The Nigerian government has launched a new initiative to reduce high operating costs and boost revenue in the country’s upstream oil and gas sector.
President Bola Tinubu signed the Upstream Petroleum Operations (Cost Efficiency Incentive) Order 2025 in April, but implementation is likely to start in the second half of the year.
The Order introduces a Cost Efficiency Incentive (CEI) framework that is aimed at encouraging oil companies to lower their operating costs and improve efficiency.
The policy offers tax credits to oil and gas companies that meet or beat cost reduction targets set by regulators. It also aims to shorten project execution timelines and promote discipline in how companies spend money.
“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,” said Mrs. Olu Verheijen, Special Adviser to the President on Energy.
“With this reform, we are rewarding efficiency, strengthening investor confidence, and ultimately delivering greater value to the Nigerian people.”
The Order applies to oil companies with leases and licenses (lessees and licensees) as well as their contractors.
It is designed to make Nigeria’s upstream oil operations more attractive to investors.
Under the new framework, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) will conduct annual reviews of company performance.
It will set cost targets for different terrains (onshore, shallow water, deep offshore), and only companies that achieve lower actual operating costs (AOC) than these target operating costs (TOC) will be eligible for tax credits.
However, there are limits:
- Tax credits can cover only up to 20% of a company’s tax bill each year.
- Only up to 50% of verified cost savings can be converted to tax incentives.
- Credits are valid for three years and expire after May 31, 2035, unless extended.
Importantly, companies will not be rewarded for cost cuts that come from unethical practices — such as underpaying workers or shortchanging communities.
“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,” said President Tinubu.
To start implementation, the President has directed NUPRC and the Federal Inland Revenue Service (FIRS) to release detailed guidelines by the end of May.
The executive order fits into the broader reforms of the Petroleum Industry Act (PIA), and is the latest in a series of key actions by the current administration to transform Nigeria’s oil sector.