Legal and Institutional Framework, Contracts and Licenses

Legal and Institutional Framework, Contracts and Licenses

The ownership and control of all minerals, mineral oil and natural gas in, under or upon any land in Nigeria, its territorial waters and exclusive economic zone is vested in the Federal Government based on the provision of section 44(3) of the 1999 Constitution of the Federal Republic of Nigeria. The Federal Government is mandated to manage such minerals in a manner as may be prescribed by the National Assembly.

The Petroleum Act of 1969 is the primary legislation governing petroleum activities in Nigeria. It provides comprehensive provisions for exploration, production and transportation activities in the sector. The Act, like the constitution, vests ownership of petroleum resources on the Federal Government of Nigeria. There is a myriad of other laws and subsidiary pieces of inter-related legislations that deal with specific operations of the industry.

The sections of this Act are listed below;
• Vesting of petroleum in the State
• Oil exploration licenses, oil prospecting licenses and oil mining licenses
• Refineries
• Control of petroleum products
• Offenses in connection with the distribution of petroleum products
• Price control
• Rights of pre-emption
• Power and duties of public officers
• Regulations
• Discharge of obligation to make payments
• Settlement of duties by arbitration
• Delegation of powers
• Offenses
• Repeals, amendments, transitional and savings provisions
• Interpretation
• Short title and commencement


The 1999 Constitution of the Federal Republic of Nigeria 

The fiscal regime in the industry includes those set of laws, regulations and agreements that determine the economic benefits derived by the Government from exploration and production activities.

Other key legislations relating to the sector are listed below;
• Petroleum Profit Tax Act (PPT) 1959, and its amendments
• Regulation 42 of the Petroleum (Drilling and Production) Regulations, 1969
• Petroleum (Drilling and Production) Regulations, 1969
• Petroleum Refining Regulation, 1974
• Associated Gas Re-Injection Act, 1979 & 1985
• Associated Gas Re-injection (Continued Flaring of Gas) Regulations, 1984
• Company Income Tax Act CAP. 60 LFN of 1990
• The Nigerian LNG Fiscal Incentives Guarantees and Assurances CAP N87, 1990
• Associated Gas Framework Agreement (AGFA) 1991 & 1992
• The Petroleum (Drilling and Production) regulations Act No. 69 LFN of 1996
• Deep Offshore and Inland Basin Production Sharing Contracts Act (No. 9) of 1999
• GAS Finance (Miscellaneous Taxation Provisions) Acts 18 & 19 of 1998 and Act 30 of 1999
• Memorandum of Understanding (MOU) (2000) between the Federal Republic of Nigeria,    Nigeria National Petroleum Corporation and all JV companies
• Deep Water Block Allocations to Companies (Back in Rights) Regulations (2003)
• Oil Prospecting License (conversion to Oil Mining Leases) Regulations
• Petroleum Act (2004) Cap. (P10), LFN
• Associated Gas Re-Injection Act (2004) Cap (20), LFN
• Petroleum Profits Tax Act (2004) Cap (P13), LFN
• Oil Pipelines Act (2004) Cap. (07), LFN
• Hydrocarbon Oil Refineries Act (2004) Cap (H5), LFN
• Petroleum Act of 1969 as amended by Cap 10 Volume 13 Law of Federation of Nigeria (LFN) 2004
• Marginal Field Operations (Fiscal Regime) Regulations 2005
• Companies Income Tax Act Amendment (Section 39) 2007
• National Domestic Gas Supply and Pricing Regulations 2008
• Nigerian Oil & Gas Industry Content Development Act 2010 (the NCDA)

These legislations and regulations govern various aspects of operations in the Industry including how businesses should be formed and organized. Others describe the operating standards for all operators, their scope of operation and their responsibility to the government, environment, host communities and the international community. Some of the laws also create agencies that implement government policy and ensure compliance with the respective enabling laws.

The Department of Petroleum Resources has recently published a compendium of oil and gas laws in Nigeria, including 34 laws, 22 regulations and 20 establishment orders. The publication can be viewed here.


The Compendium of Oil & Gas Laws and Regulations - DPR

Fiscal Terms

Find below a summary description of fiscal terms governing the industry.

Petroleum Profit Tax

The Petroleum Profit Tax Act (PPTA) is the tax law that governs the taxation of companies engaged in petroleum operations. The Act defines petroleum operations as “the winning or obtaining and transportation of petroleum or chargeable oil in Nigeria by or on behalf of a company for its own account by any drilling, mining, extracting or other like operations or process, not including refining at a refinery, in the course of a business carried by the company engaged in such operations, and all operations incidental there too and sale of or any disposal of chargeable oil by or on behalf of the company”. PPT payments are made either in cash or in-kind depending on the operating contract of the company.

The PPTA provides for the determination of assessable tax, chargeable tax and the recovery of tax. Variable taxes are applicable for the different terrains as follows;
a) Terrain Onshore/Shallow offshore
First five years (producing companies)      85%
First five years (new comers)                         65.75%
Subsequent years (all companies)                  85%

All percentages above are of chargeable profits for that period.

b) For deep offshore

  1. The PPTA provides that the PSCs which executed a contract in 1993, shall during the duration of the PSC be entitled to claim an investment tax credit allowance as an offset against tax of 50% (of chargeable profit) in accordance with the provisions of the PSC

The Deep Offshore Inland Basin Decree provides further that;

  1. The PPT applicable to a contract area in a PSC shall be 50 flat of chargeable profits for the duration of the PSC
  2. In respect of parties who executed PSCs after 1st July 1998, provides for an investment tax allowance at a flat rate of 50% for capital expenditure incurred wholly for the purposes of petroleum operations in the accounting period for which the asset was first used


Royalty on oil

Royalty refers to payments, either in cash or in-kind, made by a holder of a concession to the Federation based on the value of the quantity of crude oil produced (saved after the oil has been separated from its components) from the field within the concession area in line with the fiscal terms approved statutorily by the Government.

