1. Introduction

The restructuring of Nigeria’s oil and gas industry represents a pivotal shift from an IOC-dominated landscape to one increasingly controlled by domestic entities. In the last decade, and more rapidly since 2019, major players like Shell plc, ExxonMobil, TotalEnergies, and Eni have divested significant portfolios, representing an estimated 8.2 billion barrels of oil reserves and over 90 trillion cubic feet of associated and non-associated gas.

These divestments are not merely commercial exits but are strategically motivated by the global energy transition and the need for portfolio rationalization. IOCs are increasingly under pressure from shareholders and international courts to align with net-zero trajectories, leading them to divest high-emission, high-risk onshore assets in favor of lower-carbon deepwater projects. In Nigeria, this transition is complicated by a history of environmental sabotage, pipeline vandalism, and community unrest in the Niger Delta, which have eroded the profitability of onshore operations.

The enactment of the Petroleum Industry Act (PIA) 2021 has further catalyzed this trend by providing a new, albeit more stringent, legal framework for asset transfers. However, the process has sparked significant debate over transparency, the capacity of indigenous firms to manage legacy liabilities, and the potential for “stranded” environmental costs.

2. The Statutory and Regulatory Framework

2.1 The Petroleum Industry Act (PIA) 2021

The PIA is the principal legislation governing this transition, having repealed the Petroleum Act of 1969. It introduced a modernized licensing regime consisting of Petroleum Prospecting Licences (PPLs) and Petroleum Mining Leases (PMLs).

A central pillar of the PIA is the requirement for prior written ministerial consent for any assignment, novation, or transfer of a license or lease. This requirement, primarily contained in Section 95, establishes that petroleum rights are statutory grants rather than simple private assets. The law makes it clear that any transfer conducted without such consent is void.

2.2 Institutional Oversight: NUPRC and NMDPRA

The PIA decentralized regulation through two main bodies:

• The Nigerian Upstream Petroleum Regulatory Commission (NUPRC): Responsible for the technical and commercial regulation of upstream operations, including the evaluation of divestment applications.
• The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA): Oversees midstream and downstream activities.

Divestments involving integrated infrastructure, such as pipelines and processing terminals, may trigger dual regulatory oversight.

2.3 The NUPRC Seven-Point Divestment Framework

In 2024, the NUPRC introduced a mandatory seven-point framework to evaluate prospective asset transfers:

1. Technical Capacity: Successors must prove they can operate assets at least as efficiently as the divesting IOC.
2. Financial Viability: A thorough assessment of the buyer’s balance sheet and their ability to execute work programs.
3. Legal and Regulatory Compliance: Ensuring the buyer is a “fit and proper” entity with no unresolved legal encumbrances.
4. Decommissioning and Abandonment (D&A): Verification that adequate funds are secured for future facility retirement.
5. Host Community and ESG Obligations: Ensuring compliance with the Host Community Development Trust (HCDT) mandates.
6. Industrial Relations and Labour: Implementing mechanisms to prevent labor disputes and ensure skill transfer.
7. Data Repatriation: Ensuring all operational data is returned to the National Data Repository.

3. Judicial Interpretation and the Concept of Control

Nigerian courts have consistently reinforced the necessity of regulatory approval. In the landmark case of Moni Pulo Ltd v Brass Exploration Unlimited, the Supreme Court affirmed that ministerial consent is a condition precedent to any valid transfer of petroleum interests.

A critical legal nuance is whether indirect transfers (e.g., share sales at the holding company level) trigger consent requirements. Nigerian regulatory practice, supported by judicial sentiment, suggests that if a transaction results in a change of control of the licensee, ministerial consent is required. This ensures that IOCs cannot bypass Nigerian oversight through offshore corporate restructuring.

4. Environmental Liability: The “Clean Break” vs. Legacy Debt

4.1 Strict Liability and Transnational Litigation

Environmental liability is arguably the most contentious aspect of IOC divestment. Under Nigerian law, liability for oil spills is strict, meaning the operator can be held liable even if the spill resulted from sabotage.

The Supreme Court’s decision in Shell Petroleum Development Company v Farah affirmed the operator’s liability for extensive environmental damage. Furthermore, in Centre for Oil Pollution Watch v NNPC, the court expanded locus standi, allowing NGOs to bring public interest environmental claims, thereby increasing the litigation risk for both divesting and acquiring firms.

