INTRODUCTION
On May 29, 2025, President Bola Ahmed Tinubu signed the Nigerian Upstream Petroleum Operations (Cost Efficiency Incentives) Order, 2025 (the "Order"), which has a retroactive commencement date of April 30, 2025. This Order aims to tackle one of the most persistent challenges in the upstream sector: excessive and inefficient operating costs.
Nigeria's upstream operations have faced issues such as production delays, political interference, inefficient workflows, fiscally negligent procurement processes, amongst others, all of which contribute to rising operating costs. Rather than imposing punitive measures, the Order introduces a performance-based incentive regime. Under this framework, companies that can demonstrate cost-effective operations by meeting or spending below the benchmark Unit Operating Costs ("UOC") set annually by the Nigeria Upstream Petroleum Regulatory Commission ("NUPRC") will be rewarded with tax credits. This newsletter outlines the key highlights of the Order for upstream companies.
Overview of the Order
The Order applies to licensees, lessees, and contractors involved in upstream petroleum operations across onshore, shallow water, and deep offshore terrains. Aimed at promoting cost discipline and operational efficiency, streamlining contract cycles and maximizing sector value. The Order incentivizes upstream companies ( the "Companies") that achieve or surpass cost efficiency benchmarks set by NUPRC annually, which shall be published on NUPRC's website within 90 days of the start of each year. NUPRC in collaboration with the Federal Inland Revenue Service ( "FIRS") is to issue implementation guidelines within thirty (30) days of the effective date of the Order. These guidelines will establish a transparent evaluation framework for the benchmarks, data requirements for annual cost efficiency, evaluation of upstream companies, qualifying company lists for each year, and incentive computation details.
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