The royalty payment is a statutory obligation of every corporate body involved in the production of oil and gas. It is guided principally by the Petroleum Act of 1969 as amended by Cap 10 Volume 13 Law of Federation of Nigeria (LFN) 2004. The Petroleum (Drilling and Production) Regulations Act No. 69 LFN of 1996 Section 60 stipulates that royalty on crude oil and casing head petroleum spirit is computed by applying the appropriate rate of royalty to the chargeable value of crude oil and causing head petroleum spirit under the regulation.

Calculation of chargeable oil as provided in the 1996 regulation Act is as follows;
a) ascertaining the quantity of crude oil produced on a field by field basis in the relevant OML; and
b) reducing that quantity by the deduction of;
• Quantities used for production operations
• Quantities used for re-injection
• Quantities lost through evaporation

The Act (section 63) also explains that "casing-head petroleum spirit" means any liquid hydrocarbons which;

c) have been obtained from natural gas by natural separation or by any chemical or physical process; and
d) have not been refined or otherwise treated.

From the above, it can be inferred that royalty is calculated on net crude oil produced on a field by field basis. NEITI Report 2013 comments that DPR interprets this to mean that royalty is assessed on net crude oil production after removal of associated gas, water, sediments and other impurities.

The calculation and payment of royalty on oil are guided by Section 61 of the 1969 Petroleum Act as amended.
Royalty (R) = V*P*R
Where: R Royalty rate (depending on the terms and terrain)
V Production volume
P (Crude oil price) NFP as adjusted by API gravity of the crude oil

The Royalty rates for crude oil are;
a) Onshore areas 20%
b) Offshore areas

Areas up to 100m water depth                        18.5%
Areas up to 200m water depth                        16.5%
Areas from 201 to 500m water depth             12.5%
Areas from 501 to 800m water depth             8%
Areas from 801 to 1000m water depth             4%
Areas beyond 1000m water depth                  0%


Royalty on gas

Royalty on gas is based on gas sales and refers to the sum paid by the holder of a Concession to the Federation based on the volume of gas produced and sold from the fields within the concession in line with the following fiscal terms:

a) Onshore Areas 7%
b) Offshore Areas 5%


Determination of price for the computation of royalty for oil and PPT

In practice, Price used in the computation of royalty for oil and PPT has been in contention since the termination of the 2000 Memorandum of Understanding (MOU between the Federal Republic of Nigeria, Nigeria National Petroleum Corporation and all JV companies) in 2007. While the government provided for the use of Official Selling Price (OSP), companies used the Realisable Price (RP) for computations. Negotiations between OPTS (for companies) and DPR (for the government) has led to a consensus. DPR has directed all operating companies to comply with the NFP (New Fiscal Price for the computation of royalty oil and PPT) effective January 2015 while joint venture companies are to adopt the NFP effective July 2010. The NFP will adopt three international benchmarks (PLATTS, ARGUS and ICIS-LOR) for its computation.


Company Income Tax

Company Income Tax is tax paid on the profit arising from the gas operations of companies. Oil and Gas companies pay Company Income Tax in the United States dollars, on the the profit arising from gas operations.


The oil and gas industry is divided into the upstream, midstream and downstream sectors. The upstream operations cover the exploration, field development and production operations; the midstream covers the processing, storage & distribution, marketing and transportation of crude oil, gas, gas-to Liquids and liquefied natural gas; while the downstream covers manufacturing, refining & petrochemicals and wholesale and marketing.

Upstream Sector

Companies engaged in the upstream sector are typically engaged in the exploration and production of crude oil and/or gas. Operators in this sector pay royalty as defined in the Petroleum Act 1990 (as amended 1969), Deep Offshore and Inland Basin Production Sharing Contracts Act (No. 9 of 1999 as amended – (1993) and the first Memorandum of Understanding (MOU) signed between Industry operators and Government (1986). They are also subject to tax under the Petroleum Profits Tax Act, 2004 (PPTA), as amended or Company Income Tax Act, 2004 as amended 2007. Upstream companies operate in a license area under either of four production arrangements;

  1. Joint venture
  2. Production sharing contract
  3. Service contract
  4. Marginal field operator

The production arrangement determines the fiscal terms for the operation.

Midstream Sector

The Midstream sector is where crude oil, natural gas and gas liquids are transported, processed, and transformed into products for the retail market. In Nigeria, the transportation of oil and gas to the refinery and gas station is carried out via the pipeline network from the terminal to the refinery or plant. Tankers and purpose-built vessels are also used for this purpose.

Downstream Sector

Nigeria has four refineries: two situated in Port Harcourt and one each in Warri and Kaduna. The refineries are all wholly owned by the NNPC. Distribution and marketing of refined petroleum products are complementary activities. Distribution involves the transportation of refined petroleum products from the refineries through pipelines, coastal vessels, road trucks, rail wagon to the storage and sale depots. Petroleum products are supplied principally through the NPSC (former PPMC) pipeline system, which links the refineries to the about 21 regional storage/sale depots. Petroleum product marketing involves the procurement and sale of refined petroleum products. Marketers lift products from NPSC depots and deliver to their various retail outlets. They also import refined products from outside of Nigeria to meet the demands of their customers. There are however guidelines issued by the DPR to prevent importation of substandard products.


