Nigeria operates a federal system of government.

Section 44 (3) of the Nigerian Constitution provides that “the entire property in and control of all minerals, mineral oils and natural gas in, under or upon any land in Nigeria or in, under or upon the territorial waters and Exclusive Economic Zone of Nigeria shall vest in the Government of the Federation” (not the Federal Government of Nigeria or the government of a state in Nigeria).

Similarly, Section 1 of the Petroleum Industry Act 2021 (PIA) provides that “the property and ownership of petroleum within Nigeria and its territorial waters, continental shelf and exclusive economic zone is vested in the Government of the Federation of Nigeria”.

Being a coastal state, all petroleum resources in Nigeria’s territorial waters, continental shelf and the exclusive economic zone are also vested in the Federal Government of the Federation. Sub-national state governments do not own mineral/petroleum resources in Nigeria.

Under Nigerian law, while there is private ownership of surface land, there is no private ownership of hydrocarbon resources in subsurface land. Under the PIA, there is private ownership of mineral operating and producing rights to explore and produce crude oil and natural gas resources by virtue of Section 73 (3) of the PIA. These mineral ownership rights, however, exist at the well head.

Despite its general renown as a crude oil producer, Nigeria is actually a gas territory with a relatively small amount of oil. Previously, under the old dispensation in the Petroleum Act, the Department of Petroleum Resources (DPR) regulated the country’s upstream, midstream and downstream activities. The DPR was, however, not a juristic or modern regulatory body. Under the new PIA, the Nigerian Upstream Petroleum Regulatory Commission (the “Commission”) and the Nigeria Midstream and Downstream Petroleum Regulatory Authority (the “Authority”) were created as modern regulators with juristic personality. The industry is divided into upstream, which is regulated commercially and technically by the Commission, and midstream and downstream, which are regulated by the Authority. These bodies make regulations for the streams they each regulate.

The Minister of Petroleum Resources (the “Minister”) formulates and administers government policy in the industry and grants rights, revokes them, renews them and approves their transfer on recommendation of the Commission. The Commission is allowed to grant petroleum exploration rights and their transfer, while the Authority is allowed to grant licences and permits for use in the midstream and downstream, except where they relate to the establishment of refineries.

The Nigerian National Petroleum Company Limited (NNPCL) is the national oil and gas company.

The National Assembly has exclusive competence to make laws for the management of the country’s hydrocarbon resources. On account of this, the PIA was passed. It is the principal law that deals with all petroleum, both onshore and offshore. It is supported by a number of primary laws such as the Nigerian Oil and Gas Industry Content Development Act, Act No 2, 2010, which promotes Nigerian content in the oil and gas industry.

There are also a number of regulations such as the Midstream and Downstream Petroleum Operations Regulations, Petroleum (Transportation and Shipment) Regulations, Domestic Gas Delivery Regulations, Production Curtailment and Domestic Crude Oil Supply Obligation Regulations, Assignment and Transfer of Licences and Permits Regulations, and Petroleum Safety Regulations.

It should be noted that the Petroleum Industry Act (Amendment) Bill 2021 has been introduced and seeks to amend aspects of the PIA.

Pooling and Unitisation

The PIA provides that a licensee or lessee shall promptly notify the Commission of any petroleum reservoir which extends beyond the boundary of its licence/lease area. The Commission may direct the applicable licensees/lessees to enter into a unit/unitisation agreement to develop the petroleum reservoir as a unit.

By Section 73 (3) of the PIA, the operational rights to explore for and produce Nigeria’s oil and gas are granted to companies incorporated in Nigeria by the Minister upon recommendation of the Commission in the form of a Petroleum Exploration Licence, Petroleum Prospecting Licence or Petroleum Mining Lease. An investor may participate through any of the following contractual models:

• production sharing contracts (PSCs);
• joint venture agreements (JVA);
• service contracts; and
• concession contracts.

Upstream rights that allow for production of oil and gas are divided into (a) Petroleum Exploration Licence (PEL); (b) Petroleum Prospecting Licence (PPL); and (c) Petroleum Mining Lease (PML).

A PEL is granted to any qualified persons and confers on the licence holder a non-exclusive right to carry out petroleum exploration operations but not the right to extract or otherwise treat any petroleum discovered. A PPL is obtained through a fair, transparent and competitive and non-discriminatory bid process conducted by the Commission.

The winning bid is determined on the basis of a single bid parameter based on a combination of any of the following requirements:

• signature bonus to be paid in full prior to the granting of the licence or lease by or on behalf of the winning bidder;
• a royalty interest;
• a profit split or profit oil split;
• a work programme commitment during the initial exploration period; or
• any other requirement as may be defined specific to a bid round.

The commitment shall be supported by a bank guarantee, letter of credit or performance bond issued by a bank acceptable to the Commission for an amount determined by the Commission. The successful bidder shall be selected based on a combination of the above-specified bid requirements, aggregated by a points system which bidders can also assess.

The Commission recommends the winning bid to the Minister, for an award of a PPL. The Minister is required to respond within 90 days of application. Also, the Federal Government may award a person a PPL based on a multilateral or bilateral treaty that Nigeria has concluded. A signature bonus payable for awards shall be based on a transparent method for evaluating an acreage.

A PML may be granted by the bid process described above over a previously appraised area already covered by a PPL or a surrendered, relinquished or revoked PML.

