business running and there are issues emanating from those businesses. You do not wake up and say you are going green. All the issues have to be fixed and resolved.

“We cannot hold them to ransom if they want to leave, but they have to have a closure of the previous business they have done, the degradation of the environment, the oil spillages and all.”

An oil industry enthusiast, who had covered the sector widely, Ms Ijeoma Nwogwugwu, wrote in a recent article, “As a result, oil multinationals that want to avoid spending several millions of dollars on decommissioning, have taken advantage of the loopholes by selling their oil assets, including aging and rusting infrastructure, to local oil firms.

“Since the late 2000s, Shell, Chevron and ConocoPhillips have sold their stakes in about 20 to 25 oil blocks to local oil operators at ridiculously exorbitant prices.

“All the acquisitions were leveraged buyouts that left several Nigerian banks with massive exposures to the oil and gas sector. Many of the loans are yet to be repaid to date.”

Nwogwugwu said one way to avoid this debacle was to adopt what obtains in other jurisdictions where it is mandatory, prior to asset sale, for prospective bidders to possess the wherewithal to decommission aging oil and gas infrastructure. She mentioned the $3 billion sale of the Bass Strait operation in Australia, as a case in point.

But in a reaction, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the industry regulator, stressed that the industry was not mature enough for wholesale decommissioning activities.

Head, Health Safety and Environment, NUPRC, Mr Afeez Balogun, told THISDAY that for divested assets, the buying companies were always encouraged to look holistically at the liabilities and factor them into the purchase arrangements.

According to Balogun, “The premise for full-blown decommissioning is not yet there in the Nigerian oil and gas industry, as many of the assets still have long mileage to offer. Add to that the fact that we are currently investing technology for improved oil recovery that will save a lot of costs and further increase the mileage of these assets.

 “So, there is really no crisis, as many uninformed people would want to assume. However, for divested assets, the buying companies are always encouraged to look holistically at the liabilities and factor that into the purchase arrangements.

“Fortunately, the divesting companies are currently the big ones that have JV agreements with NNPC, and we are aware that decommissioning arrangements with the companies are being put in place.”

 However, he stated that the PIA was now more explicit and gave more strength and bite to the rudimentary regulations that the defunct Department of Petroleum Resources (DPR) already had in place.

 “So, before we reach a crisis level, if we ever will, all these arrangements should have given us adequate protection to make things easier,” Balogun said.

“We are also watching and are set to tap from all the numerous innovations being brought about by the developed world on decommissioning on all fronts, including environmental and legal considerations, technology, service provision and financing,” he added.

Minister of State for Petroleum Resources, Timipre Sylva, recently said the federal government would carefully scrutinise oil companies that would bid for the takeover of assets that Shell and other oil majors will be divesting from in the country.

“In the past, companies were just allowed to buy assets that they had no capacity to operate. We would no longer allow that to happen again because government is the ultimate loser,” Sylva stated.

 Shell and ExxonMobil are two of the most vocal IOCs in the country, which have been in talks to sell off some of their assets, especially those onshore and in shallow waters.

A leading global oil and gas consulting firm, Wood McKenzie, had put the total value of Shell Petroleum Development Company (SPDC), the subsidiary Shell proposes to totally divest from, at $2.3 billion.

According to the document, 19 Oil Mining Leases (OMLs) will be put up for sale by the oil giant in onshore locations and shallow waters in the company’s eastern and western operations in the Niger Delta.

Only last month, Nigerian oil and gas company, Seplat Energy, revealed that it was actively engaged in negotiations to acquire ExxonMobil’s shallow water assets in the country. A Reuters report had in 2019 put the expected potential disposals at $3 billion.

 Emmanuel Addeh in Abuja

Follow us on: