Allocating Decommissioning Liability in Nigeria Mergers and Acquisitions Transactions: Key Considerations

Contractual Allocation of Decommissioning Liability

In traditional upstream oil and gas mergers and acquisitions (M&A), the allocation of decommissioning and abandonment (D&A) liabilities follows a fairly standard, predictable commercial framework under which the assignor (seller) and the assignee (buyer) typically negotiate a clean contractual cut-off date. The assignor agrees to retain or indemnify the buyer against legacy liabilities tied to historic operations, while the assignee assumes financial responsibility for activities occurring after the economic transfer date. This contractual mechanism has long allowed transacting parties to price risk accurately, allocate historic environmental exposure, and execute clean structural breaks.

This Insight reviews the interaction between typical contractual provisions and regulatory dictates under the Nigeria Upstream Petroleum Decommissioning and Abandonment Regulations, 2026, as well as the nature of decommissioning liability which assignees now bear under the Nigeria Upstream Petroleum Decommissioning and Abandonment Regulations, 2026

The Key Provisions: Regulation 17 and Regulation 23

To understand how the new legal framework alters transaction dynamics, operators must look directly at the text of Regulation 17 and Regulation 23. Regulation 17(1)(d) outlines obligations for decommissioning and abandonment under expired, surrendered, or revoked titles and states that, in the case of an assignment, liability rests “…on the assignee to the extent that the assignee has assumed obligations in the licence or lease that has been assigned wholly or partly with the consent of the Minister…”

Conversely, Regulation 23, under the explicit heading “Deemed liability of an assignee,” provides that: “Where the whole or part of an interest in the licence or lease is assigned, novated or otherwise transferred to another party, the proportionate legal and equitable interests, rights and obligations of the licensee or lessee in respect of the decommissioning and abandonment obligations under the Act and these Regulations shall be deemed to be attached to the property transferred to the transferee.”

At first glance, these two provisions share a fundamental similarity in that they both explicitly provide that the assignee (transferee) will bear decommissioning liabilities following an asset transfer. However, the specific language of Regulation 23 appears to conflict with Regulation 17.

On one hand, Regulation 17(1)(d) can be read as preserving a degree of contractual autonomy, implying that an assignee is only liable for decommissioning costs to the extent that it has voluntarily agreed to assume those obligations under the assignment agreement or pursuant to the terms of ministerial consent. On this reading, if the contract is silent on certain historic liabilities, those obligations would, in principle, remain with the assignor.

On the other hand, Regulation 23 introduces a different legal standard and effectively creates automatic statutory liability by utilising the legal fiction of “deeming.” By providing that the obligations attach directly to the property itself, the Regulation 23 suggests that, upon transfer of an interest, the transferee automatically inherits the proportionate decommissioning liability by operation of law, regardless of the private contractual allocation of risk.

Conflict or Not?

Despite the apparent tension between these provisions, the more persuasive interpretation is that the regulatory intent is to impose a regime of strict liability on an assignee.

In legal terms, strict liability in this context means that responsibility attaches by reason of status or control of the relevant interest, rather than fault, negligence, or operational conduct. In other words, liability is triggered by ownership or control of the asset, and not by causation of the underlying environmental obligation. Thus, from a regulatory standpoint, it is control of the licence interest that matters, not historical involvement in the operations that generated the liability.

In practical terms, if the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) seeks enforcement under Regulation 23, it may effectively disregard indemnity structures or legacy liability allocations carefully negotiated in a private SPA. Even where an assignee expressly negotiates to exclude historic decommissioning exposure attributable to a previous operator, the regulator may nonetheless assert that, because the obligations are deemed to attach to the transferred interest, the current holder is strictly liable for the proportionate share. This liability will, in turn, cascade through joint venture structures to operators and non-operating partners in accordance with their participating interests.

Implications for Transaction Structuring

Given this evolving regulatory posture, operators and investors will need to revisit existing contractual frameworks to ensure that risk allocation mechanisms are not solely reliant on private indemnities or historical liability cut-offs, but are instead structured around enforceable funding, security, and contribution mechanisms that align with statutory allocation rules. In practical terms, this may require enhanced decommissioning arrangements, more robust pre-completion verification of abandonment exposure, and tighter alignment between SPA provisions, joint operating agreements, and regulatory consent conditions.

More fundamentally, Nigerian lessors, operators, and incoming investors may need to recalibrate traditional M&A risk allocation models to reflect a regulatory environment in which decommissioning liability is increasingly treated as an incident of asset ownership rather than historical operational conduct.

This publication is provided Balogun Harold for general informational purposes only and does not constitute legal advice. Specific circumstances may require tailored legal analysis. For consultation requests, please reach out to your usual Balogun Harold contact or via support@balogunharold.com