For each commercial discovery of oil or gas, a PML is also granted to an approved PPL licensee with a field development plan and satisfaction of all conditions. The area to be derived from a PPL for the purpose of a PML award shall be proposed by the licensee based on an independent engineering report, which shall not be binding on the Commission. Though oil production licences (OPLs) and oil mining leases (OMLs) have similar terms to the PPL and PML, respectively, and were issued under the previous Petroleum Act regime, they will no longer be issued by the Commission, and all existing OPLs and OMLs that were not voluntarily converted to PPLs and PMLs will remain in force until their terms expire.

The fiscal terms provided in the PIA include the following:

Rents: Every petroleum prospecting licence and petroleum mining lease shall be subject to rent as prescribed in the relevant regulation, and the rent shall be an amount per hectare each year.

Signature bonus: This is a fee paid in full prior to the granting of the PPL or PML.

Taxes: Companies in onshore and shallow water areas are required to pay hydrocarbon tax. Section 260 (5) of the PIA provides that upstream petroleum operations shall also be subject to Companies Income Tax.

Royalties: All production of petroleum, including production tests, is subject to a royalty, payable monthly at applicable rates. Royalty rates depend on the terrain of the licensed or leased area and may be based either on production or on the price of oil. Frontier acreages are exempted from price-based royalties.

Production-based royalty for oil and condensates:

• onshore areas and shallow water (up to 200m depth) – first 5,000 barrels of oil per day (bopd) – 5%;

• onshore areas and shallow water (up to 200m depth) – next 5,000 bopd – 7.5%;

• onshore areas – any quantity above 10,000 bopd – 15%;
• shallow water (up to 200m depth) – any quantity above 10,000 bopd – 12.5%;
• deep offshore (greater than 200m depth) – 50,000 bopd or less – 5%;
• deep offshore (greater than 200m depth) – over 50,000 bopd – 7.5%; and
• frontier basin – any quantity – 7.5%.

Price-based royalty for crude oil and condensates:

• price below USD50 per barrel – 0%;
• price at USD100 per barrel – 5%;
• price at USD150 per barrel – 10%; and
• price between USD50 and USD100 per barrel or between USD100 and USD150 per barrel – linear interpolation.

The royalty for gas and gas liquids utilised in-country is 2.5% of the chargeable volume, while the royalty for export gas is 5% of the chargeable volume.

Hydrocarbon Tax (HT)

This tax applies solely to oil, field condensates and liquid, gas liquids from associated gas and produced in fields covered by PMLs and PPLs. It is payable by upstream companies operating in onshore and shallow water areas at the varied rates of 15% or 30%.

Companies Income Tax (CIT)

This tax is levied under Companies Income Tax Act, as amended, and payable by a company involved in upstream, midstream or downstream operations. The CIT rate is 30% of chargeable income payable on an actual year basis.

Petroleum Profits Tax (PPT)

PPT continues to apply to OMLs and OPLs that have not been converted to PPLs or PMLs. The principal PPT rate is 85% with the following exceptions:

• for newly licensed/leased companies within their first five years of operation – 65.75%; and
• for deep offshore profits – 50%.

Value Added Tax (VAT)

VAT is payable pursuant to the VAT Act, 2004, as amended. The tax is a consumption tax at the rate of 7.5%. It is required to be remitted to the tax authorities by companies involved in upstream operations that receive services from foreign companies.

Tertiary Education Tax (TET)

TET is imposed at the rate of 3% of assessable profit on all categories of companies (upstream, midstream and downstream companies).

Niger Delta Development Commission Levy

All oil producing and gas processing companies operating onshore and offshore in the Niger Delta area are required to pay 3% of their total annual budget, excluding the cost of feed gas.

Right to Participate

As mentioned above, Nigeria’s hydrocarbon resources are not regulated at state level. By the provision of Section 85 (4) (a) (b) of the PIA, a concession agreement for exploration, development and production of petroleum shall include a provision allowing the government through NNPCL to participate up to 60% in the contract upon the grant of the licence.

Right of First Refusal

Where the Commission resolves that data acquired under a Petroleum Exploration Licence requires testing and drilling of identifiable prospects, and no commercial entity has publicly expressed an intention of testing or drilling such prospects, the Commission shall request the services of NNPCL to drill or test such prospects on a service fee basis. Where a commercial discovery is made in the course of rendering these services, NNPCL has the right of first refusal in the award of the acreage for subsequent development and other petroleum operations in such frontier acreages under the PIA.

The Nigeria Oil and Gas Industry Content Development Act 2010 (the “Act”) was enacted to promote indigenous participation and the development of Nigerian content in the Nigerian oil and gas industry. The Act mandates that all entities involved in the Nigerian oil and gas industry prioritise Nigerian independent operators in their overall project development and management approach.

Section 2 of the Act provides that all regulatory authorities and entities involved in any activity in the Nigerian oil and gas industry must consider Nigerian content as “an important element of their overall project development and management philosophy”. Such entities are also required to submit a plan to ensure that first consideration shall be given to:

• goods manufactured in Nigeria and services provided from within Nigeria; and
• Nigerians for training and employment in the work programme for which the plan was submitted.

The PIA provides that a PPL holder shall commit to a work programme and other terms as the Commission shall determine. Once a PPL holder considers that a discovery merits appraisal, it shall inform the Commission and submit for approval within one year an appraisal programme of not more than three years with a scope permitting the licensee to declare a commercial discovery, where the result of the appraisal is positive.

