President Bola Tinubu has enacted the Upstream Petroleum Operations Cost Efficiency Incentives Order 2025, in a move aimed at revitalising Nigeria’s oil and gas industry.
This executive directive introduces a performance-based tax incentive framework aimed at enhancing operational efficiency and attracting investment into the sector.
Key features of executive order
The directive offers tax credits of up to 20 percent of annual tax obligations to upstream operators who demonstrate verifiable cost reductions in their operations.
These savings must align with industry-recognised benchmarks and apply across onshore, shallow water, and deep offshore fields. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) is tasked with publishing annual cost benchmarks to guide operators in achieving these efficiencies.
President Tinubu emphasised that this initiative is part of a broader effort to create a more competitive and efficient oil and gas industry that benefits all Nigerians.
Analysts note that the success of this policy will depend largely on the effective coordination among government agencies to implement the reforms.
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“President Tinubu referred in the announcement to the importance of alignment between government agencies. Succeed there and this could be highly significant towards improving Nigeria’s investment appeal,” said Clementine Wallop, director for sub-Saharan Africa at Horizon Engage, told Reuters.
Building on previous reforms
This executive order builds upon earlier reforms introduced in 2024, which included fiscal incentives for non-associated gas, midstream, and deepwater developments, as well as streamlining contracting processes to compress the contracting cycle to six months.
These measures have encouraged some producers to re-engage with existing projects, although investments in new fields have yet to materialise.
Implications for the Oil and Gas Sector
The introduction of performance-based tax incentives aims to address the high operational costs that have historically deterred investment in Nigeria’s oil sector. By linking tax relief to demonstrable cost savings, the government seeks to encourage operators to adopt more efficient practices and technologies. This approach is expected to enhance the competitiveness of Nigerian oil operations on the global stage.
Furthermore, the directive is designed to attract both local and international investors by providing a clearer and more predictable regulatory environment. The NUPRC’s role in setting and monitoring cost benchmarks will be crucial in ensuring that the incentives lead to genuine improvements in efficiency.
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Challenges and Considerations
While the executive order presents a forward-thinking approach to enhancing sector efficiency, its success hinges on several factors. Effective implementation will require robust monitoring mechanisms to verify cost savings and ensure compliance with the established benchmarks.
Additionally, the coordination between various government agencies, including the NUPRC and the Ministry of Petroleum Resources, will be vital to streamline processes and reduce bureaucratic delays.
Moreover, the broader economic context, including global oil price fluctuations and domestic factors such as security and infrastructure challenges, will influence the effectiveness of these reforms.
Experts said that while the executive order lays a strong foundation for improving efficiency and attracting investment, its impact will depend on the comprehensive and coordinated efforts of all stakeholders involved.
