Nigeria’s 20% oil tax credit: Can Tinubu’s executive order revive the upstream sector?

Nigeria offers up to 20% tax credits for oil operators under Tinubu’s executive order—find out how it could transform upstream efficiency.

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In a pivotal shift for ‘s petroleum sector, President Bola Tinubu has enacted a landmark executive order introducing up to 20% tax credits for upstream oil operators that achieve demonstrable cost efficiency. Officially titled the Upstream Petroleum Operations Cost Efficiency Incentives Order 2025, the reform marks a targeted effort to reduce per-barrel operating costs and restore investor confidence in one of Africa’s most resource-rich but investment-starved energy markets.

Signed on May 29, the directive offers tax relief as high as 20% of an operator’s company income tax liability, provided the operator meets annually defined cost benchmarks. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) will be responsible for determining terrain-specific baselines across onshore, shallow water, and deep offshore production. The order also allows qualifying firms to retain 50% of the incremental government revenue realized from their efficiency gains — effectively creating a direct fiscal reward loop.

Representative image of Nigeria's offshore oil platforms. Reflects the new executive push to incentivize cost efficiency and boost sector investment.
Representative image of Nigeria’s offshore oil platforms. Reflects the new executive push to incentivize cost efficiency and boost sector investment.

Why Did Nigeria Offer Tax Credits to Oil Producers in 2025?

Nigeria has long struggled with inefficiencies in upstream production, with average operating costs significantly outpacing those of regional peers. According to data cited by local media, the country’s upstream costs reached $11.4 billion in H1 2024 alone, against total oil earnings of $19.5 billion from 235.9 million barrels produced — reflecting a high cost-to-revenue ratio of nearly 58.5%. In some terrains, per-barrel costs have climbed to $48, well above the global average for similar asset types.

This inefficiency has coincided with a sharp decline in foreign direct investment in Nigeria’s . International oil companies, including and TotalEnergies, have in recent years scaled back their onshore commitments amid persistent regulatory ambiguity, security challenges, and uncompetitive fiscal terms. The Petroleum Industry Act (PIA) of 2021 attempted to create a modernized legal framework, but implementation delays and cost inflation continued to limit its intended impact.

President Tinubu’s executive order is widely seen as a supplementary push to revive interest, especially from multinationals that have shifted capital toward deepwater plays or exited Nigerian assets altogether. The fiscal signal is clear: Nigeria is willing to share cost savings to restore production competitiveness and plug the country’s revenue shortfalls.

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How Will Tinubu’s Incentives Impact Oil Sector Investment?

The new tax credit regime is expected to drive immediate strategic recalibration among both domestic and foreign upstream players. By linking tax relief to verified cost reductions, the policy seeks to encourage not only leaner operations but also greater transparency in budgeting and contracting processes.

Industry observers note that the initiative could benefit indigenous operators like Seplat Energy and ND Western, which have grown their portfolios through marginal field takeovers but remain capital-constrained. For international oil companies, including Chevron and ExxonMobil, the incentive may prompt a reassessment of capital allocation, particularly in non-core blocks where cost savings could now translate into material tax offsets.

Crucially, the policy includes a mechanism for operators to retain a portion of the government’s fiscal windfall derived from their efficiencies — a rare provision that enhances internal rates of return. Analysts interpret this as a potential game-changer for new offshore developments and delayed projects in Nigeria’s deepwater reserves.

Will the 20% Tax Credit Improve Nigeria’s Upstream Output?

Nigeria’s oil output has remained consistently below its OPEC+ quota, with production hovering around 1.3 million barrels per day (bpd) in early 2025 — well below the 2.0 million bpd threshold seen in previous decades. Sabotage, crude theft, pipeline outages, and project delays have all contributed to the production drag.

The tax credit system could help reverse this trajectory if coupled with robust enforcement and inter-agency collaboration. According to presidential aides, the executive order mandates the Federal Inland Revenue Service (FIRS), NUPRC, and the Limited (NNPC) to work in tandem to verify claims and track outcomes.

However, experts caution that fiscal reform alone will not resolve Nigeria’s upstream bottlenecks. Infrastructure sabotage and opaque licensing remain endemic, and without tangible progress in contract enforcement and community engagement, the impact of the incentive may be blunted.

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Institutional Sentiment and Global Energy Investment Trends

Early reactions from institutional stakeholders have been measured but optimistic. Energy-focused funds operating across Africa have welcomed the clarity offered by the order, particularly its terrain-based cost benchmarking model. Analysts at Horizon Engage, a global risk and energy advisory firm, noted that the success of the initiative hinges heavily on execution.

While domestic equities in oil and gas have shown muted reaction so far, sector watchers believe that sustained implementation could catalyze upstream IPOs, reinvigorate dormant JV negotiations, and attract attention back to Nigeria’s prolific yet underexploited reserves.

There is also broader alignment with trends seen across other oil-exporting economies — particularly Angola and Brazil — where fiscal incentives have proven effective in unlocking pre-salt and marginal reserves, respectively. Nigeria’s latest move is being viewed as a competitive response to these frameworks, aimed at preserving its geopolitical relevance within OPEC and attracting scarce capital amid the global energy transition.

Future Outlook: Can Tax Reforms Reposition Nigeria in African Oil Leadership?

The 2025 executive order builds upon prior measures rolled out under Tinubu’s “Renewed Hope Agenda,” including the 25% investment allowance for gas utilization, a reformed fiscal structure under the PIA, and efforts to digitize regulatory workflows. Collectively, these moves suggest a deliberate pivot toward rebuilding trust between the Nigerian state and international capital.

What remains to be seen is whether the new order will translate into actual upticks in field development, reserve replacement, and FDI inflow. Nigeria still faces significant global headwinds, including ESG-linked divestment from hydrocarbons, high-interest rate environments, and competition from more agile African peers like Namibia.

That said, analysts expect the policy to figure prominently in upcoming bid rounds and licensing negotiations. Its impact could also extend beyond upstream oil into associated gas development and energy infrastructure plays — critical to Nigeria’s broader industrialization plans.

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For now, Tinubu’s latest tax reform represents a pragmatic acknowledgment that competitiveness, not just resource endowment, will determine Nigeria’s energy future. While the country remains endowed with over 37 billion barrels of proven crude oil reserves and significant untapped gas deposits, those figures alone no longer guarantee investor commitment in a global market rapidly shifting toward cleaner and leaner energy portfolios.

By linking tax incentives directly to operational efficiency, the administration has pivoted away from blanket concessions and toward performance-based fiscal engineering — a notable shift in Nigeria’s hydrocarbon governance philosophy. If successfully implemented, this could become a template for future oil-producing nations navigating similar productivity slumps.

Much will depend on how quickly the NUPRC, FIRS, and other implementing agencies can operationalize the order without bureaucratic delays or interpretative confusion. Industry insiders are already watching how upcoming quarterly reports from leading producers like Seplat Energy and Nigerian National Petroleum Company Limited reflect early adoption or cost optimization efforts.

As international capital becomes increasingly selective, Nigeria’s ability to couple geological potential with investor-grade policy predictability will define its role in the next decade of global energy development. The executive order, while not a silver bullet, signals that Abuja is aware of this imperative — and is willing to compete.


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