• by Zingtim Gambo and Adesoye Adegoroye
• 0 Comments

Decommissioning and Asset Divestment in Nigeria's Oil Sector: Who Bears the Legal Liability?

Abstract

Nigeria's upstream petroleum sector is undergoing a significant transition as international oil companies divest from onshore and shallow-water assets and transfer operations to indigenous firms. While this shift supports local participation and advances national content objectives, it also raises difficult questions about environmental responsibility and long-term accountability.

This article examines the legal and regulatory framework governing decommissioning and asset divestment under the Petroleum Industry Act 2021 and related regulations. It argues that although successor entities assume operational control and future compliance obligations, liability for historical environmental harm should remain with the original operators whose activities caused the damage.

Introduction

International oil companies (IOCs) are steadily withdrawing from onshore and shallow-water operations, transferring control of mature assets to indigenous operators. Major players such as Shell and ExxonMobil have reduced their portfolios in response to persistent security challenges, mounting environmental liabilities, operational costs, shareholder pressures, and the accelerating global shift toward energy transition.

On the surface, these divestments appear to represent progress. They support Nigeria's local content policy, enhance indigenous participation, and create opportunities for domestic exploration and production companies to develop technical and managerial capacity. However, beneath this optimism lies a complex web of legal, environmental, and regulatory questions that cannot be ignored.

In the Niger Delta and other oil-producing regions, decades of oil production have left a legacy of environmental harm, including oil spills, gas flaring, soil contamination, pipeline leaks, and abandoned installations. These impacts have profound implications for public health, livelihoods, and ecological sustainability.

Decommissioning and Asset Divestment

Decommissioning refers to the process of making abandoned oil and gas fields safe and restoring the surrounding land or sea as close as possible to its original state, allowing the area to be repurposed for other uses.

It involves plugging and abandoning wells, removing installations and pipelines, and restoring affected land and marine environments. Beyond environmental protection, decommissioning is essential to public safety, as abandoned facilities may pose hazards due to residual hydrocarbons and structural collapse.

Proper decommissioning also has economic significance. Remediated sites may be repurposed for agriculture, aquaculture, tourism, and community development. Neglected infrastructure, however, can depress local economies, create long-term ecological damage, and increase future remediation costs.

Asset Divestment

Asset divestment, commonly referred to as divestiture, is the process by which a company sells off specific assets with the aim of enhancing overall value and boosting operational efficiency.

Nigeria's major wave of upstream divestments began around 2010, driven by oil theft, pipeline vandalism, militancy, local content and indigenization policies, aging infrastructure, inadequate reinvestment, environmental exposure, difficult operating conditions, climate commitments, and investor expectations.

These divestments provide significant opportunities for indigenous exploration and production firms, enabling local companies to expand portfolios, build technical capacity, and increase participation in the global energy market. However, the transfer of assets also transfers complex operational and environmental responsibilities.

Who Bears Liability?

Determining liability in the context of divestment requires careful consideration of Nigeria's legal and regulatory framework. The Petroleum Industry Act 2021 (PIA) provides the statutory foundation for upstream petroleum regulation and vests oversight authority in the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).

Section 95 of the PIA requires licensees and lessees to obtain prior ministerial consent before transferring any legal or equitable interest in a petroleum licence or lease. The Commission evaluates technical competence, financial capability, outstanding liabilities, and compliance obligations.

Regulation 10(f) of the Upstream Petroleum Assignment of Interest Regulations 2023 mandates comprehensive due diligence before any transfer, including the evaluation of cost obligations, emissions management plans, and social responsibility commitments.

Regulation 8 of the Upstream Petroleum Environmental Regulations 2022 requires the assignor to conduct an Environmental Evaluation Study (EES) documenting environmental conditions at the time of divestment. Incoming operators may also submit revised Environmental Management Plans to align with statutory requirements.

The Polluter Pays Principle

A principled approach requires distinguishing between successor entities and assignors. Successor entities should be responsible for operational compliance, ongoing environmental management, and future decommissioning obligations.

Assignors, as original operators, should retain liability for environmental damage occurring during their tenure, historical pollution, and legacy environmental harm. This position is supported by the Polluter Pays Principle, which states that those responsible for pollution must bear the costs of remediation.

Allowing assignors to transfer historical liabilities would create liability dumping, shifting burdens to smaller indigenous operators that may lack the financial capacity to remediate decades of pollution.

Judicial Support

Nigerian courts have reinforced environmental accountability. In Gbemre v Shell Petroleum Development Company, the court held that gas flaring violated constitutional rights to life and dignity, affirming the environmental and human rights dimensions of petroleum operations.

In Centre for Oil Pollution Watch v NNPC, the Supreme Court affirmed citizens' rights to seek redress for environmental harm caused by oil pollution. These decisions strengthen the principle that operators cannot evade responsibility for environmental damage.

Comparative International Approaches

In the United Kingdom, former licensees may remain accountable for decommissioning obligations under the Petroleum Act 1998. In Norway, joint liability frameworks ensure prior operators remain responsible for environmental damage. In the United States, authorities may pursue previous lessees for abandonment obligations.

These jurisdictions share a common objective: preventing asset transfers from becoming vehicles for avoiding environmental responsibility.

Challenges

Despite Nigeria's evolving framework, practical challenges remain. These include allocating responsibility for legacy spills, ensuring adequate decommissioning and abandonment funding, verifying acquiring companies' financial capacity, and guaranteeing remediation and compensation for host communities.

Effective contractual arrangements, regulatory enforcement, and judicial oversight remain essential. Nigeria's divestment wave presents both opportunity and risk. While asset transfers promote indigenous participation and economic inclusion, historical environmental liabilities cannot be extinguished through divestment.

Conclusion

Responsibility for decommissioning and asset divestment should rest primarily with the assignor. As the original holder and beneficiary of the asset, the assignor is best positioned to account for historical operations, environmental obligations, and end-of-life liabilities associated with the asset.

Placing this responsibility on the assignor promotes regulatory compliance and accountability, while preventing the transfer of unresolved liabilities to assignees or the state. Ensuring that assignors retain clear and enforceable decommissioning obligations supports transparency, protects host communities and the environment, and strengthens confidence in Nigeria's asset transfer framework.