The appraisal area must not be larger than the outer boundary of the discovery as determined by the licensee within its area.

Upon approval, the licensee may declare a commercial discovery or a significant gas/crude oil discovery, or inform the Commission that the discovery is of no interest to the licensee.

Discovery of No Interest

Where a licensee declares a no-interest discovery, the Commission may require the relinquishment of the parcels under such discovery.

Significant Discovery

In the event of a significant crude oil/gas discovery, the licensee is entitled to retain the area of such significant discovery for no more than ten years from the date of the declaration. Where the licensee has not declared a commercial discovery after the retention period, the retained area shall immediately be relinquished and the PPL shall expire.

Commercial Discovery

Within two years after declaration of a commercial discovery, the licensee shall submit a Field Development Plan (FDP) together with a commitment to carry out the work described in the FDP. The Commission shall evaluate the technical and commercial terms of the FDP based on the criteria set out in the PIA, and either approve the FDP or decline approval. Where the Commission fails to respond within 180 days, the FDP shall be deemed approved and a PML shall be granted upon the deemed approval of the FDP.

Petroleum Exploration Licence: The holder of a PEL has a non-exclusive right to carry out exploration within the area covered by the licence. The PEL is for a term of three years and renewable for an additional period of three years subject to the fulfilment of prescribed conditions. The right granted under a PEL does not include any right to win, extract, store, carry away, export or otherwise treat petroleum discovered.

Petroleum Prospecting Licence: The holder of a PPL has the exclusive right to drill and appraise wells and a non-exclusive right to carry out exploration within the area covered by the licence. The PPL also grants the holder the right to carry away and dispose of oil or gas extracted during the drilling or appraisal of wells as a result of production tests. A PPL is granted for a maximum period of six years (comprising an initial exploration period of three years and an operational period of three years) for onshore and shallow water. With respect to deep offshore acreages, the maximum duration is ten years, comprising an initial exploration of five years and optional extension of five years.       

Petroleum Mining Lease: The holder of a PML has the exclusive right to carry out the development and production of the petroleum with respect to the formations under the leased area. The PML also grants the holder an exclusive right to drill and appraise wells in the leased area and a non-exclusive right to carry out explorations. A PML is granted to a holder of a PPL that has satisfied the conditions imposed under the PIA and obtained approval from the Commission for the applicable field development. A PML is granted for a maximum period of 20 years, subject to renewal and satisfaction of its conditions.

Relinquishment

Licensees are mandated to relinquish every area that is not an appraisal area, retention area or lease area prior to the expiration of the term of the PPL. The PIA also mandates lessees to relinquish all parcels which do not fall within the boundary of a producing field, and any formation deeper than the deepest producing formation, after ten years from commencement of a PML. Upon conversion from an OML to a PML, the holder shall relinquish up to 60% of the leased area.

Surrender

A licensee or lessee may voluntarily surrender or relinquish part or whole of the licensed or leased area provided that the licensee or lessee has complied with obligations imposed by or incurred under the applicable licence or lease and has given three months’ notice in writing to the Commission prior to the surrender.

Revocation

The Minister may revoke a PPL or PML upon recommendation of the Commission where the licensee or lessee fails to fulfil the conditions of the licence or lease or the approved field development plan, among many other reasons.

Domestic Crude Oil Supply Obligations

The Commission has the power to allocate petroleum production quotas to curtail a lease holder’s export of oil. The Commission has the power to issue regulations for the imposition of domestic oil supply obligations on lessees. The Production Curtailment Regulations were issued by the Commission in 2023. According to these Regulations, where production for any given quarter falls below the allocated quota for that quarter, a lease holder shall first fulfil its obligations to supply to the domestic market before any export may be permitted by the Commission.

Domestic Gas Delivery Obligations (DGDOs)

The Commission has power to prescribe and allocate DGDOs among all lessees based on the domestic gas demand requirements determined by the Authority in accordance with the PIA. In addition to other penalties, a lessee that does not comply with its DGDOs shall not be entitled to supply natural gas to any new midstream gas export operations.

Any assignment, novation or transfer of a licence or an asset/right that involves a party that possesses a PPL or PML shall require the prior written consent of the Minister upon recommendation of the Commission. A change of control in the holder of a licence or lease shall be deemed to be an assignment. A change of control means “any person or persons acting jointly or in concert, to acquire direct or indirect beneficial ownership of a percentage of the voting power of the outstanding voting securities of the holder, by contract or otherwise, that exceeds 50% at any time” (Section 95 (14) of the PIA).

A licensee or lessee may, by way of security, wholly or partly assign, pledge, mortgage, charge or hypothecate its interests under the applicable licence or lease, or grant a security interest in respect of the interest, provided that the consent of the Commission is obtained. If the Minister does not communicate a decision within 60 days after the Commission’s recommendation, he or she is deemed to have granted the transfer.

The Minister may grant consent where the transferee:

• is a company incorporated in Nigeria;
• is of good reputation and standing;
• has sufficient technical knowledge, experience and financial resources to enable it to carry out, effectively, all responsibilities of a licensee/lessee under the PPL/PML; and
• complies with the Federal Competition and Consumer Protection Act (FCCPA).