Gas sector

The primary market for Nigeria's natural gas was historically the export market. However, there is increased local demand for natural gas. Domestic consumption of natural gas is mainly for;

  1. Power generation
  2. Fertilizer production
  3. Methanol production
  4. Aluminum smelting
  5. Cement production
  6. Steel manufacturing
  7. Residential consumption of bottled liquid propane gas (LPG)

Figure 1: Production and utilization of gas


Gas produced is supplied by the NNPC and oil companies for sales through the Nigeria Gas Marketing Company (NGMC). A portion of gas produced is also supplied to the Nigeria Liquefied Natural Gas (NLNG) mostly for export while another portion is used for processing and another volume is flared.


The Ministry of Petroleum Resources has overall regulatory oversight of the Nigerian oil and gas industry. The Ministry acts primarily through the Department of Petroleum Resources (DPR). Other regulatory bodies include the Petroleum Products Pricing Regulatory Agency(PPPRA), which regulates the rates for the transportation and distribution of petroleum products; the Ministry of Environment, which is responsible for approving environmental impact assessment reports in respect of oil and gas projects; the Nigerian Content Development and Monitoring Board(NCDMB), which is responsible for ensuring compliance with the Nigerian Content Development Act (NCDA); and the Nigeria Sao Tome Joint Development Authority(NSTJDA), which is responsible for the supervision of petroleum activities within the joint development area. The Nigeria National Petroleum Corporation (NNPC) is the state-owned corporate entity through which Nigeria participates in the industry.

Ministry of Petroleum Resources (MPR)

The MPR has overall regulatory oversight of the Nigerian oil and gas industry. The MPR is primarily responsible for the articulation, implementation and regulation of policies in the sector. The NNPC, DPR and PPPRA are all subordinate agencies of the Ministry. For more on the MPR, visit

Nigerian National Petroleum Corporation (NNPC) and its subsidiaries

The NNPC is Nigeria’s national oil company, representing the federation in all petroleum activities. It is wholly owned by the State and is a fully vertically integrated oil company. NNPC operates through eight directorates; upstream, downstream, gas and power, refineries, corporate services, GMDs office, finance and ventures. It also has over 20 subsidiaries; in the upstream, Nigerian Petroleum Development Company (NPDC) and Integrated Data Services Limited (IDSL), in the Downstream Petroleum Products Marketing Company (PPMC), Nigeria Pipeline & Storage Company (NPSC), NNPC Retail, formerly Pipelines and Products Marketing Company (PPMC) and the refineries; Warri Refining and Petrochemical Company (WRPC) , Kaduna Refining and Petrochemical Company (KRPC) , and Port Harcourt Refining and Petrochemical Company (PHRC).

In the gas sector, the Nigeria Gas Company (NGC), Nigeria Gas Marketing Company (NGMC), LNG Investment Management Services, NiGaz Energy Company Limited and the Gas and Power Investment Company. Other subsidiaries are the Nigeria Engineering and Technical Company (NETCO), NIKORMA Transport Limited, NIDAS Marine Limited the Wheel Insurance Company and NNPC Trading. Under NNPC Trading, the Corporation trades in the international market through Duke Oil (Duke Oil Company Inc. (Panama) and Duke Oil Services UK Limited), Hyson (Nigeria) Limited, Napoil Company Limited (Bermuda) Trading and Calson (Bermuda) Limited. National Petroleum Investment Management Services (NAPIMS) and the Crude Oil Marketing Department (COMD) are strategic business units of the NNPC. NNPC also holds 49% of the shares in Nigeria LNG Limited and 24.9% in the West African Gas Pipeline Company limited (WAPCo).

Department of Petroleum Resources (DPR)

The DPR is responsible for the processing of application for licenses and monitoring the operations along the entire value chain of petroleum activities. It is also responsible for maintaining of all records related to petroleum reserves, technical viability of production and supervision of exports of crude oil, gas and condensates. Related revenue flows include royalty oil, royalty gas, gas flare penalty, concession rentals and signature bonus. For more on the DPR, visit

The Petroleum Products Pricing and Regulatory Agency (PPPRA)

<!-- [if gte mso 9]> <w:LsdException Locked="false" Priority="66" Name="Medium L

The procedures for paying for royalty, taxes etc. are described below according to the respective agencies:

Department of Petroleum Resources (DPR)

Department of Petroleum Resources (DPR) started as a Hydrocarbon Section of the Ministry of Lagos Affairs in 1947. The Department of Petroleum Resources (DPR) was created as a Department in the Ministry of Petroleum Resources with the excision of the Petroleum Inspectorate of the NNPC upon commercialization in 1988.

Its mission statement is stated as “To ensure the sustainable development of Nigeria’s Oil and Gas resources across the value chain for our stakeholders through effective regulation while entrenching world-class professionalism, accountability and transparency”.

DPR has the statutory responsibility of ensuring compliance to petroleum laws, regulations and guidelines in the Oil and Gas Industry. The discharge of these responsibilities involves monitoring of operations at drilling sites, producing wells, production platforms and flow-stations, crude oil export terminals, refineries, storage depots, pump stations, retail outlets, any other locations where petroleum is either stored or sold, and all pipelines carrying crude oil, natural gas and petroleum products.

DPR, as the regulatory body in the Oil and Gas Sector, is vested with powers by various legal provisions to discharge the following functions:

  • Supervise all petroleum industry operations being carried out under licenses and leases in the country 
  • Monitor the petroleum industry operations 
  • Enforce health safety and environmental regulations and ensure that those operations conform to national and international industry practices and standards. 
  • Maintain records on petroleum industry operations, particularly on matters relating to petroleum reserves, production and exports of crude oil, gas and condensate, licenses and leases as well as rendering regular reports on them to Government. 
  • Advise Government and relevant Agencies on technical matters and policies which may have an impact on the administration and control of petroleum. 
  • Process all applications for licenses so as to ensure compliance with laid-down guidelines before making recommendations to the Minister of Petroleum Resources. 
  • Ensure timely and adequate payments of all rents and royalties as at when due. 
  • Monitor Government Indigenization policy to ensure that local content philosophy is achieved. 
  • Maintain and administer an effective repository for archiving and retrieval of all oil and gas data in Nigeria.
  • Administer and manage oil and gas acreages and concessions in Nigeria.
  • Implement all policies of government on oil and gas matters.


