Published 14 August 2020
Asset Retirement Obligation (ARO) will play a major role in the valuation of Nigerian petroleum assets, as well as in providing a regulatory mechanism which may be used to hold a licensee accountable to Nigerian legislation governing environmental liability for field reclamation and retirement of oil & gas installations by the end of their useful economic life. Viewed as the potential elephant in the room, this lifecycle environmental liability can sometimes exceed terminal asset value, unless it is carefully managed. Experts believe that Nigeria’s ARO liability may exceed $15 billion if properly assessed, with government around $9 billion.
More so, establishing ARO can help the regulator manage and enforce compliance with the laws as well as bind the licensees to their contractual obligation, both to the Nigerian government and to various lenders. To determine ARO, certain legislative, financial, technical, economic, environmental, and commercial criteria must be considered in the estimation and assignment of liability. The paper aims to review existing regulatory regimes and leverage that proffer new ways by which the government and its stakeholders can harness the best technical, financial, and operational practices to improve the situation, and reposition the industry going forward.
This paper addresses the key issues including; how to compute ARO, when does it accrue, who should implement it, and what are available fiscal or financial reliefs? A review of global best practices is equally captured with a view to proposing viable win-win schemes for the mutual benefit of both the Nigerian government and operators. This will help in safeguarding long-term economic and environmental interests. Consequently, these proposals could form the cornerstones upon which a future abandonment blueprint can be framed for a proactive and retroactive regulation of the sector as well as update the underlying legislation.