Title page        –           –           –           –           –           –           –           –           –           –           i

Approval page –           –           –           –           –           –           –           –           –           –           ii

Declaration      –           –           –           –           –           –           –           –           –           –           iii

Dedication      –           –           –           –           –           –           –           –           –           –           iv

Acknowledgement      –           –           –           –           –           –           –           –           –           v

Table of Contents       –           –           –           –           –           –           –           –           –           vi

Abstract          –           –           –           –           –           –           –           –           –           –           viii


1.1       Background of the Study       –           –           –           –           –           –           –           1

1.2       Statement of Research Problems        –           –           –           –           –           –           2

1.3       Objectives of the
Study          –           –           –           –           –           –           –           4

1.4       Research Question      –           –           –           –           –           –           –           –           4

1.5       Scope of the Study     –           –           –           –           –           –           –           –           4

1.6       Significance of the
Study       –           –           –           –           –           –           –           5

1.7       Definition of Terms    –           –           –           –           –           –           –           –           5



2.1       Introduction    –           –           –           –           –           –           –           –           –           7

2.2       Conceptual Review     –           –           –           –           –           –           –           –           7

2.2.1    Concept
of Asset Retirement Obligation       –           –           –           –           –           7

2.2.2    Brief
Overview of the Petroleum Industry in Nigeria            –           –           –           11

Current Regulations covering Oil and Gas Accounting Methods         –           –           18

2.2.4    Effects of Capitalization of Costs under
Successful and Full Cost Methods            18

2.3       Theoretical
Framework           –           –           –           –           –           –           –           21

2.4       Empirical Review        –           –           –           –           –           –           –           –           23




3.1       Introduction    –           –           –           –           –           –           –           –           –           26

3.2       Area of the Study       –           –           –           –           –           –           –           –           26

3.3       Research Design         –           –           –           –           –           –           –           –           26

3.4       Population of the Study          –           –           –           –           –           –           –           27

3.5       Sample and Sampling Technique        –           –           –           –           –           –           27

3.6       Method and Instruments for Data
Collection            –           –           –           –           –           27

3.7       Method of Data Analysis       –           –           –           –           –           –           –           28



4.1       Presentation and Analysis of Results –           –           –           –           –           –           29



5.1       Summary         –           –           –           –           –           –           –           –           –           34

5.2       Conclusions     –           –           –           –           –           –           –           –           –           35

5.3       Recommendations      –           –           –           –           –           –           –           –           35

References     –           –           –           –           –           –           –           –           –           –           37

Appendix       –           –           –           –           –           –           –           –           –           –           39



The major drive of this study to
appraise the convention of asset retirement obligation in the Nigerian upstream
petroleum sector. Asset retirement obligation is seen to have many objectives
and benefits as well as a number of challenges. There is also no consensus as
to what is the underlying regulatory framework guiding its implementation. This
study therefore attempts to bridge this existing gap in the literature to
identify what constitutes asset retirement obligation, its objective, its
challenges and the regulatory framework guiding it. The researcher uses survey
technique research design in which an appropriate and representative sample was
taken from the population of study. The stratified randomsampling was employed
in selecting the sample. Questionnaire were used in collecting data. The data
was subjected to analyses using descriptive statistics. It was observed that
the benefits of using asset retirement is to improve disclosure, to improve the
quality and reliability of financial statement. It was also observed that since
there is difficulty as to what constitutes the framework of asset retirement
obligation in the upstream sector to develop a policy to consider asset
retirement obligation during property acquisition. It was also found that the
specific challenges confronting asset retirement in the upstream sector is
inflation, inaccurate estimate and change in discount factor.





1.1       Background of the Study

Petroleum is presently one of the most important and
valuable natural resources of Nigeria. It is exploited in many ways that
maximizes its benefits to the nation. Nigeria receives a fair share of profits
derived by the mineral companies while also offering stable and attractive
terms to investors. According to Nigeria Extractive Industries Transparency
Initiative (NEITI), in 2011, Nigeria is among the largest oil producers in
Africa and among the top ten globally. The country has pumping capacity of
about 900 million barrels a year with reserves of natural gas – an estimated
159 trillion standard cubic feet of proven reserves. The oil sector has
accounted for over 40% of GDP, 95% of export receipts, and over 80 percent of
Nigerian government revenue. The petroleum sector is dominated by Joint Venture
operations between the Nigerian government and six (6) Major International Oil
Companies – Shell, Mobil, Chevron, Agip, elf, and Pan Ocean. Nigeria’s reserves
of natural gas – an estimated 159 trillion standard cubic feet of proven
reserves (NEITI 2009).  The main
activities that travail in the Petroleum industry are largely centered on
exploration, production of hydrocarbon, refining, transportation and marketing
of crude oil and its refined products.

The Nigerian Oil Industry is divided into two (2)
main sectors the Upstream Sector deals with (a) Exploration and Field
Development (b) Production and Marketing of crude and the downstream sector
which performing the refining, marketing and distribution of refined product
and retailing.

In Nigeria, over estimated $8 billion is spent
annually on servicing the industry in operations such as fabrication,
engineering procurement, construction (EPC), Front End Engineering Design
(FEED), conceptual designs and seismic studies. Regrettably, despite these huge
sums of money spent in servicing the industry, only a very little proportion of
the accruable profit is spent in Nigeria. Majority of the amounts are
repatriated abroad, where most of the equipment are manufactured; and providing
employment opportunities for citizens of other countries.

