Costs Over Abandoned Onshore Assets Worry ExxonMobil, SPDC

Shell Petroleum Development Company of Nigeria and ExxonMobil are currently facing massive remediation costs as a result of their failure to properly decommission and cap oil and gas assets throughout the Niger Delta, particularly those sold to Nigerians in recent divestment programs.

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

According to stakeholders, the recent case of Aiteo’s Nembe wellhead blowout highlighted the need to enforce relevant laws and ensure that multinationals that sold assets to Nigerian companies pay remediation charges.

While Aiteo is currently involved in a legal battle with Shell over the sale of Oil Mining Licence 29,  The Nigerian oil and gas company is also considering new legal action against the multinational over the Nembe spill and other poorly capped wells.

Seplat Energy Plc, on the other hand, announced last month that it was in competitive talks with a partner to acquire ExxonMobil’s Nigerian shallow water business.

As a result, stakeholders are concerned about what will happen if the deal is completed and some of ExxonMobil’s assets that were not properly capped cause another environmental challenge.

Many of the oil and gas assets sold to Nigerians, mostly by International Oil Companies (IOCs), are rarely decommissioned or properly abandoned, a development that clearly violates existing industry regulations.

The cessation of operations at an oil and gas platform and the return of the seafloor to its pre-production state for installations and any relevant structures that have reached the end of their productive life is referred to as decommissioning.

Onshore decommissioning entails capping oil wells, cleaning up and removing all production and pipeline risers supported by the platform, and removing the platform and dumping it in a junk storage area or manufacturing yard.

The Geneva Convention on the Continental Shelf, 1958; the United Nations Convention on the Law of the Sea (UNCLOS), 1982; and the Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matters, 1972 are among the international conventions that govern decommissioning operations.

However, despite existing regulations and the provisions of the Petroleum Industry Act (PIA), There was rarely any adherence to full decommissioning for the infrastructure that had been sold, and that such arrangements may not exist for those for which buyers were sought.

The new law states in Section 233 (1), “Each lessee and licensee shall establish, 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 be used exclusively to pay for decommissioning and abandonment costs.”

If a lessee or licensee fails to comply with the decommissioning and abandonment plan, the commission may use the decommissioning and abandonment fund to pay for third-party performance.”

As a result of one of the transactions, Aiteo recently claimed in a lawsuit that it paid $799 million to Shell for the acquisition of the NCTL pipelines and assets and that the company lost $389.6 million as a result of leakages in the pipelines and the asset’s degraded condition.

Aiteo also claimed that $933 million had been spent on pipeline repairs and the acquisition of equipment, such as well-heads, generators, and pumps, as well as the replacement of flow lines within the NCTL, which it purchased from Shell.

It was discovered that the major oil companies had continued to sell “dead” assets to the country’s local businessmen under the guise of being unable to deal with militancy or community issues, particularly in the Niger Delta.

What they haven’t told buyers is that the over 30 to 40 years of neglect will result in massive remediation costs down the road.

According to stakeholders, the recent case of Aiteo’s Nembe wellhead blowout highlighted the importance of enforcing relevant laws and implementing proper shutdowns of oil and gas assets during the abandonment and restoration process.

Many experts believe that the blowout in Nembe could have been avoided if the wellhead had been properly and permanently plugged and decommissioned because it was no longer commercially viable.

Nigeria’s transitory regulatory environment, as well as the authorities’ inability to strengthen environmental and petroleum laws for the deactivation of abandoned wells and aging oil facilities, are thought to have exacerbated matters.

The immediate past Chairman of the Society of Petroleum Engineers (SPE), Nigeria Council, Joe Nwakwue, stated that the availability of regulations was not always the issue, but rather enforcement.

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He did, however, clarify that it was not entirely an IOC issue, noting that there are usually agreements with whoever buys non-producing assets on how to decommission them.

“There are regulations around assets that are no longer in use, and it has nothing to do with the transfer of the assets,” Nwakwue explained.

So there are rules, whether it’s Shell or Aiteo, for example.

When a wellhead stops producing, one of two things happens: either there is a TP&A, which is to temporarily plug and abandon it, or you permanently plug and abandon it.

The problem was that neither of these things occurred, implying that it was still theoretically operational.

When the well was no longer in use, it should have been abandoned.

That didn’t happen, which is why we had the spill.”

He stated that it made no difference who owned the assets because the transfer was a separate issue that should not be confused with the decommissioning process.

” I am confident that Shell’s commitment has been transferred to Aiteo.”

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

“There may be a lot of wellheads that are no longer producing, but they are active and exposed to pressure,” he said.

“Whoever owns the asset should have a program in place to temporarily abandon it in order to make it safer.”  There are rules, but who is in charge of enforcing them?

That is the query.  Who is in charge of ensuring that the rules are followed?  These are the questions that must be addressed.

The regulator needs to up their game.  To keep the environment safe, they must implement a program in which facilities that are no longer in use are temporarily or permanently abandoned and decommissioned.

Regardless of who operates them, the main issue is that regulations have not been followed, and it is critical that the commission is aware of its responsibilities.”

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

“We don’t dispute the fact that they can go green or whatever,” Henshaw said, “but there has to be some closure.”

You’re running a business, and it’s causing problems.

You don’t wake up and declare that you’re going green.

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

Ms. Ijeoma Nwogwugwu, an oil industry enthusiast who has extensively covered the sector, 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 stakes in approximately 20 to 25 oil blocks to local oil operators at absurdly high prices.

“All of the acquisitions were leveraged buyouts, leaving several Nigerian banks with significant exposure to the oil and gas sector.”

Many of the loans have yet to be repaid.”

Nwogwugwu suggested that one way to avoid this disaster was to follow the example of other jurisdictions, where prospective bidders must have the means to decommission agingod and gas infrastructure prior to an asset sale.

She cited the $3 billion sales odof Australia’s Bass Strait operation as an example.

However, the industry regulator, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), stated that the industry was not mature enough for wholesale decommissioning activities.
Timipre Sylva, Minister of State for Petroleum Resources, recently stated that the federal government would carefully scrutinize oil companies that bid for the takeover of assets in the country that Shell and other oil majors will be divesting from.

“Previously, companies were only permitted to purchase assets that they could not operate.”

“We will not allow that to happen again because the government is the ultimate loser,” Sylva stated.

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

Wood McKenzie, a leading global oil and gas consulting firm, estimated the total value of Shell Petroleum Development Company (SPDC), the subsidiary Shell intends to completely divest from, at $2.3 billion.

According to the document, the oil giant will sell 19 Oil Mining Leases (OMLs) in onshore and shallow waters in the company’s eastern and western operations in the Niger Delta.

Only last month, Seplat Energy, a Nigerian oil and gas company, revealed that it was actively negotiating to acquire ExxonMobil’s shallow water assets in the country.

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