Nigerian President Bola Tinubu has signed an Executive Order –  “Upstream Petroleum Operations, Cost Efficiency Incentives Order, 2025” that will result in reducing the high operating costs in the Nigerian oil and gas industry.

In a statement issued on Thursday by the Office of the Special Adviser to the Nigerian President on Energy, the Government said that the directive introduces far-reaching fiscal reforms that prioritise cost-efficiency, operational accountability and national value retention.

The other benefits, according to the statement include 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.

Others are 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.

The executive order noted that the high operating costs in the Nigerian oil and gas sector has been due to prolonged project execution and local content requirements and that the order applies to lessees, licensees and their contractors operating in the upstream petroleum sector.

It added that the incentives specified under paragraphs 4 and 5 of this Order shall be accessible to lessees, licensees and their contractors who achieve or exceed cost reduction targets as determined by the Nigerian Upstream Petroleum Regulatory Commission.

It explained that the Commission shall on an annual basis, 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; determine the cost benchmarks in accordance with guidelines issued by the Commission pursuant to the Petroleum Industry Act, provided that prior to the issuance of guidelines, the Commission shall consult with relevant stakeholders and publish the underlying methodology for the annual benchmarking; (c) with the objective of reducing the overall cost profile of petroleum operations, annually assign specific Unit Operating Cost reduction targets for each terrain, taking into consideration the peculiarities of their operating environment and production volume; and (d) conduct annual reviews within the tax return cycle of the lessee’s or licensee’s performance with the key assessment metric being the Unit Operating Costs to determine adherence to set targets.

‘’For the purpose of determining adherence to cost reduction targets, the Commission shall verify production numbers during the annual review process; and (b) reconcile the production and lifting volumes to prevent discrepancies arising from under-lift or over-lift circumstances.

‘’Pursuant to sub-paragraph (1)(c) of this paragraph, a lessee or licensee who achieves or surpasses its operating cost reduction targets shall be eligible for the cost efficiency incentives for the year in which the cost reduction target was achieved,” it said.

In addition, the Commission shall forward the list of qualified companies eligible for the cost efficiency incentives to the Service for their information, and provide a copy to the Minister, pending when the lessee or licensee makes a formal claim for the incentives..

“For any licence or lease where petroleum is being produced and operations are efficiently managed, such that, in any financial year, the actual costs incurred are below the cost targets set by the Commission, the company shall be eligible to claim a tax credit, which shall represent a proportion of the incremental government share resulting from the reduced costs relative to the established targets,’’ it added.

GIK/APA