* To return 50% of incremental cost savings to investors 

*Set to cut project costs, caps tax credit at 20%

Emmanuel Addeh in Abuja

As a follow-up to his recent efforts to raise crude oil production and attract investment to the oil and gas sector, President Bola Tinubu has issued a new Executive Order which seeks to lower project costs, attract more investors, and enhance revenues from operations in the sector.

In the new Order, 50 per cent of incremental government gain resulting from cost savings will be returned to investors, while available tax credits have been capped at 20 per cent of a company’s annual tax liability.

The document which was made public by the office of the Special Adviser to the President on Energy, Olu Verheijen, indicated that the move, while protecting government revenues, also offers strong fiscal terms to incentivise efficient operators.

This comes after recent announcement that the country had attracted over $8 billion in investments for deepwater oil and gas projects within a year, marking a significant turnaround in the sector. This was also attributed to reforms implemented under Tinubu’s administration.  Verheijen had announced this development at the 2025 Africa CEO Forum in Abidjan, Côte d’Ivoire, highlighting that the investments stemmed from Final Investment Decisions (FIDs) in deepwater and gas projects, such as the Bonga North (Shell), and Ubeta (Total Energies), among others.

Nigeria has one of the highest costs per barrel of oil worldwide,  ranking significantly above many of its peers, especially within the Organisation of Petroleum Exporting Countries (OPEC) and Africa.

Nigeria’s average cost of production per barrel ranges between $25 to $48, depending on the field, security situation, and operational efficiencies. In contrast, low-cost producers like Saudi Arabia and Iraq have production costs closer to $3 to $10 per barrel, thanks to large, shallow fields, better infrastructure, and fewer security concerns.

Aside from these, bureaucratic hurdles have been blamed as another source of high costs, with multiple agencies and frequent policy shifts that create uncertainty and delays. Added to those are procurement and contracting issues as well as local content requirements.

While some of these policies aim to build long-term domestic capability, they can be expensive in the short term, some operators say.
But the document titled: “The Upstream Petroleum Operations Cost Efficiency Incentives Order (2025)” now introduces performance-based tax incentives for upstream operators who deliver verifiable cost savings that meet defined industry benchmarks.

According to the new Order, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) will publish these benchmarks annually according to terrain—onshore, shallow water, and deep offshore. Additionally, detailed implementation guidelines for the new Order will be issued in due course.
Since assuming office in May 2023, Tinubu has implemented several significant reforms in Nigeria’s oil and gas sector aimed at enhancing efficiency, attracting investment, and combating systemic challenges.

They include: The Oil and Gas Companies (Tax Incentives, Exemption, Remission, etc.) Order, 2024;  Presidential Directive on Local Content Compliance Requirements, 2024 and Presidential Directive on Reduction of Petroleum Sector Contracting Costs and Timelines, 2024, aimed at increasing the contract approval threshold to $10 million.

Part of the Executive Order Read: “Whereas, the operating costs in the Nigerian oil and gas sector have been observed to be high compared to global average, arising mainly from prolonged project execution timelines and local content requirements.

“Whereas, the President has in response to the high operating costs, issued policy directives on the reduction of oil and gas sector operating costs, contracting timelines and local content compliance requirements.

“Whereas, the Federal Government of Nigeria is committed to efficient management of petroleum resources and reduction of costs in upstream petroleum operations to enhance competitiveness and efficiency; and whereas, it has become necessary to provide additional measures to promote fiscal discipline, reduce operating costs and maximise Nigeria’s economic gains from the upstream petroleum operations through monitoring mechanisms and appropriate regime of incentives.

“Now therefore, in exercise of the powers conferred on me by section… make the following Order. The objective of this Order is to establish a Cost Efficiency Incentive Objective (CEI) framework aimed at improving efficiency and enhancing Nigeria’s competitiveness in the global oil and gas sector by:

“Reducing operating costs in the upstream petroleum operations through achievable cost reduction measures, strategies and targets;  promoting cost discipline among stakeholders in the upstream petroleum operations; improving operational performance and streamlining contract cycles; maximising economic value from the oil and gas sector; and offering tax incentives to companies which achieve or surpass cost reduction targets.”

Tinubu stated that the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) on an annual basis, will conduct an assessment and benchmarking study to establish appropriate cost benchmarks for upstream operational activities and unit operating costs for onshore, shallow water, and deep offshore terrains.
Besides, the President stated that companies shall receive tax credits for realised savings directly linked to their operating costs and production volume in line.
Tinubu stated that the move aims to progressively eliminate the cost premium in Nigeria’s oil and gas sector and establish targets that drive year-on-year improvements in cost efficiency.

“Notwithstanding any other provision of this Order, the tax credit claimable in any given year shall not exceed 20 per cent of a lessee or licensee tax liability for that year,” he added.

To ensure effective implementation of the new Order, the President tasked the Special Adviser on Energy, Verheijen, to lead inter-agency coordination, ensuring alignment across key government institutions and translating policy intent into measurable outcomes.

“Nigeria must attract investment inflows, not out of charity, but because investors are convinced of real and enduring value. This Order is a signal to the world: we are building an oil and gas sector that is efficient, competitive, and works for all Nigerians. It is about securing our future, creating jobs, and making every barrel count,” Tinubu added.

In her remarks, Verheijen noted that with the reform, Nigeria is rewarding efficiency and strengthening investor confidence.

“This is not a pursuit of cost reduction for its own sake. It is a deliberate strategy to position Nigeria’s upstream sector as globally competitive and fiscally resilient. With this reform, we are rewarding efficiency, strengthening investor confidence, and ultimately delivering greater value to the Nigerian people,” he stated.
Meanwhile, the African Energy Chamber (AEC) has commended the Nigerian government’s continued commitment to not only improving the operating climate for oil and gas firms, but strengthening the competitiveness of doing business in Nigeria.

Led by the Executive Chairman of the AEC, NJ Ayuk, the organisation described the move as an intentional strategy to transform the country, noting that with this reform, Nigeria is well-positioned to attract fresh investment across its upstream oil and gas sector – reaffirming the country’s position as one of Africa’s top producers.

“The executive order could not come at a better time for Nigeria. Targeting 2 million barrels per day (bpd) in oil production and 12 billion standard cubic feet per day (bscf/d) in gas production – up from the current 7.3 bscf/d , Nigeria requires significant levels of investment in both active fields and exploration blocks.
“While the country has long-faced investment decline owing to a variety of factors – including regulatory uncertainty and shifts in global spending – recent reforms promise to turn this trend around. The Upstream Petroleum Operations Cost Efficiency Incentives Order (2025) follows the implementation of the Petroleum Industry Act (PIA) in 2021, which sought to address industry challenges by providing a comprehensive framework for the country’s oil and gas landscape. With both policies, Nigeria is expected to accelerate investment in exploration and production.

“The impact of the PIA has already been felt across the country, with energy companies – from majors to independents to the national oil company – making sizable investments,” Ayuk added.