Introduction
The oil and gas industry is an extremely competitive industry in Nigeria. The industry is responsible for the production, use, supply, regulation and the economy of oil and gas in Nigeria. It is of extreme importance and contribution to the economy of the country and with such importance it involves bidding wars for petroleum exploration projects including government awarded contracts.
The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) (hereinafter referred to as “the Commission”) concluded the licensing round of its Commercial Bidding Conference 2025 with about 31 companies emerging as winners. The license grants the companies the legal right and authority to commence oil and natural gas exploration, drilling and production within the specifically curated blocks on available terrains. The winners of the licensing round are granted the Petroleum Prospecting Licenses (PPLs) hereinafter referred to as the license.
This newsletter explains the bidding strategies in the Nigeria oil and gas sector, the legal provision for the process and the applicable fiscal terms.
Legal Framework Governing the Grant of Oil and Gas license
The Petroleum Industry Act (PIA) 2021 is the primary legislation governing the grant of oil and gas licensees in Nigeria. The PIA carefully stipulates the NUPRC as the commission responsible for organising a fair, transparent and competitive bidding process, creating regulations and issuing licensing round guidelinesand finally recommending the qualified companies/applicants to the minister to award the license. The minister of petroleum awards the petroleum prospecting license or the petroleum mining license to the winning bidder subject the compliance of the bid invitation. While the Commission awards the petroleum exploration license to qualified applicants. (Section 73(3), 74 & 75 PIA 2021)
Under the PIA 2021 a company or an applicant may be awarded the following: (Section 70 PIA 2021)
1. Petroleum exploration license (non-exclusive basis)
2. Petroleum prospecting licenses (PPLs) (exclusive basis)
3. Petroleum mining lease
The process of obtaining an awarding license can either be by direct allocation as in petroleum exploration license or a competitive bidding procedure as in PPLs and petroleum mining lease. In the latter procedure, the NUPRC provides the application requirements, including the technical and financial criteria for participating in the bidding process.
The award of a license gives the company an exclusive right to drill exploration and appraisal wells and nonexclusive right to carry out petroleum exploration operations within the area provided for in the license. It also gives the company the right to carry away and dispose of crude oil or natural gas won or extracted during the drilling of exploration or appraisal wells as a result of production tests subject to the fulfillment of obligations
Obligations of the licensee
a. Compliance with license terms;
b. Payment of prescribed fees
c. Environmental compliance
d. Reporting and record-keeping;
e. Local content obligations
f. Health, safety and environmental (HSE) standards
g. Decommissioning obligations where applicable.
A licensee that fails to fulfil its obligations is susceptible to relinquishing or revocation of the award.
Fiscal Terms Applicable to Oil and Gas licenses
The fiscal terms applicable to oil and gas licenses are the financial responsibilities and criteria a company will need to fulfill before or upon the award of a license. These fiscal terms equally show the manner in which the money from a project is split between the government and the oil company. The fiscal terms tend to stipulate the government revenue as a way of taking part in the exploration. They equally ensure that the company fulfills their obligations as stipulated in the licensing contracts. Some fiscal terms are protected and stipulated by the governing legal framework while some are influenced in the licensing contract between the company and the government. They include:
a. Registration fee
b. Application and processing bid
c. Data leasing fee
d. Signature bonuses
e. Royalty interest
f. Petroleum taxes
g. Bid Guarantee (equivalent to 5% of proposed signature bonus)
h. Work programme financial commitment and
i. Work performance security
Conclusion
The bidding process is a procedure that shows Nigeria’s deliberate effort to reposition the upstream oil and gas sector and show its seriousness in partnership and long-term investment. The process is generally open to stakeholders in a global landscape of strong technical and financial credentials and professionalism. As the commercial licensing round 2025 has been concluded, stakeholders are advised to regularly monitor the commission’s portal for updates on applications, pre-bidding criteria and requirements etc. It is also important to note that a license or lease may only be granted to a company validly incorporated and existing under the Companies and Allied Matters Act (CAMA) 2020 as at the time of the bidding invitation.
This newsletter is provided for general information purposes only and does not constitute legal, regulatory, or professional advice. While reasonable care has been taken in preparing this publication, readers are advised not to rely on its contents as a substitute for specific legal advice. Institutions and individuals are encouraged to consult their legal, compliance, or other professional advisers to obtain advice tailored to their particular circumstances.
Add your first comment to this post