Abstract

This aim of this paper is to examine the existing legal framework for decommissioning of oil wells by oil companies, especially during bankruptcy. The paper comparatively examines the respective regimes for decommissioning in Canada and Nigeria. Section 1 of this article examines the involvement of government in ownership and production of oil resources, and attributes some decommissioning challenges to the nature of government’s involvement in both jurisdictions. Section 2 provides a synopsis of the bodies responsible for regulating abandonment in both jurisdictions. Section 3 examines requirements for abandonment in the respective jurisdictions by examining instruments that mandate licensees to decommission oil wells when no longer in use. Section 4 positions abandonment liabilities within the bankruptcy regime with respect to the former’s rank against competing bankruptcy claims. Section 5 is an overview of the legal and contractual mechanisms for provision of financial assurance for decommissioning costs and the challenges thereto in both jurisdictions. Section 6 analyses judicial pronouncements to determine how courts are likely to rank abandonment liabilities among competing claims in bankruptcy. Section 7 is a summary of the various finance and security options for preventing unavailability or insufficiency of abandonment funds. Section 8 concludes that the most viable way of addressing decommissioning liabilities notwithstanding insolvency of a licensee is to ensure that funds are provided in advance for the purpose of decommissioning.