Classes of revenue received by DPR

DPR operates a Cashless Revenue Collection System. All the Revenue collected by the DPR is done either by Bank Drafts or direct wire transfer by the Oil companies into FGN accounts domiciled with the CBN.

DPR computes revenue due to the FGN using the reconciled field production figures. Companies are also allowed to do self-assessment, effect payments and advice DPR accordingly. Companies are allowed sixty days to make monthly payments. The DPR receives pay advice from companies, confirms payment on the CBN Monthly JP Morgan Bank Statement and holds meetings with the companies to reconcile payments with the amounts due.
Various types of revenue are generated and collected by DPR on behalf of Federal Government of Nigeria namely:

  • signature bonus
  • concession rentals
  • royalty on oil production
  • royalty on gas sales
  • gas flare penalty
  • miscellaneous oil revenue

Signature bonus

This is the premium paid on account of concession granted the winner of an oil block to express interest in the concession. The payment of signature bonus is made directly to the FGN designated Accounts as advised by the OAGF. Payments are usually made either by US Dollar drafts or wire/telegraphic transfer. The Accounts to which payments have been made include:

  • CBN/FGN Independent Revenue accounts with JP Morgan Chase Bank, New York, USA
  • CBN/AGF FGN account with JP Morgan Chase Bank NY, USA
  • Consolidated Revenue Fund (CRF) account with CBN

Concession rentals receipt procedures

Concession Rentals are paid by Oil and Gas companies as rent on oil blocks for which they have been granted concession. There are two categories of Rentals which are:

  • Oil Prospecting Licenses (OPL)
  • Oil mining Lease (OML)

The license is non-exclusive and is granted for a period of one year. It is renewable annually.
The applicable rental rates are;

  • OPL - US$10/SQ KM or part there Off (Non-Producing Block) 
  • OML - US$ 20.00/SQ KM or part there Off (up to 10 years of Conversion) and US$15.00/SQ KM or part there off (until the Expiration of the Lease)

Concession rentals are paid either on the anniversary of the concession or in advance. It is usually paid either in Naira or US Dollars. The process is depicted in the diagram below:

 Figure 2 - Concession rentals process



Royalty on oil

Royalties originated in the United States of America and takes the form of a percentage production which is payable in cash or in kind (Crude Oil) at the option of the host country. The purpose of royalties is to provide the owner of the subsoil with a steady income in compensation for the irreplaceable loss resulting from the exploitation of non-renewable reserves.

In the Nigerian Oil Industry, Royalty refers to payments, either in cash or in kind, made by a holder of a concession to the Federation based on the value of the quantity of Crude oil or Gas produced (saved after the oil has been separated from its components) from the field within the concession in line with the fiscal terms approved statutorily by the Government.
Royalty payment is a statutory obligation of every corporate body involved in the production of Oil and Gas. It is guided principally by the Petroleum Act of 1969 as amended by Cap 10 Volume 13 Law of Federation of Nigeria (LFN) 2004.

The Petroleum (Drilling and Production) regulations Act No. 69 LFN of 1996 Section 60 stipulates that Royalty on crude oil and casing head petroleum spirit is computed by applying the appropriate rate of royalty to the chargeable value of crude oil and casing head petroleum spirit under the regulation. Calculation of chargeable oil as provided in the 1996 regulation Act is as follows: -

a) ascertaining the quantity of crude oil produced on a field by field basis in the relevant OML; and
b) reducing that quantity by the deduction of:
o Quantities used for production operations
o Quantities used for re-injection.
o Quantities lost through evaporation.

The above Act Interpretations (section 63) also explains that "casing-head petroleum spirit" means any liquid hydrocarbons which
c) have been obtained from natural gas by natural separation or by any chemical or physical process; and
d) have not been refined or otherwise treated;

From the above it can be inferred that Royalty is calculated on net crude oil produced on a field by field basis. Royalty paid is also determined by the operating contract.

Royalty on gas

Royalty on gas is based on gas sales. Royalty on gas sales refers to the sum paid by the holder of a Concession to the Federation based on the volume of gas produced and sold from the fields within the concession in line with the following fiscal terms:
a) Onshore 7% of gas sale
b) Offshore 5% of gas sale

Gas flare penalty

This refers to the amount paid for flaring gas in Nigeria (it is a penalty). The regulations governing gas flare penalty include:
a) Regulation 42 of the Petroleum (Drilling and Production) Regulations, 1969.
b) Associated Gas Re-injection Act, 1979.
c) Associated Gas Re-injection (Continued Flaring of Gas) Regulations, 1984.
d) Cap. 26 Laws of the Federation of Nigeria, 1990.

Gas flare penalty rates used under various fiscal regimes are:

a) 2K applicable from 1985 to June 1992
b) 50K applicable from July 1992 to December 1997
c) N10 applicable from January 1998 to March 2008
d) $3.5 applicable from April 2008 to Date (still in contention)

The rate of N10 as provided by the Regulation of January, 1998 is still being applied. We understand that lack of political will on the part of Government to uphold the April 2008 Regulation may be responsible for the non-implementation. The companies complete a Self -Assessment based on the parameters in the Act and make monthly payments to the designated JP Morgan Accounts which are subsequently reconciled with the DPR after receipt of calculations from the fields.