4.2 The “Divestment Without Cleanup” Concern

UN human rights experts have expressed “grave concern” that IOCs may be using divestment to escape responsibility for decades of environmental degradation. Experts argue that approving these sales without clear remediation plans may breach international human rights law, specifically the UN Guiding Principles on Business and Human Rights.

The Upstream Petroleum Environmental Remediation Regulations 2024 now require transferors to remediate existing contamination or provide financial security for future liabilities before a transfer is approved. Regulators may mandate escrow accounts or indemnities to ensure that the Nigerian state is not left with “stranded” liabilities.

5. Decommissioning and Abandonment (D&A) Obligations

Under the PIA, licensees must establish a decommissioning and abandonment fund. This is a statutory obligation that “attaches to the licence” and thus transfers to any successor in title. If an asset is near its end-of-life, the NUPRC may refuse consent unless the divesting IOC or the acquirer provides full financial security for the retirement of those facilities. This is vital for protecting the environment from abandoned, leaking infrastructure.

6. Host Community Development Trusts (HCDTs)

The PIA introduced a mandatory requirement for operators (Settlors) to contribute 3% of their annual actual operating expenditure to a Host Community Development Trust.

• Transfer of Obligations: Divestment does not extinguish these duties; the acquiring firm inherits all ongoing HCDT funding responsibilities and community development commitments.
• Community Consent: While the PIA does not grant communities a formal veto over divestments, judicial trends (such as in Belema Community v SPDC) suggest that failure to address community concerns and compensation can lead to injunctions that stall transactions.

7. Joint Operating Agreements (JOAs) and Pre-emption Rights

Most upstream assets in Nigeria are operated through Joint Ventures with NNPC Limited. These JVs are governed by Joint Operating Agreements (JOAs), which typically include:

• Pre-emption Clauses: Giving existing partners the right to match any offer from a third party.
• Right of First Refusal: Ensuring partners have the first opportunity to acquire divesting interests.

The controversy surrounding ExxonMobil’s sale to Seplat centered on NNPC’s attempt to exercise these pre-emptive rights, which delayed the deal for over two years. Failure to strictly adhere to these contractual provisions can lead to protracted litigation or the invalidation of the transfer.

8. Case Studies of Recent Divestments

• Shell to Renaissance: Shell’s $2.4 billion sale of SPDC to a local consortium has faced legal challenges from the HEDA Resource Centre, alleging non-compliance with environmental evaluation and gas flaring regulations.
• ExxonMobil to Seplat: A $1.28 billion transaction that was eventually cleared after resolving pre-emption disputes with NNPC. It is expected to significantly boost Seplat’s production capacity.
• Eni to Oando: A $783 million deal that received regulatory approval in 2024 but remains under scrutiny by civil society regarding transparency and legacy debts.

9. Fiscal and Tax Implications

Divestments are “tax-sensitive” events. Transactions may trigger:

• Capital Gains Tax (CGT): Applicable on the profit from the sale of shares or assets.
• Hydrocarbon Tax: Under the new PIA fiscal regime.
• Stamp Duties and VAT: Depending on the transaction structure. A Tax Clearance Certificate is generally a condition precedent for final ministerial consent.

10. Risks and Strategic Considerations for 1st Attorneys

For indigenous firms and investors, 1st Attorneys recommends rigorous legal and environmental due diligence before commitment. Key Risks Include:

• Technical Gaps: Indigenous firms may lack the deepwater expertise or specialized technology of IOCs.
• Under-capitalization: The inability to fund both production and massive remediation liabilities.
• Litigation Exposure: Inheriting decades of potential claims in both Nigerian and foreign courts (e.g., the Alame v Shell ruling in the UK).

11. Conclusion

The divestment of IOC assets to indigenous firms is a structural reconfiguration that aligns with Nigeria’s local content goals and global energy transition trends. However, the Petroleum Industry Act 2021 has raised the bar for compliance. Success depends on the NUPRC’s ability to enforce the “clean break” principle while ensuring that indigenous successors are financially and technically robust enough to prevent a decline in production or an environmental catastrophe.