Approval for transfers relating to a PEL are granted by the Commission. Also, the FCCPA empowers its own Commission to review and approve mergers, including in the petroleum industry.

Note that under the PIA, consent fees are payable for transfers.

Nigeria is a member of OPEC and subject to OPEC’s production quota. The Minister may order levels of oil or condensate production to be cut back in the context of international oil pricing agreements supported by Nigeria. Also, the Commission can, in conjunction with NNPCL, allocate production quotas for the purpose of curtailing export of petroleum.

Forms of Private Investment

Licences, permits and authorisations

A person shall not carry out midstream and downstream gas operations or midstream petroleum liquid operations without acquiring a licence from the Authority. These operations include the following:

• Establishment, construction and operation of a facility for the processing of and storage of natural gas
• Construction or operation of petrochemical or fertiliser plants
• Establishment, construction or operation of a crude oil refinery
• Bulk sale of petroleum liquids

The Midstream and Downstream Petroleum Operations Regulations 2023 provide for the mode of application for these licences and permits.

Acquisition of interests through assignment or transfer

An investor may also acquire equity stakes or shares in existing companies (including government entities) or projects involved in midstream and downstream operations, provided regulatory approvals (licences and permits) are obtained. This can be through transfer of licences or permits.

Joint ventures

It is not unusual for investors to form partnerships via a joint venture, which can be incorporated or unincorporated. Nigeria LNG Limited (NLNG) is an example of an incorporated joint venture. The joint venture could be entered into for the different operations in the industry, which include construction of pipelines, storage facilities and transportation systems.

Monopoly

There is no statutorily sanctioned monopoly on the part of either the government or private entities in the midstream and downstream sectors.

Gas transportation infrastructure owned by the Nigerian Gas Company (NGC) is used by shippers for conveying gas in compliance with the Nigerian Gas Transportation Network Code (NGTNC). Additionally, the NGTNC applies to other existing or future pipeline systems for gas transportation.

The NGTNC consists of a comprehensive set of regulations governing the transportation of gas. It establishes conditions for the standardised and open-access utilisation of gas transportation infrastructure.

The NGTNC establishes a contractual framework between the NGC – the sole pipeline operator currently licensed by the Authority under the NGTNC – and other entities involved in gas transportation through the pipeline systems. Its purpose is to ensure open access to the gas transportation network. Access to the pipeline system is granted through designated system entry points for gas delivery and system exit points for gas off-take.

The issuance of midstream and downstream licences does not require a bidding process. The process to obtain a midstream or downstream licence depends, however, on the type of licence.

An application for permit is made to the Authority together with payment of prescribed fees and in compliance with any other requirements prescribed by the Authority. Before an applicant can obtain a licence or permit from the Authority, the PIA and applicable regulations provide for requirements to submit different plans and documents which include a Nigeria content plan, environmental impact assessment reports, and a decommissioning and abandonment plan.

Upon issuance of the relevant permit or licence of approval, the Authority may impose requirements on the licensee, including bonds or any other performance guarantees.

Storage and Terminal Services Arrangements

These contracts relate to the use of storage facilities and terminal services for storing and handling petroleum products.

Processing Agreements

These are agreements whereby an oil processing company processes oil for an agreed fee.

Supply and Off-Take Arrangements

These define terms of supply and purchase of petroleum products among producers, refineries, marketers and end-users. They provide for product specifications, pricing mechanisms, delivery timetables, quality assurance protocols and payment conditions.

Transportation Arrangements

These arrangements are entered into between a producer and a buyer for the transportation of crude oil products using pipelines. They are also relevant for the transportation of petroleum (oil and gas) products to wholesalers and/or retailers.

Gas Sale Aggregation Agreements

These are agreements entered into by gas producers in fulfilment of their DGDOs.

Regulation of Fiscal Terms and Terms of Service

Typically, the terms of service in commercial agreements in the midstream and downstream sectors are established through mutually agreed contracts. However, specific operational aspects may be governed by pricing methodologies and tariffs.

Companies involved in midstream and downstream activities are also subject to CIT, TET and VAT.

Incentives

• Companies operating within areas designated as export processing or free trade zones enjoy a 100% income tax holiday for their activities within the zone.
• Companies engaged in domestic midstream or downstream gas operations and large-scale gas utilisation industries are entitled to benefit from incentives under the Companies Income Tax Act (CITA).
• Investors in gas pipelines are also entitled to an additional tax-free period of five years at the expiration of the tax-free period granted under the CITA.
• Pioneer status: The Industrial Development (Income Tax Relief) Act offers a tax holiday for up to five years to companies engaged in the refining of crude oil, gas production and the manufacture of refined petroleum products.
• Export incentives: Nigerian exporters can get an export credit certificate to the tune of 5–15% of their export, which can be used in the settlement of all government taxes.

While NNPCL has special rights with regard to upstream activities, there are no special rights for NNPCL in connection with midstream and downstream activities.

The local content requirements in the Nigerian Content Act apply to the entire petroleum operations.

Term and Renewal

Pursuant to the Midstream and Downstream Petroleum Operations Regulations 2023, a licence issued by virtue of the Regulations shall expire on 31 December of the year it was issued, except as otherwise stated in the licence. The Regulations also provide that where there is a modification of a facility with a change in capacity or product slate on or before 31 December, the subsisting licence shall become invalid, and a new licence shall be issued. However, a domestic gas aggregation licence shall be effective for a term of two years.

