Efficiency Over Entitlement: Nigeria's New Oil Sector Directive Aims to Slash Costs and Attract Investment

In a bold policy shift aimed at reshaping Nigeria's oil and gas investment climate, President Bola Ahmed Tinubu has signed a landmark Executive Order that directly links tax incentives to verified cost savings across the upstream petroleum value chain. Titled the Upstream Petroleum Operations (Cost Efficiency Incentives) Order, 2025, the reform introduces performance-based fiscal relief to reward efficient operators—signaling a new era of disciplined, results-oriented governance in Africa’s largest oil-producing nation.

- Our Abuja Reporter

“This is not cost-cutting for its own sake,” said Special Adviser on Energy, Olu Verheijen. “It is a deliberate strategy to position Nigeria's upstream sector as globally competitive and fiscally resilient.”

Reform with Teeth

At the core of the directive is a Cost Efficiency Incentive (CEI) framework that sets defined cost benchmarks annually, differentiated by terrain— onshore, shallow water, and deep offshore. Operators who meet or exceed these targets are entitled to tax credits of up to 20% of their annual tax liabilities. The policy aims to curb a long- standing trend of inflated costs in Nigeria’s upstream sector— driven largely by sluggish project execution, complex contracting cycles, and opaque local content enforcement.

Under the Order, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) will assume a proactive role: setting cost targets, validating operator performance, and ensuring transparency in how savings are measured. Importantly, the credits are tied to actual operating efficiencies, not arbitrary filings— only verifiable reductions in unit operating costs (UOC) will qualify.

A Formula for Fiscal Discipline

For the first time, a publicly governed formula determines the incentive:

CEI = (TOC — AOC) x V x RTR × 50%

Where:

• TOC = Target Operating Cost

• AOC = Actual Operating Cost

• V = Fiscal Sales Volume