DPR process

Figure 3 - DPR high level process



DPR computes royalties due to FGN, using the reconciled field production data, API and crude oil prices advised by NNPC. Companies are allowed the option of performing a self-assessment of royalty due and to effect payment within 60 days of production and advice DPR accordingly. DPR receives the payment advice from companies which includes swift copies and confirms payment with the CBN/JP Morgan Chase Bank statements. DPR issues receipts to covered entities for all revenue received. DPR undertakes quarterly reconciliations with producing companies to ascertain differences if any. Operational penalty fees are charged when payments are not made when due.

National Petroleum Investment Management Services (NAPIMS)

National Petroleum Investment Management Services (NAPIMS) is the Corporate Services Unit (CSU) and the Exploration and Production (E&P) Directorate of the NNPC. It is charged with the responsibility of managing the Nigerian Government's investment in the upstream sector of the Oil and Gas industry. The operators in the relationship are:
• Shell Petroleum Development Company (SPDC)
• Mobil Producing Nigeria Unlimited (MPNU)
• Chevron Nigeria Limited (CNL)
• Total Exploration and Production Nigeria Limited (TEPNL)
• Nigerian Agip Oil Company Limited (NAOC)
• Pan Ocean Oil Company Limited (POOCN)

NAPIM’s objective is to enhance the margin accruing to the Federal Government through effective supervision of the Joint Venture Companies (JVCs), Production Sharing Companies (PSCs) and Service Companies (SCs). It aims to achieve its objective through adequate supervision of budgets and performance, as well as ranking of projects that give higher "returns on investment" to the Nigerian government.

NAPIMS processes – cash call process
Cash calls are based on the annual work programme (AWP) of each joint operation and covers such diverse areas as exploration, drilling, production, development, construction, engineering facilities, technical materials, for both crude oil and gas, in addition to administrative overheads, referred to as OPEX.

On receipt of the cash call, NNPC summons a meeting of the cash call processing committee where unacceptable items of cost are rejected and the net value accepted by the committee is signed by all parties i.e. NNPC and other partners including the operator. The IOCs are members of the cash call processing committee.

The work programme agreed in advance among the Joint Partners is approved by their operating committees (OPCOM) as provided in the JOA. The OPCOM is constituted in accordance with the JOA as the highest decision making authority and is charged with the overall supervision, control and direction of all matters pertaining to the joint operations.

Cash calls are initiated monthly by the JV operator and served on NNPC and other partners early enough to enable NNPC and all Partners including the operators to lodge their equity portions of the cash calls into the JV Dollar and Naira cash call bank accounts on or before the 1st day of the cash call month.

NNPC has prying and audit rights over all these Accounts, but the custody and transactional authority over these joint operating bank accounts rests with the operators.

Based on the Annual Budget allocated for Joint Venture Operations as approved by the Government and communicated to NNPC by the Budget Office of the Federation, a portion of revenue realized from the sale of crude oil and gas is set aside for the payment of Cash calls by NAPIMS.

  1. Revenue from the sale of crude oil is paid into the JP Morgan Chase CBN/NNPC Crude Oil Revenue Account.
  2. Revenue derived from Gas and Feed Stock is paid into JP Morgan CBN/NNPC Gas Revenue Account.
  3. Funds from both Accounts meant for Cash Calls are subsequently paid into JP Morgan Chase CBN/NNPC JV Cash Call Payment Account.
  4. From the account in (c) above, CBN disburses Dollars to the Dollar Accounts of the JV operators as authorized by NNPC mandates. A second amount of US Dollars is monetized from same Account into Naira and paid into CBN/NNPC JV Cash Call Naira Payment Account and from there is disbursed into individual JV bank accounts maintained by the operators.
  5. The individual IOCs or JV partners will in turn pay their equity portion of the Cash Call into the JV Naira and Dollar Cash Call Account.
    The summary of the cash call process is depicted in the diagram below:

Figure 4 - Summary of cash call process


The cash call budgeting process is depicted below:
Figure 4.1 - Cash call budgeting process


The cash call disbursement process is shown below:
Figure 4.2 - Cash call disbursement process



Federal Inland Revenue Service (FIRS)

The Federal Inland Revenue Service (FIRS) is saddled with the following key responsibilities:

  • Assessment and collection of Taxes
  • Accounting for taxes collected and maintenance of tax records
  • Enforcement of payment of taxes as may be due to the Government
  • Review the tax regimes and promote the application of tax revenues to stimulate economic activities and development.
  • Establishment and maintenance of a system for monitoring international dynamics of taxation in order to identify suspicious transactions and perpetrators and other persons involved
  • Issuance of taxpayer identification number
  • Advising the Federal Board of Inland Revenue on professional and technical tax issues referred to it
    Taxes with respect to the oil and gas industry are handled by three major departments/sections of FIRS:
  • Upstream
  • Downstream (for marketing companies)Oil Services

FIRS process- Tax identification number (TIN) process

The tax identification is illustrated below:



Figure 5 - Issuance of tax identification number process

Tax clearance certificate issuance

The tax clearance issuance process is depicted in the chart below:

Figure 5.1 - Tax clearance certificate issuance process



Filing of returns

The filing of returns process is depicted in the chart below:

Figure 5.2 Filing of returns process




Tax monitoring

On a regular basis the various taxes are being monitored by the RPP unit. VAT (returns are expected by the 21st of every month) and WHT are being monitored too. The RPP unit reviews VAT returns and communicates to taxpayers.

Central Bank of Nigeria (CBN)

The Central Bank of Nigeria has full responsibility for the custody of Federal Government Fund and is the supreme monetary authority in Nigeria. It issues Nigerian naira currency, maintains foreign currency reserves and is charged with the responsibility for maintaining monetary stability. It is also the lender of last resort for Nigerian banks. It was established by law in 1958.