Renewal

An application for renewal of a licence, permit or authorisation shall be made not less than 30 days before the expiry of the original licence and in a manner prescribed by the Authority.

Domestic Supply Obligations

There are no specific domestic supply obligations in the midstream and downstream sectors. However, the PIA provides for national strategic stocks for petroleum products which the Authority shall determine and designate the operator of a storage facility to hold and maintain.

Exports

The Regulations provide that crude oil, condensates, liquid petroleum products and natural gas liquids shall not be exported from Nigeria without a valid Wholesale Petroleum Liquid Supply Licence from the Authority and an export permit from the customs authority.

Withdrawal/Surrender

A holder of a midstream and downstream licence may surrender a licence or permit where:

• the licensed or permitted activity is no longer required or not economically justifiable;
• another qualified person is willing and able to assume the rights and obligations of the holder; and
• the holder of the licence or permit has complied with the requirements of the law in respect of relinquishment, decommissioning and abandonment of installations and reclamation of land.

Abandonment

An application for the grant, renewal or extension of a licence or permit shall include a decommissioning and abandonment plan, where the construction of pipelines, storage tanks, processing or other facilities is contemplated. Without the inclusion of such a plan, the licence or permit shall not be granted.

Condemnation/Eminent Domain Rights

The Land Use Act (LUA) vests all land in the Governor of a subnational state, who administers it in trust on behalf of the people of that state. The LUA also empowers the Governor to revoke private land rights for overriding public interest, subject to the payment of compensation. Under the PIA, a licensee shall not exercise any rights conferred on it in relation to any land without paying “fair and adequate compensation” to the owner or person in lawful occupation of the land.

Surface Rights

Surface rights are reserved for the Authority in respect of midstream and downstream operations, and the same may be granted for a licence or permit. Accordingly, subject to any terms prescribed by the Authority, licensees or permit holders are entitled to surface rights such as rights of way and easements for their midstream or downstream operations.

Generally, transportation of hydrocarbons is regulated by the Authority. The Authority determines the appropriate tariff methodology for transportation of oil and transportation and transmission of gas. The Authority issues a gas transportation pipeline licence to a qualified person, upon approval and payment of the prescribed fees.

The transportation of hydrocarbons is governed by the PIA and the Petroleum (Transportation and Shipment) Regulations 2023. They regulate the transportation, loading, lifting, shipment and export of natural gas or its derivatives, petroleum liquids, petroleum products or any other form of petroleum liquids. These activities are subject to the terms and fees prescribed by the permits, licences or authorisations issued by the Authority.

There is no difference in regulatory treatment between intrastate and interstate pipeline systems.

The PIA has an elaborate regime for third-party access to oil and natural gas transportation pipelines and associated infrastructure. The Authority is expected to develop open access rules applicable to petroleum liquids and gas transportation pipelines, terminal facilities and bulk storage facilities in exercise of its functions.

The PIA imposes a further obligation on the Authority to ensure third-party access to facilities and pipelines for midstream and downstream operations where such facilities and pipelines are operated for the licensee’s own account and shall ensure open access where the facilities and pipelines are operated by the licensee on an open access basis. The PIA recognises third-party access rights and open access regime.

Also, where a licensee operates a facility on its own account, the Authority is empowered to mandate the licensee to grant third-party access to the facilities. However, where the licence is operated on an open access basis, the Authority is empowered to mandate the licensee to conduct its activities in a non-discriminatory manner.

Prohibitions on Same Entity Providing Service in Multiple Segments of the Market

Separate licences are issued for the transportation of gas and petroleum liquids. Where a company intends to provide services in multiple segments of the market, such company must register separate entities for each stream of its operation.

Persons who intend to sell petroleum products must obtain a licence from the Authority under the PIA and the Mainstream and Downstream Petroleum Operations Regulations.

Generally, there is no restriction on participation in different aspects of the petroleum value chain. This is subject to federal anti-competition laws and the requirement that an entity must not operate in both the upstream and midstream/downstream sectors.

Laws and regulations governing the export of crude oil, natural gas and petroleum products include:

• the PIA and its subsidiary legislation, which includes the Midstream and Downstream Petroleum Operations Regulations 2023;
• the Foreign Exchange Monitoring and Miscellaneous Provisions Act 1995 Cap. F34 LFN 2004;
• the Revised Foreign Exchange Manual 2018;
• the Customs, Excise Tariff, etc (Consolidation) Act 2004;
• the Nigerian Export Promotion Council Act Cap 306, LFN, 1990 as amended by Act No 64 of 1992;
• the Oil and Gas Export Free Zone Act 1996;
• the Nigerian Export Processing Zone Act 1992; and
• the Nigeria Customs Service Act 2023.

Authorisations

• Paragraph 35(2) of the Midstream and Downstream Petroleum Operations Regulations 2023 requires a person to obtain a valid wholesale petroleum liquid supply licence and an export permit from the Authority before exporting petroleum or petroleum products.
• Export approval: This will be obtained from the Nigerian Export Promotion Council, or where the applicant is operating within an export processing zone or free trade zone, the applicant will be required to follow custom procedures established by the relevant zone authority.
• Lifting Identification Number (LIN): In accordance with the Petroleum (Transportation and Shipment) Regulations, exporters of natural gas or its derivatives or any other form of petroleum liquids shall submit an Advance Lifting Schedule to the Authority and the Authority shall issue an LIN for the specific cargo to be exported.

