AITEO’S BAPTISM OF FIRE

knowledge of oil and gas sector operations in this country should not be surprised that Aiteo lacks the technical know how to manage and monitor its oil assets, and prevent such environmental calamities from occurring. According to its officials, the failed wellhead was one of many wells drilled and abandoned by Shell Petroleum Development Company, which alongside France’s Total and Italy’s ENI sold their 45% stake in OML 29 and the Nembe Creek trunk line to Aiteo in 2015. This means that Aiteo, as the new owner, should have put in place a programme to ensure that all of its abandoned oil wells were properly and permanently plugged and/or decommissioned, where they are not commercially viable, to forestall such disasters, as such wells tend to emit methane through leakages. In situations where pressure arising from the methane leak is very high, a blowout of the type witnessed in Nembe is a sure banker. Besides, the law requires all oil and gas operators to deploy a spill containment and response effort within 24 hours of a spill occurring. Sadly, this was not adhered to. Is it any wonder that Aiteo is hell bent on absolving itself and blaming the blowout on oil vandals or thieves in the Niger Delta?

To be fair, Aiteo cannot take the entire blame for the Nembe oil spill debacle. Nigeria’s weak regulatory environment and inability of the authorities to strengthen environmental and petroleum laws for the deactivation of abandoned wells and aging oil facilities have not helped matters. 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 and in several instances contributed to a spike in non-performing loans and impairment charges on the books of the banks. This in turn depressed their prudential ratios and profitability. In addition to previous asset sales, Shell and ExxonMobil are currently in the process of divesting of their outstanding onshore and shallow water JV assets so that they can focus squarely on their deep water operations where they no longer have to contend with community issues and oil vandals, or pursue NNPC for outstanding JV funding.

But while the Nigerian authorities cannot compel Shell, ExxonMobil or any other oil multinational to retain their JV assets, the federal government can and should formulate stringent criteria as conditions precedent before oil majors can dispose of these assets. One way is to adopt what obtains in other jurisdictions where it is mandatory, prior to the asset sale, for prospective bidders to possess the wherewithal to decommission aging oil and gas infrastructure. To strengthen the government’s hand, a policy framework or legislation on the regulator’s oversight role in oil and gas asset sales will have to be formulated. The policy/legislation should include a trailing liability regime that holds the previous owners of oil assets liable for decommissioning costs as a last resort to prevent the burden falling on Nigerian taxpayers.

A case in point was ExxonMobil’s decision last year to shelve its planned $3 billion sale of its Bass Strait operation in Australia. The decision came just two weeks after the Australian government told the US oil major that a new legislation was in the works that would make ExxonMobil liable for decommissioning the 50-year-old operation if a new owner failed to do so. The Australian government made it clear that it would crackdown on the sale of the offshore assets and insisted that the new owner must have the financial and technical capacity to decommission the ageing Bass Strait facilities. The new Australian legislation has worked wonders and today serves as a deterrent to big players in the country’s oil and gas sector who have been cutting and running by selling late-life assets to small players and escaping decommissioning costs.

The Australian option aside, another option available to the Nigerian government is to get an independent valuation of the cost of decommissioning aging assets, ordering the oil majors to discount the amount against the value of the assets that are on offer to new buyers, and transferring same into an escrow account solely for the purpose of decommissioning after the sale.

As for Nembe, measures must be taken swiftly to stop the oil spill and restore the fragile ecosystem that has been damaged. Aiteo and its friends in government should stop the false narratives, accept responsibility for the accident, and transparently work with all parties to compensate the affected communities and remedy the situation. After all, even if Aiteo can prove that that the oil spill was as a result of sabotage, it cannot absolve itself of vicarious liability, as it can be successfully argued that the oil company and its partner NNPC, and by extension, the Federal Government of Nigeria, had a legal responsibility to monitor and secure oil facilities in OML 29 to prevent intentional third party damage. Lest Aiteo forgets, big oil multinationals with infinitely deeper pockets that have tried to pass the buck on the communities and offered inducements to willing collaborators, eventually always fell flat on their faces.