The major reason for this situation may be
attributed to many factors including accounting procedure of these resources.
It was observed that one of the earliest challenges with revenue generated from
the oil and gas industry in Nigeria is how revenue is paid by oil companies and
collected by regulatory bodies without misappropriating the funds, and since
government spending is one of the major influences of the level of economic
activity, as government survival is largely dependent on the revenue realized
from oil and gas sector. The term conditional asset retirement obligation as
used in IFRS statement of accounting for asset retirement obligations, refers
to a legal obligation to perform the asset retirement activity in which the
timing and (or) method of settlement are conditional on a future event that may
or may not be within the control of the entity. The obligation is to perform
the asset retirement activity unconditional even though uncertainty exists
about the timing and (or) method of settlement. Thus, the timing and (or)
method of settlement may be conditional on a future event.

1.2       Statement of Research Problems

Obligation is an obligation associated
with the retirement of a tangible long-lived asset in which the timing or
method of settlement may be conditional on a future event, the occurrence of
which may not be within the control of the entity burdened by the obligation.

Although the return remains a very positive in Nigeria and
administrated, the system of operation. Government has not taken a decisive
action toward a final decapitation of the heinous problems of the people too
old for work or to be used for their original purpose is rather strange and
difficult to explain.

Despite several moderations of
retirement benefits for workers in Nigeria, pension fund has been characterized
by outright corruption and embezzlement, mismanagement and diversion of fund
over the years. Corruption in the Pension Scheme has become so pervasive. The
embezzlement and corruption manifests in different shades and colors. Thus,
exposing the retirees to a life of untold hardship and penury that can be
better imagined and for this reason, so many of them (pensioners) have died
waiting to receive their dues.

Additionally other problems identified
are pipeline vandalism, oil theft, militancy, frequent changes of the
management of the NNPC, ageing assets and volatility of oil prices as key

Outright embezzlement is
also evident. Here the funds meant for the payment of retirement benefits are
carted away and/or misappropriated. By this means both the pensioners and the
government are cheated.

The enormous impression about
retirement and pension which is fast gaining a higher dimension in the circle
of those about to retire is a major focus of this study more-so to suggest ways
forward the amelioration of sufferings of the retirees and channel the burden
into government through a functional approach.


1.3       Objectives of the Study

Considering the prevailing problems on
asset retirement obligation in the upstream petroleum industry, the researcher
develops the will enable proffering solutions. Specifically, these objectives

To examine
asset retirement obligation in the Nigerian upstream petroleum industry

To identify
the objectives of asset retirement obligation in Nigeria

determine the challenges of asset retirement obligation in Nigeria

To assess
the legal framework for asset retirement obligation in Nigeria

1.4       Research Question

For the importance of having a guide for
the entire research work and to have a bearing on finding solution to the
problems identified, important questions have been raised based on the
objectives above. Which are; 

What is
asset retirement obligation in upstream petroleum industry?

What are
the objectives of asset retirement obligation in Nigeria?

What are
the challenges of asset retirement obligation in Nigeria?

What are
the legal frameworks for asset retirement obligation in Nigeria?

1.5       Scope of the Study

research work centers around the concept of asset retirement obligation in
upstream petroleum industry in Nigeria. The study is conducted in Kaduna
Refinery & Petrochemical Company (KRPC) Kaduna. The researcher restricts
the work on selected divisions and departments that are relevant to the subject
matter.  These units and departments
include Finance, corporate investment and other departments related to the
study. The choice of these departments is due to relevancy to asset retirement
obligation. Thus, this study covers theoretical areas such as: The concept of
asset retirement obligation; framework of exploration and evaluation of
petroleum resource; development of accounting policies in upstream activities,

1.6       Significance of the Study

As a test of knowledge, this project
will help the researcher with the more understanding and the intrigues on the
subject matter, and it is a pre-requisite for the qualification for the award
of BSc at Bayero University Kano.

As a guide, the study will help future
researchers, students, and institutions to develop theories and take actions on
any future related problems associated with asset retirement obligation in
Nigeria, make reliable suggestion on how asset retirement obligation.

1.7       Definition of Terms

Petroleum: A flammable liquid raging in color from clear to very dark brown
and black, consisting mainly of hydrocarbons, occurring naturally in deposits
under earth surface.

Upstream: Involving exploration and pre-production of crude oil rather than
refining and selling.

Asset: Any component, model, process or framework of value that can be
leveraged or reused.

Retirement: to withdraw from a public service, work or from a business.

Unitization: Process whereby owners of adjoining properties allocate reserves,
production, costs, etc.

Unproved Reserves:  Unproved reserves are based on
geologic and/or engineering data similar to that used in estimates of proved
reserves; but technical, contractual, economic, or regulatory uncertainties
preclude such reserves being classified as proved. Unproved reserves may be
further classified as probable reserves and possible reserves. Unproved
reserves may be estimated assuming future economic conditions different from
those prevailing at the time of the estimate. The effect of possible future improvements
in economic conditions and technological developments can be expressed by
allocating appropriate quantities of reserves to the probable and possible

Unrecoverable Resources: The portion of discovered or undiscovered petroleum-initially-in-place
quantities not currently considered to be recoverable.  A portion of these
quantities may become recoverable in the future as commercial circumstances
change, technological developments occur, or addition data is acquired.

Revenue Sharing Contract: Revenue-sharing contracts are very similar to the production-sharing
contracts described earlier, with the exception of contractor payment. With
these contracts, the contractor usually receives a defined share of revenue
rather than a share of the production.

Reversionary Interest: The right of future possession of an interest in a property when a
specified condition has been met.

Risk: The
probability of loss or failure.  As “risk” is generally associated with
the negative outcome, the term “chance” is preferred for general usage to
describe the probability of a discrete event occurring.