There are also limitations with regard to domestic crude and gas delivery obligations.

Cross-Border Pipelines

Whilst the PIA or other laws do not provide for cross-border pipelines, cross-border pipelines are historically known to be negotiated between NNPCL and the foreign government or entity in question under international law.

Section 117 of the PIA and the Assignment of Transfer of Licence and Permit Regulations 2023 (ATLPR) regulate the transfer of midstream and downstream assets. A person who intends to assign or transfer a midstream/downstream asset, licence or permit must notify/submit an application to the Authority and seek its written consent prior to the assignment or transfer.

The ATLPR establish a procedure for the assignment or transfer and prescribe the fees for such transfer. The transferee of such assets is required to pay the fees contained in the schedule of the ATLPR, depending on the asset, or 5% of the value of the transaction, whichever is higher.

Process of Transfer

Under the ATLPR:

• The applicant/transferor shall forward to the Authority a notice of its intention to assign or transfer a licence.
• The Authority shall inform the applicant whether or not it may proceed to the next stage, within 21 days of receiving the notice, failing which the applicant may proceed.
• The transferee shall thereafter apply for assignment or transfer accompanied by the requisite documents, information and application fees. The Authority shall also communicate its decision within 90 days of the application, failing which the application shall be deemed approved.
• Where the application is refused, the Authority shall state its reason, and the applicant may make a further representation within 21 days of communication of the refusal.

The ATLPR provide that an assignment or transfer shall include assignment or transfer by:

• merger of two companies;
• acquisition of a company or asset; or
• exchange or transfer of shares, private placement or public listing.

The expression “foreign investment” is not defined in Nigerian laws. However, Section 868 of the Companies and Allied Matters Act (CAMA) defines a “foreign company” as one that is incorporated elsewhere than in Nigeria.

According to Section 78 of the CAMA, foreign companies must be incorporated in Nigeria to be able to carry on business in Nigeria. Section 70 (2) of the PIA also provides that a PEL, PPL or PML will only be granted to a company incorporated in Nigeria.

Incentives

By provision of Section 18 of the Oil and Gas Free Trade Zones Act, enterprises situated in an export free zone are entitled to the following incentives:

• repatriation of foreign capital investments in the export free zone at any time with capital appreciation of the investment;
• exemption from taxes, levies, duties and foreign exchange regulations otherwise applicable in Nigeria; and
• permission to employ foreign managers and qualified personnel without regard to local content requirements.

The Nigeria LNG (Fiscal Incentives, Guarantees and Assurances) Act also contains incentives for NLNG, which is an example of a foreign investment in Nigeria. The Nigeria Liquefied Natural Gas (Fiscal Incentives, Guarantees, and Assurances) Act (the “NLNG Act”) confers pioneer status on NLNG and exempts it from certain taxes, custom duties and other levies.

Section 24 (1) of the Nigeria Investment Promotion Commission Act (the “NIPC Act”) guarantees unconditional transferability of funds of a foreign investor through an authorised dealer, in freely convertible currency, of:

• dividends or profits (net of taxes) attributable to the investment;
• payments in respect of loan servicing where a foreign loan has been obtained; and
• the remittance of proceeds (net of all taxes), and other obligations in the event of a sale or liquidation of the enterprise or any interest attributable to the investment.

Protection Against Expropriation

Section 44 (1) of the Constitution precludes compulsory possession of movable property or interest in an immovable property in any part of Nigeria except in the manner and for the purposes prescribed by a law that requires prompt payment of compensation and right of access to a court of law or tribunal having jurisdiction in that part of Nigeria.

Also, Section 25 (1) of the NIPC Act provides that there shall be no nationalisation or expropriation of any enterprise by any Government of Nigeria and no investor shall be compelled by law to surrender his or her interests in the capital to someone else. However, an enterprise may be nationalised or expropriated where the acquisition is in the national interest or for a public purpose and under a law which provides for:

• payment of fair and adequate compensation; and
• a right of access to the courts for the determination of the investor’s interest or right and the amount of compensation to which he or she is entitled.

Availability of International Arbitration

Nigeria is a signatory to both the New York Convention and the International Centre for Settlement of Investment Disputes (ICSID) Convention. The two multilateral conventions allow foreign investors in Nigeria to avoid Nigerian domestic courts in favour of international commercial or investment arbitration. These conventions are domesticated in Nigeria through the International Centre for Settlement of Investment Disputes Act and the Arbitration and Mediation Act. Nigeria is also a signatory to African Continental Free Trade Agreement and about 30 bilateral investment treaties that protect the investments, services and trade of foreigners.

Section 26 of the NIPC Act provides that where there is a dispute between an investor and the Nigerian government, the ICSID Rules shall apply where the parties are unable to resolve through mutual discussion to reach an amicable settlement. 

There are no local trends to restrict or block foreign investment in hydrocarbons.

There are no sanctions in place with regard to investing in oil and gas assets in foreign jurisdictions.

PIA

The PIA provides that the Commission and Authority shall promote healthy and safe conduct of operations in a manner which is environmentally acceptable and sustainable. They are also charged with the responsibility of ensuring strict implementation of environmental policies, laws and regulations for petroleum operations. Accordingly, the Commission issued the Gas Flaring, Venting and Methane Emissions (Prevention of Waste and Pollution) Regulations 2023.

