A Review of Asset Retirement Obligations of Nigerian Oil Companies

Asset Retirement Obligation (ARO) is becoming the focus of many oil and gas companies around the world. It is a critical aspect of the Exploration and Production business which has suffered professional neglect for too long. As a subject matter, the principles of ARO owe credence to both national and international legislative perspectives. Its future impact equally draws from visible and disruptive environmental dimension. It is one link that connects the obligation of oil companies to their host governments and surviving communities. ARO will play a major role in valuation of Nigerian petroleum assets. It can also provide a regulatory mechanism to hold a licensee accountable to Nigerian legislation governing environmental liability for field reclamation and retirement of oil & gas installations by end of useful (economic) life of a project. 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 $9 Billion USD if properly assessed