The CBN operates various accounts for the federation (on behalf of the relevant agencies) in-flows shown in the table below:

Table 1 - CBN inflows account details (oil and gas sector revenue)

system table

Office of the Accountant General of the Federation (OAGF)

The Office of the Accountant General of the Federation (OAGF) was established for Treasury Management of Government. It has responsibility for providing adequate accounting systems and controls in the ministries, extra ministerial offices and other Arms of Government. The office also has the mandate of collating receipts and reporting on revenues of the Federal Government derived from Sec. 80(1) of the 1999 Constitution which stipulates that “All revenues or other money raised are received by the Federation (not being revenues or other moneys payable under this constitution or any Act of the National Assembly into any other public fund of the Federation established for a specific purpose) shall be paid into and from one Consolidated Revenue Fund of the Federation.”

The Accountant - General of the Federation (OAGF) is the Chief Accounting Officer and is charged with the constitutional role of preparing the nation’s financial statements arising from collection and receipts of income, fees, rentals and taxes and payments out of the Federation Account. Accordingly Sec 85 S.5 of the Constitution provides that, “the Auditor-General shall, within ninety days of the receipts of the Accountant-General’s Financial Statement, submit his reports under this section to each House of the National Assembly responsible for public accounts”.

The office of the Accountant-General of the Federation (OAGF) is the executive arm of Government responsible for maintaining records for all revenues and receipt and payments into and out of the Federation Account.
The OAGF transaction recording procedures can be depicted in the diagram below:

Figure 6 - OAGF transaction recording process




The general elections in March 2015 brought about a transition of power from a ruling party to an opposition party for the first time in Nigeria’s history. The new government was inaugurated amidst heightened expectation from the population and had a reform agenda for tackling insecurity, corruption and job creation through diversification of the economy by refocusing on agriculture and mining sectors to stimulate growth. The new government was quickly confronted with a decline in global oil prices which resulted in a fiscal crisis. By the third quarter of 2016, Nigeria slid into recession for the first time in decades.

The oil and gas sector in response to the challenging times and economic realities identified the need for a more cost-efficient system that would tackle the aging infrastructure, re-exploring the prolific Niger Delta area and the Niger Delta brown fields, exploring and developing the green fields, focus on gas commercialization and a fully developed downstream sector. 

The falling oil prices contributed significantly to a reduction in government revenues and foreign exchange instability. The resulting economic challenges brought again to the fore, the case for diversifying the Nigerian economy.


The 7 Big Wins

By Q3 2016, Nigeria unveiled the petroleum industry roadmap tagged the "7 Big Wins". This road map contains specific time-focused targets covering the following 7 key areas:

  1. Put in place new policies, legislations and regulations.
  2. Enabling the business environment and attracting investors.
  3. Commission a gas revolution to spur multiplier effects including wealth creation, environmental protection and job creation.
  4. Comprehensive rehabilitation and revamping of existing refineries; increase domestic refining capacity (greenfield, modular) and attaining self- sufficiency in 2018.
  5. Bolster engagements with host communities and achieving zero militancy in the Niger Delta Region.
  6. Enshrine transparency and efficiency in the industry and automate the business process to account for every process in the oil value chain.
  7. Maintaining a sustainable and well-structured stakeholder management framework, bilateral cooperation and international energy relations that will address peculiar needs and circumstances of the oil and gas industry.

The overall aim of the road map is to develop a stable and enabling environment that will boost investment opportunities in the oil and gas sector, yielding increased growth in the Nigerian economy. Since the launching of the 7 Big Wins, the Federal Executive Council (FEC) has also approved a National Petroleum Policy and a National Gas Policy. Council also approved the Flare Gas (Prevention of Waste and Pollution) Regulations 2018. The Ministry of Petroleum Resources publishes a scorecard of its achievements on its website. The publication provides a detailed score card of the Ministry and its subsidiaries.For copies of the approved policies, visit


Restructuring the NNPC

The state-owned Nigerian National Petroleum Corporation (NNPC) also embarked on a process of reforms highlighting the need to ensure a fit-for-purpose company, aligned with organizational aspirations to improve its profitability, accountability, transparency and focus. To achieve this, it reorganized its structure creating four autonomous business units; upstream, downstream, refineries and gas/power with a lean headquarters that includes; GMDs office, finance and accounts, ventures and corporate services.

The former Pipelines and Products Marketing Company (PPMC) was split into the Petroleum Products Marketing Company (PPMC) and the Nigerian Pipeline and Storage Company (NPSC). The Nigerian Gas Company (NGC) was split into the Nigerian Gas Company (NGC) and the Nigerian Gas Marketing Company (NGMC).


New Legislation (s) for the Sector

The journey toward a new petroleum industry legislation that will overhaul the existing framework, consolidating all the relevant laws and regulations began with the inauguration of the Oil and Gas Sector Reform Implementation Committee (OGIC) in the year 2000. The Petroleum Industry Bill is intended to reform the oil and gas industry; restructuring it to rectifying the challenges currently faced and position it to deliver on the vision of a highly efficient industry, managing our natural resources in a sustainable manner that will attract investment capital, and optimizing government revenues from the industry.

After almost two decades, the PIB was broken into four bills to ease passage by the National Assembly;

  1. Petroleum Industry Governance Bill (PIGB)
  2. Petroleum Industry Administration Bill (PIAB)
  3. Petroleum Industry Fiscal Bill (PIFB)
  4. Petroleum Host Community Bill (PHCB)

Unfortunately, this effort also did not yield the desired outcome. See NEITI Policy Brief on the need for the PIB

The ‘7 Big Wins’ road map is about three years into its implementation. The MPR has successfully delivered on a new petroleum policy and gas policy for the nation.

In spite of a lack of progress on the PIB, the Deep Offshore and Inland Basin Production Sharing Contract (Amendment) Act 2019 was signed into law in November 2019.