The PIA also requires a licensee or lessee to submit an environmental management plan in respect of projects which require an environmental impact assessment to the Commission or Authority for approval within six months after the grant of the licence or lease. Also, before the granting of a licence or a lease, the licensee or lessee is required to contribute to the environmental remediation fund established by the Commission or Authority, for the rehabilitation or management of negative environmental impacts with respect to the licence or lease. The yardsticks for determining the contribution are the size of the operations and the level of environmental risk that may exist (Section 103 of the PIA).

The PIA provides that a licence, lease or permit may be revoked where the holder has failed to comply with environmental obligations as required by law or the provisions of the licence, lease or permit. The PIA provides for decommissioning and abandonment to ensure the protection of the environment.

Environmental Impact Assessment (EIA) Act

This Act provides that public and private institutions shall, before embarking on a relevant project, apply to the National Environmental Standards and Regulations Enforcement Agency so that an EIA can be made before the activities are carried out. The objective of the EIA process is the search for the best option for the project in environmental and socio-economic terms.

National Oil Spill Detection and Response Agency (Establishment) Act 2006

The National Oil Spill Detection and Response Agency (NOSDRA) is responsible for preparedness for, detection of and response to all oil spillages in Nigeria. The objective of NOSDRA is to restore and preserve the environment by ensuring best oil storage and transmission practices in the exploration, production and use of oil in the quest to achieve sustainable development in Nigeria.

Oil in Navigable Waters Act

The Oil in Navigable Waters Act deals specifically and solely with the industrial waste generated by oil production. This legislation prohibits the discharge of oil from a Nigerian ship into the country’s territorial waters.

Environmental Guidelines and Standards for the Petroleum Industry in Nigeria

The Environmental Guidelines and Standards for the Petroleum Industry (EGASPIN) were promulgated by the Nigerian Department of Petroleum Resources, now the Commission. The primary strength of the EGASPIN is that they set out wide environmental standards and requirements that must be met by operators during project approval, operations, and closure or decommissioning phases. They identify three primary sources of pollution in the oil industry: oil spills, discharge of effluents, and gas flaring.

The EGASPIN were revised and updated in 2002, 2016 and 2018. With regard to oil spills, the EGASPIN require that oil companies commence cleanup within 24 hours of the occurrence of a spill. By the provisions of the EGASPIN, operators must conduct their cleanup efforts in a way that does not cause additional harm to the environment.

Please refer to 5.1 Environmental Laws and Environmental Regulator(s).

The EHS requirements are contained in the laws mentioned in 5.1 Environmental Laws and Environmental Regulator(s), the Guidelines and Procedures for Travel to Offshore/Swamp Locations and Obtainment of Offshore Permit.

Spill Contingency Plan

The EGASPIN require all oil and gas operators in Nigeria to develop and implement a spill contingency plan. The purpose of the plan is to outline pre-established measures and procedures to be taken in the event of an oil, gas, chemical or hazardous substance spill.

They cover aspects such as spill response, containment, cleanup, waste management and monitoring. The plan aims to ensure swift and effective response to spills, minimise their environmental impact, protect human health and comply with relevant regulations and best practices. Spill contingency plans must be regularly reviewed by operators to incorporate new technologies, lessons learned and emerging industry standards.

Full Offshore Safety Permit (OSP)

The Offshore Permit Guidelines establish an OSP which is required for operators working offshore. By the Guidelines, any person travelling to an offshore/swamp facility, a marine vessel, a barge or gig operated in the Nigerian oil and gas industry must possess an OSP. The personnel must each fulfil certain requirements, namely, having a valid offshore medical certificate, having completed mandatory intentionally recognised safety survival training, holding a valid work permit visa for non-Nigerian citizens, and having paid the applicable fees to obtain the OSP.

The PIA provides that decommissioning and abandonment (D&A) of onshore and offshore facilities shall be conducted in compliance with guidelines issued by the Commission. The Commission issued the Upstream Decommissioning and Abandonment Regulations 2023 (UDAR). The PIA provides that each lessee shall set up, maintain and manage a D&A Fund held by a financial institution not related to it. The D&A Fund shall be exclusively used to pay for D&A costs. The PIA provides that D&A activities are to be conducted in accordance with a D&A Plan. For activities that commenced before the passing of the PIA, such licensees or lessees are expected to submit a plan to the Commission within one year from the coming into effect of the UDAR.

The requirements for decommissioning (including plugging and abandoning) depend on the type of facility, and the location and nature of the operations. Generally, the following decommissioning requirements are applicable:

Approval process: A licensee or lessee may, by written notice, inform the Commission or the Authority of its intention to decommission and abandon and obtain the prior written approval of the Commission or Authority. The Commission or Authority must ensure compliance with all relevant environmental, technical, commercial and regulatory requirements and environmental standards before approving the application.

Decommissioning plans: The UDAR provide that D&A activities are to be conducted in accordance with a D&A Plan, which the lessee or licensee must submit to the Commission or Authority before undertaking any D&A activities. This should include the following details:

• an estimate of the cost involved in implementing the proposed measures;
• specific measures to be taken for the shutdown of operations and decommissioning of unused installations, structures or assets related to petroleum operations;
• clear descriptions of the methods and techniques to be employed, adhering to international petroleum industry practices and environmental standards;
• steps to be taken to ensure the maintenance and safeguarding of any disused installations, structures or pipelines, including the liability of the licensee or lessee for any remaining risks;
• an assessment of the environmental and social impact associated with the D&A activities; and
• the annual amount to be contributed to the D&A Fund.

