Client Alert : Angola

 

NEW RULES ON ABANDONMENT OF WELLS AND DECOMMISSIONING OF PETROLEUM FACILITIES

What happened?

Angola passed a law regulating the abandonment and decommissioning of onshore and offshore upstream oil and gas facilities and installations (“the Decree”). The Decree is long and includes various annexes, including a long list of technical specifications.

What are the consequences?

Under the Decree abandonment and decommissioning must in accordance with the principles of restoration of the environment and landscape, holding stakeholders accountable for financing abandonment and decommissioning activities. We have summarised some of the applicable rules below:

Abandonment Plan
  • Operators must prepare and submit a Preliminary Abandonment Plan (“PAP”) to SONANGOL for approval. The PAP should be included in the general development and production plan for the applicable development area or concession.
  • The PAP must be updated periodically, concretely every 3 years.
  • A Final Abandonment Plan (“FAP”) must also be prepared by the operators and submitted to SONANGOL and the Ministry of Natural Resources and Petroleum for approval by no later than 12 months before the planned abandonment date.
  • The Decree provides PAP and FAP templates which must be followed.
Decommissioning of Facilities
  • Facilities can be wholly or partially decommissioned or in stages for the duration of the concession.
  • Companies willing to build an artificial reef must seek government approval.
Abandonment of Wells
  • Operators are required to abandon wells according to the technical and safety guidelines contained in the Decree and the abandonment must be final. Temporary abandonment is only allowed in exceptional circumstances.
Handover of Facilities
  • To handover facilities to SONANGOL, operators must agree on a plan by no later than 18 months prior to the conclusion of the applicable development;
  • The introduction of naturally occurring radioactive sources is illegal.
  • Within 30 days of a properly managed handover, SONANGOL must provide the operator a release of liability and indemnity agreement in line with the template included in the Decree.
Inspection and Completion Certification/Release of Liability
  • Government authorities must inspect the facilities and installations before, during and after abandonment and decommissioning. The operator must monitor the area after all work has been completed and submit a monitoring report to SONANGOL.
  • Within 60 days from the date of completion, the government will issue a certificate of completion and SONANGOL should issue a release of liability and indemnity agreement in the format provided by the Decree.
Financing

Operator must take a provision to ensure there are sufficient funds to pay for the planned abandonment and decommission. The following requirements apply to funding:

  • For future concession, funding is due from commencement of production;
  • For new development areas within existing concessions, funding is due from the date agreed between SONANGOL and the operator between commencement of production and when 50% of reserves have been recovered;
  • For ongoing concessions with an existing funding program, no changes apply, and the contract provisions prevail;
  • The funds must be paid into an Escrow account in the name of SONANGOL and the operator. The account’s usage is subject to the requirements enshrined the Decree. Any abandonment funds already apportioned must be transferred to an escrow account.
  • The operator is liable for any shortfalls in funding needed to execute the abandonment and decommissioning plan;
  • Any surplus funds shall be transferred to SONANGOL; and
  • All abandonment costs are cost-recoverable/tax deductible.

Does my company need to take any action?

Companies affected by the new rules should contact their external counsel for a copy of the law and seek further advice with regards to the new rules and their implications and implement measures to ensure compliance. As a minimum, we recommend that businesses:

  • Read and understand all the technical specifications provided by the Decree;
  • prepare a provisional and final abandonment plan meeting the requirements for their drafting and approval. When conducting this exercise, businesses will need to estimate the cost of abandonment and take a provision for the same;
  • work closely with external counsel when engaging with the Angolan government to secure certificates of abandonment and decommissioning and handover of wells and facilities. Businesses should also seek assistance with the review of the terms and conditions of any escrow accounts;
  • Review and amend any applicable contracts with third parties; and
  • establish a procedure to manage government inspections and audits.

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