Addressing Residual Liability and Insolvency in Disused Oil and Gas Infrastructure Left in Place: The Cases of Brazil, Nigeria, and Trinidad and Tobago

Abstract

This article analyses the decommissioning framework for oil and gas infrastructures in Brazil, Nigeria, and Trinidad and Tobago. It examines whether the existing provisions in each country are able to guarantee that the government and, by extension taxpayers, do not bear the costs of decommissioning and, the consequences of insolvency on residual liabilities. An additional motivation for this examination is the ongoing Coronavirus Disease 2019 (COVID-19), a pandemic with significant adverse impacts on the oil and gas industry. A likely consequence of the economic devastation from this is the insolvency of any party with decommissioning obligations.
The article argues that the provisions of the Brazil petroleum legislation on the reversion of abandoned installations to the government could imply that taxpayers have to bear the residual liabilities without any compensation from the concerned concessionaires or contractors. It also argues that the provisions of the Petroleum Law to the effect that ‘the reversion of facilities does not entail any expense whatsoever for the Brazilian government ’does not certainly translate to pecuniary compensation to the latter for assuming the future residual liabilities from abandoned installations. The Nigerian and the Trinidad &Tobago Decommissioning Framework also suffer the latter risk of the government bearing the residual liabilities for such disused installations.
In Nigeria, the framework is silent on who bears the residual liabilities for disused installations. However, it is argued that the provisions of the Production Sharing Contracts on the transfer of ownership to the Nigerian government implies that they would have to bear eventual liabilities for such disused installations. Even in cases where the licensee or contractor may bear the burden of residual liabilities, the problem of future insolvency and cessation of such companies may entail that taxpayers bear the burden of residual liabilities. The article concludes with key recommendations on how to address the identified gaps using lessons from best practices such as United Kingdom, Norway and United States of America. One of such proposals is on the allocation of liability where there is a transfer of interest. Another is for joint and several or at least secondary liability of responsible parties even after decommissioning activities are over; a recommended provision to this effect is also provided. The third recommendation is on how time-constrained residual liability can be used alongside lump sum payments to limit the State's financial exposure for decommissioning costs.