Timing and execution: The cessation of production and expiration of licence, among other operational considerations, will determine the timing of decommissioning. Operators are expected to execute the D&A activities in a timely manner, safely, efficiently and in accordance with the approved D&A Plan.

Prior-owner liability: Upon the expiration or surrender of a lease or when a licensee or lessee transfers or divests its interest, the Commission or Authority can request the responsible party to fulfil its D&A obligations. However, the former licensee or lessee will be relieved of any further responsibilities where a new company assumes such obligations and receives approval from the Commission or Authority upon the transfer or divestiture.

The Climate Change Act 2021

provides a framework for carbon budgeting and the establishment of the National Council on Climate Change. The Climate Change Act applies to private and public entities in Nigeria and also all ministries, departments and agencies in Nigeria.

It also establishes a Climate Change Fund. The sources of the Fund include:

• any funds appropriated from the National Assembly;
• carbon tax and emissions trading; and
• fines levied on the contravention of the Climate Change Act.

Key regulatory issues are absent from the Climate Change Act.

Petroleum activities are outside the scope of local governments.

The PIA appears to be in sharp conflict with energy transition and has no provision which mandates a transition from non-renewables (oil, gas, etc) to renewables. Also, Nigeria’s policy on energy transition is not clear at this point despite Nigeria’s commitment to achieving net-zero emissions by 2060 at the 2021 UN Climate Change Conference, its establishment of the Energy Transition Plan in August 2021 and its enactment of the Climate Change Act in November 2021.

It is noteworthy that the Climate Change Act established the National Council on Climate Change in November 2022. The Council has the authority to formulate policies in respect of climate change in Nigeria. This includes energy transition as a mitigation against climate change. However, not much has been achieved in this regard.

The Electricity Act enacted in June 2023 has many provisions on renewable energy and positions Nigeria for a smooth transition to a sustainable and environmentally friendly energy ecosystem, as provided by Energy Transition Plan designed to tackle the challenges of energy poverty and the climate change crisis.

The PIA provides that the approval of the Commission is required before any chemical can be utilised for upstream petroleum operations. Section 108 of the PIA also provides that a licensee or lessee producing natural gas shall submit a natural gas flare elimination and monetisation plan to the Commission, which shall be prepared in accordance with regulations made by the Commission under the PIA within 12 months of the effective date of the PIA.

Incentive Programme for Energy Transition

Exemption from VAT

By provision of the Finance Act 2022, the importation and local supply of renewable energy equipment are exempted from value-added tax (VAT). This exemption applies to a range of equipment used in solar power systems, wind energy projects, biomass facilities and other renewable energy installations.

Accelerated capital allowances

By provision of the Finance Act 2022, businesses investing in solar panels, wind turbines, biomass equipment and other renewable energy infrastructure can recover the cost of their renewable energy assets faster, enhancing cash flow and reducing the overall investment cost. This incentivises the adoption of renewable energy technologies and contributes to a cleaner and more sustainable energy ecosystem.

The recent policies introduced by Nigeria in relation to gas show Nigeria’s desire to focus more on gas, as opposed to abandoning non-renewables completely. In 2023, President Bola Ahmed Tinubu approved the establishment of the Presidential Compressed Natural Gas Initiative (PCNGI). The launch of the PCNGI demonstrates a commitment to fostering a cleaner environment by reducing carbon emissions and promoting energy security through the utilisation of domestic natural gas resources.

Also, President Tinubu issued a directive mandating the procurement of vehicles powered by compressed natural gas (CNG) by all government ministries, departments and agencies in Nigeria.

On 3 May 2024, President Tinubu commissioned the expansion of the AHL Gas Processing Plant, the ANOH Gas Processing Plant and the 23.3km ANOH to Obiafu-Obrikom-Oben (OB3) Custody Transfer Metering Station Gas Pipeline Projects in Delta and Imo States.

There are no special laws or regulations relating to unconventional upstream interests. However, it is noteworthy that Nigerian Minerals and Mining Act 2007, which regulates the exploration and exploitation of solid minerals in Nigeria, defines “minerals” or “mineral resources” to include “bituminous shales, tar sands, [and] any substances that may be extracted from coal, shale or tar sands”.

Nigeria does not have a special law that regulates the development of LNG projects other than the PIA, which regulates the entire petroleum activities. Nigeria also passed the NLNG Act to confer special protection and incentives on NLNG.

The Commission issued the Production Curtailment and Domestic Crude Oil Supply Obligations Regulations in 2023. According to the Regulations, where production for any given quarter falls below the allocated quota for that quarter, a lease holder shall first fulfil its obligations to supply to the domestic market before any export may be permitted by the Commission. Also, the lessee may only export production for that quarter where there is no demand from any refinery licence holder in that quarter.

According to the Regulations, there is a paradigm shift by Nigeria from reliance on its hydrocarbon resources, focused on export and foreign exchange generation, to feedstock for its local refineries, especially the Dangote Refinery, to satisfy the country’s domestic fuel consumption needs.

Since the enactment of the PIA in 2021, there have not been any material changes.