In a significant legal and economic development, President Bola Ahmed Tinubu signed a new Executive Order titled the Upstream Petroleum Operations Cost Efficiency Incentives Order 2025.
This Order introduces a framework of tax reliefs and regulatory waivers aimed at boosting investment and reducing operational costs in Nigeria’s oil and gas sector.
With global competition for energy investments becoming more intense and Nigeria facing declining production and revenue challenges, this move signals a bold attempt to revitalize the country’s upstream petroleum industry through legal reform.
According to the new Order signed into law in May 2025:
- Tax Credit for Cost Savings:
Oil companies that reduce their operating expenses below an industry benchmark may qualify for a tax credit of up to 20% of their annual tax liability.
- Waivers on Pre-Export Inspection Fees:
Licensed exporters of crude oil are now exempt from pre-shipment inspection fees, thereby streamlining export logistics.
- Simplified Contracting and Licensing:
The Order mandates the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Federal Inland Revenue Service (FIRS) to expedite approval timelines and simplify compliance for upstream operators.
- Regulatory Collaboration:
The Executive Order directs all relevant agencies—including the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA)—to harmonize standards and avoid bureaucratic duplication.
LEGAL IMPLICATIONS
- Use of Executive Orders in Nigeria
Under Nigeria’s constitutional structure, the President may issue Executive Orders to direct the operations of government agencies and implement existing laws more efficiently.
This Order draws its strength primarily from the Petroleum Industry Act, 2021 (PIA) and the Companies Income Tax Act (CITA).
While the Order does not create new laws, it reinterprets existing regulatory and tax frameworks to give upstream operators temporary relief and commercial incentives.
- Tax Law Flexibility and Precedent
By offering a tax credit, the Order operates within the flexibility permitted under CITA and the Fiscal Responsibility Act. However, questions may arise around:
Equal treatment: Will smaller players get the same opportunity as multinational operators? Legal certainty: Are the criteria for cost efficiency clearly defined? Duration and enforceability: How long will the incentives last, and can they be challenged in court?
- Impact on Revenue and Compliance
While the tax breaks are meant to attract new investment and make production more profitable, critics argue that short-term revenue losses may hurt the federal budget. Legal experts also warn of potential abuse or misreporting by companies trying to qualify for the tax credits.
WHY THIS MATTERS
Nigeria’s oil sector is grappling with:
- High production costs (among the highest globally at over \$20 per barrel).
- Declining crude output due to pipeline theft, insecurity, and regulatory bottlenecks.
- Investor flight to more stable or efficient jurisdictions.
By reducing the cost burden, the Executive Order attempts to reposition Nigeria as a viable and competitive destination for petroleum investment.
- Legal Practitioners: Should advise oil and gas clients on how to structure their operations to qualify under the new incentive regime.
- Regulatory Agencies: Must provide clear guidelines and conduct transparent audits to verify claims of cost efficiency.
- Civil Society and Policy Experts: Should monitor the implementation to ensure that these incentives do not widen inequality in the industry or encourage regulatory capture.
This Executive Order represents a policy shift toward legal pragmatism using regulatory tools to incentivize investment without overhauling existing laws. It is an example of how executive discretion and legal reform can intersect to shape economic direction.
However, success will depend on transparent enforcement, inter-agency coordination, and ongoing legal scrutiny.