The Petroleum Act of 1969 (as amended) provides the general legal basis for the licensing system that governs Nigerian petroleum activities. The Petroleum Act confirms that the State owns and controls the petroleum deposits on the Nigerian continental shelf and that resource management of petroleum resources shall be carried out in a long-term perspective for the benefit of Nigeria.

The Petroleum Act allows for the provision of three types of licenses that permit a company to operate in the upstream sector of the oil and gas industry. An Oil Exploration License (OEL), Oil Prospecting License (OPL), and Oil Mining Lease (OML). In practice, only the OPL and OML are in use, all OELs were converted to OPLs in the 1970s. The Ministry of Petroleum Resources, through the Department of Petroleum Resources (DPR), is empowered to administer licensing of oil blocks in the country.

Section 2 of the Act confers on the Minister for Petroleum Resources the power to grant licenses and provides general criteria for the assignment of licenses. DPR issues guidelines for the conduct of licensing rounds, see guidance note issued by DPR in the licensing round (2007) including details of the application modalities, pre-qualification requirements, documentation to be provided, application fees payable, deadline for submission of bid documents and criteria for the evaluation of technical and commercial criteria (including weights).



An OPL gives its holder the exclusive right to explore for and develop oil and gas within a defined area while an OML gives its holder the exclusive right to explore for, develop and produce oil and gas within a defined area. An OPL is granted for a maximum of 5 years when granted over land and territorial waters. When granted over the continental shelf or an Exclusive Economic Zone, it is for a maximum period of 7 years. An OML is granted for a 20-year term but may be renewed upon written approval by the Minister. See the process of award of OPL and a sample award letter for an OPL for more information.

All OELs were converted to OPLs in the 1970s.


To apply for an OML, an OPL license holder will have had to find oil in commercial quantities and has also satisfied all the conditions attached to the OPL as stated in paragraphs 30 (b) and 31 of the Petroleum (Drilling and Production) Regulations of 1969. For the conversion of OPL to OML see Process of Conversion of OPL to OML.


A key policy of government under the Petroleum Act, 1969 as amended in 1996 is to enhance growth in the exploration and production of petroleum resources. In implementing this policy, the government pays particular attention to a number of reported oil and gas discoveries that exist in Nigeria, some of which through time have been left unattended for very many years. In most cases, they have remained unproduced, and only in a few cases partially appraised.

Consequently, the above led to the enactment of the Petroleum Act as amended in 1996 which allowed exploration and production access specifically by indigenous companies to these seemingly un-attended fields. See details about marginal field Technical and Commercial Field Specific Bid Tender Submission Requirements. Pursuant to the relevant provision of the Petroleum Act, it is the intention of Government to farm-out unattended (un-produced, unapprised, abandoned or neglected) fields for a period of ten (10) years on existing blocks to indigenous companies on a periodic basis.



The DPR publishes a license register in its Nigerian Oil & Gas Industry Annual Reports on its website. Section 4 of the 2017 Report shows that there were 68 OPLs and 111OMLs in the year. The publicly available register shows details such as ownership of the license, size of license area, type of commercial arrangements, date of grant, date of expiry and status of operation i.e. either producing or non-producing in the case of OMLs. It does not include information such as commodity being produced, coordinates of licenses and dates of application. As indicated above, an OPL grants the holder rights to explore for both crude oil and gas while an OML grants rights to mine for the same. Coordinates for licenses were provided by DPR and can be found here. We are unable to independently source dates of application of license areas however, contract execution dates were provided by DPR.

In addition, the report includes a map of Marginal Fields including information such as the name of marginal field operator and its equity partners, their percentage interest, license number, terrain and status of production. National Oil Spill Detection and Response Agency (NOSDRA) has two publicly accessible environmental monitoring tools; Oil Spill Monitor and Gas Flare Tracker that use satellite data track oil spills and gas flare. The applications display concession areas in Nigeria superimposed on a map of Nigeria and highlights information such as license area, basin, terrain, operator, date of award and status of the operation. There was no award of oil blocks in 2017.

However, where there are awards, bids are evaluated by DPR based on the technical and financial criteria under section 10.0 of the of the Guidance Information for Prospective Bidders in the Year 2007 Licensing Round. This document summarizes the process of award for OPLs.



There were no license transfers or divestments in 2017. However, where there are, DPR follows the process as stipulated under schedule 14, 15 and 16 of the 1969 Petroleum Act. DPR does not set guidelines for the entities divesting their assets. The entities advise them on who they divest to. Nonetheless, the Department approves in line with the Petroleum Act. See an example of a Due Diligence Checklist used by the DPR to carry out the exercise.



In the recently published scorecard for the Ministry of Petroleum Resources, the Ministry reported that a new guideline and criteria for the conduct of OPLs, OMLs and Marginal Fields have been drafted. The new draft retains the adoption of competitive bidding, it also includes transparent criteria and incorporates the use of transparency and civil society organizations to monitor the process. In addition, the DPR has also completed an electronic Marginal Field Bid Round Platform and Data Extraction projects in readiness for the Marginal Field Bid Round.



Nigeria maintains a Joint Development Zone (JDZ) with São Tomé and Príncipe, managed by a multinational Joint Development Authority. The Nigeria-Sao Tome and Principe Joint Development Authority (NSTPJDA) is responsible for managing the activities relating to the exploration and production of resources in the Zone.

In line with the established Act of JDZ, the Joint Management Council (JMC) has awarded six blocks in the JDZ zone from two licensing rounds carried out in 2002 and 2004. There was neither allocation nor transfer of blocks in 2017.

Details of the bid process in the JDZ can be found under the Nigeria Sao-Tome Joint development Zone Petroleum Regulations 2003.

