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 timeconstrained residual liability can be used alongside lump sum payments
to limit the State's financial exposure for decommissioning costs.