There has not been contract disclosure practice in the oil and gas sector because prior to July 2017 there was no existing policy on contract transparency in Nigeria. However, there are publicly available contracts by private initiatives that are available on the Resource Contracts website ( and open oil for contracts in Nigeria. Furthermore, NEITI has harmonized information on publicly available contracts.

The 2018 NEITI Oil & Gas report, therefore, sought for the completion of contract data templates and full text of actual contract documents by companies as part of the EITI requirements for implementing countries to publicly disclose contracts and licenses that provide the terms attached to the exploitation of oil and gas.

Sixty-six (66) upstream companies were covered in this current report and 47 of them completed the field legal contract templates. The field legal template collects information like the; type of commercial arrangements, shareholding structure between companies in the arrangement, OPL/OML number and date license was granted, etc. See aggregated field contract data for more details.

The operating contracts in the Nigeria oil and gas industry are broadly classified into the following; Joint Venture Agreements (JVs), Production Sharing Contracts (PSCs), Sole Risk (SR), and Service Contracts (SCs), Farm-in and out agreements, the Carry and Modified Carry Agreements (CAs, MCAs) see 2017 Nigerian Oil & Gas Industry Annual Report for details. The Department of Petroleum Resources (DPR), the agency responsible for the issuance and regulation of the website of the license attached above provides the listings of licenses and the type of contractual arrangements. The NNPC usually signs the agreement on behalf of the Federation and has copies of the agreements entered into on behalf of the Federation. Details of contracts and licenses provided by DPR are contained OPL and OML data.


The Federal Executive Council approved the National Petroleum Policy and the National Gas Policy in July 2017. Section 5.2.3 (reporting practice) of the National Petroleum Policy states; “There has been incomplete reporting and a lack of transparency throughout the petroleum industry’’.

For instance, the MPR publishes little information on:

  • The upstream licensing process;
  • Fiscal and production arrangements;
  • Contracts;
  • Environmental impact assessments;
  • Operational data;
  • Revenues;
  • Production volumes;
  • Prices;
  • The value of resource exports;
  • Estimates of investments in exploration and development;
  • Production costs;
  • Costs of subsidies;
  • Production stream values;
  • Royalties;
  • The government’s share in PSCs;
  • The government’s share in production JVs.

The section closes by saying “The Petroleum Policy proposes transparency of declarations and operations. As such the MPR intends to reform its own reporting practices”.

This implies that the government policy statement on contract transparency is in alignment with the anti-corruption stance of the administration of President Muhammadu Buhari. This also further supports the commitment made by this administration at the May 2016 London Anti-Corruption Summit under the Open Government Partnership (OGP) on fiscal transparency on contract disclosure. There is also evidence in the thematic area of commitment two of the fiscal transparency section (item 2) of the OGP Nigeria National Action plan (2017-2019) which states that “there would be a full implementation of open contracting and adoption of Open contracting data standards in the public sector”. OGP National Action Plan 2017-2019

The above confirms the presence of a policy on contract transparency in Nigeria at present and subsequent laws and regulations that will dictate how this will be operationalized will come on stream.


Section 2.5 of the EITI Standard 2016 recommends that implementing countries should maintain a publicly available register of the beneficial owners of the corporate entities that bid for, operate or invest in extractive assets. NEITI adopted the definition of the EITI on beneficial ownership which states that “A beneficial owner in respect of a company means the natural person(s) who directly or indirectly ultimately owns or controls the corporate entity”. For more information (see

At present, there is no law or government policy in Nigeria that expressly mandates the disclosure of the Beneficial/real owners of companies. However, in support of and the furtherance of the anti-corruption stance of the present administration, President Muhammadu Buhari made a number of commitments at the May 2016 London Anti-Corruption Summit. These commitments included the pledge that Nigeria will join the Open Government Partnership (OGP) and will establish a public register of the beneficial owners of companies in the country.

Nigeria joined the OGP in December 2016 and submitted a National Action Plan, which included the establishment of a CAC-hosted public register of the beneficial owners of all companies operating in Nigeria by December 2019. Progress made towards more openness is evident in the thematic areas of the six (6) commitments in the fiscal transparency section of the OGP Nigeria National Action plan (2017-2019). For more information (see OGP National Action Plan 2017-2019)

In fulfillment of requirement 2.5 of the EITI standard, NEITI published the roadmap for beneficial ownership disclosure before the 1st of January 2017 deadline which requires that all EITI countries to have a roadmap. (It is noteworthy to state that the EITI requires a register for extractive companies only, and the deadline for the register to be in place is January 2020).

The roadmap seeks to outline Nigeria’s strategy towards beneficial owner information disclosure and the drive towards demanding public disclosures of the real owners of oil, gas and mining companies that operate in Nigeria. It also provides comprehensive plans and actions designed to guide Nigeria in its implementation of beneficial ownership concept as it relates to the extractive sector. For more information (see The Roadmap on the Implementation of Beneficial Ownership in Nigeria)

The NEITI Secretariat issued an eight-page Policy Brief in May 2016 on “the need to know who owns what” which highlighted the importance of the Beneficial Owner information as is required in the 2016 EITI Standard.
For more information (see NEITI Policy Briefs

The 2017 NEITI Oil & Gas report sought to obtain the Beneficial Owners of companies operating in the Nigerian oil & gas industry as defined within the scope of EITI requirement 2.5. The NEITI reconciliation exercise was able to obtain the names of the legal owners of companies as documented in the Corporate Affairs Commission. This information was reviewed against beneficial owners provided by the companies. The report notes, however, that most companies also only provided the names of legal owners.

The companies provided information on beneficial owners as part of the NEITI report request through templates sent to them. A total of 66 companies were covered in the audit 47 returned populated templates on beneficial ownership. The summary of the information provided by the covered entities can be found here.