Production sharing contract and Nigeria’s pursuit of increased crude oil production
Just about this time last year, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) announced an ambitious programme to increase Nigeria’s crude oil output by one million barrels per day, over a 12 to 24-month period. When the Commission’s Chief Executive, Engr. Gbenga Komolafe made this proclamation, those acquainted with the country’s oil and gas industry travails viewed it as another aspirational pronouncement aimed at maintaining public relevance, seemingly unattainable.
However, those knowledgeable about Nigeria’s hydrocarbon potential recognised that achieving and even surpassing, that production level primarily required removing cumbrous entry barriers, accelerating production via bid rounds and rigorously enforcing operational regulations, including the “Drill or Drop” policy. At the time of pronouncement, Nigeria had just concluded its first fully executed licensing round under the Petroleum Industry Act (PIA) 2021, arguably the most successful bid round in 70 years.
This milestone preceded the public announcement of the incremental production initiative and formed a strategic pillar to enhance the nation’s revenue profile. The successful execution of the licensing round served as a booster for the one-million-barrel incremental programme already underway. Reinforced by a renewed commitment to enforce the “Drill or Drop” policy, which aimed to revitalise dormant wells, the initiative anticipated reviving idle assets to increase oil flow and pipeline throughput.
Complementing this momentum were a series of presidential executive orders that eliminated certain restrictive entry barriers, thereby encouraging broader industry participation. These bold reforms aimed to attract investment, reduce costs and optimise sector efficiency through streamlined contracting processes, fiscal incentives, promotion of local content compliance, enhanced regulatory clarity and steadfast implementation of the PIA.
Also, efforts focused on reviving dormant assets and bolstering security and infrastructure support. Collectively, these measures sought to dismantle significant financial, regulatory and operational hurdles, transforming Nigeria’s oil and gas sector into a more competitive and investor-friendly landscape. This signaled a renewed commitment to increasing production, attracting foreign investment and strengthening the country’s energy security.A little over a year since these strategic reforms took effect, visible progress is evident across the petroleum landscape.
Production levels are rising, investor participation has increased and operational activities have intensified in offices, fields and wells. More investment contracts have been signed in the offices, about 46 oil rigs are already active in the fields (as at July, 2025, from eight rigs in 2021) and the terminals are recording an average daily flow of about 1.78 million barrels of crude oil. This surge in rig activity underscores the upstream sector’s growing momentum and the government’s dedication to expanding production capacity and investment, a core component of the incremental production plan.The overarching goal of the one-million-barrel incremental effort is to further enhance Nigeria’s crude oil output from an average of 1.6 million barrels per day in 2024 to approximately 2.6 million barrels per day by 2026.
Conceived as a collaborative effort among upstream stakeholders: producers, service companies, rig operators, financiers and crude off-takers, the initiative aims to unlock additional production through reactivating dormant fields, fast-tracking approvals, deploying improved recovery techniques and adopting a cluster and nodal development strategy. This approach reduces costs and mitigates risks by sharing infrastructure, which, coupled with institutional support, has reportedly increased production by roughly 300,000 barrels per day by mid-2025.
A diligent enforcement of the Drill or Drop policy would further complement the project by mandating producers to commence production within stipulated deadlines or risk forfeiture of such licenses. It will prevent asset idling, boost rig activity, maximise resource use and enhance government revenue. Timely field development is capable of revitalising Nigeria’s upstream sector, enabling increased crude oil output and broader economic benefits from petroleum resources.On Monday, September 1, 2025, the Nigerian government, through NUPRC, marked another milestone in its drive to enhance oil production by formally signing a landmark Production Sharing Contract (PSC) covering Petroleum Prospecting Licences (PPLs) 2000 and 2001.
Executed on August 28, the PSC involves NNPC Limited (as Concessionaire) and TotalEnergies EP Nigeria Limited with South Atlantic Petroleum (Deep Offshore) Limited (as Contractors). This is the first deep offshore PSC awarded since the 2024 bid round and the first to comprehensively address both crude oil and natural gas, incorporating innovative gas terms designed to unlock monetisation of non-associated gas.Structured under the Petroleum Industry Act and the 2022 Licensing Regulations, the PSC introduces a new benchmark in contract design, incorporating 32 clauses and 13 appendices, emphasizing responsible operations, transparency and increased value for the country.
The contract features robust fiscal terms, including a signature bonus of $10 million, production bonuses activated at two production milestones: two million barrels and four million or cash equivalent upon achieving 35 million and 100 million barrels respectively, a crude profit oil split based on cumulative production, gas profit sharing tied to cumulative associated gas sales, a cost oil limit of 70%, applicable royalty rates and clear definitions of recoverable versus non-recoverable costs. It also includes provisions for decommissioning, abandonment and an environmental remediation fund, along with a mandated minimum work programme and performance guarantees.
This PSC signposts the commencement of a deliberate work programme intended to unlock Nigeria’s deep-water geological potential, expand reserves, augment production and enhance national energy security. Engr. Komolafe described the agreement as more than a contract; it represents a blueprint for the future, embodying Nigeria’s dedication to regulatory reform and energy sector expansion, and supporting NNPC’s target of two million barrels of oil and 10 billion cubic feet of gas per day by 2027. He reaffirmed NUPRC’s pledge to maintain a level playing field, reduce uncertainties and engender ease of doing business.
The TotalEnergies/South Atlantic Petroleum (SAPETRO) joint venture is the first international oil company partnership in a decade to be awarded exploration blocks through Nigeria’s 2024 licensing round. The two blocks cover about 2,000 square kilometers in the prolific West Delta Basin, with TotalEnergies holding an 80% operating interest and SAPETRO 20%.NNPC Limited’s Group Chief Executive Officer, Mr. Bashir Bayo Ojulari, emphasised that tapping non-associated gas in deep water under the PIA is a crucial frontier for the industry. He hailed the PSC as a significant milestone, reflecting the regulator’s commitment to implementing the PIA’s provisions. Ojulari expressed confidence that the partnership would bring NNPC closer to achieving its goal of three million barrels per day and attracting $60 billion in additional investments by 2030.
NNPC intends to leverage future bid rounds to demonstrate its capabilities and explore deep-water opportunities, while promising to market bid outcomes and PSC agreements in forthcoming rounds.Matthieu Bouyer, Country Chair and Managing Director of Total Energies EP Nigeria Limited, was excited that the acquisition aligns with the company’s strategy to expand its exploration portfolio with drill-ready and high-impact prospects, offering low-cost and low-emission development opportunities.
He praised NUPRC’s transparent and robust 2024 bidding process while reaffirming Total Energies’ long-term commitment to Nigeria, where it has operated for over 60 years, employing more than 1,800 people and producing approximately 209,000 barrels of oil equivalent per day in 2024. Bouyer described the PSC signing as the beginning of new exploration and a renewed partnership to maximise Nigeria’s oil potential.
He reiterated Total Energies’ dedication to local content development, job creation, capacity building, socio-economic development and the energy transition within Nigeria. Total Energies’ indicated plans for the commencement of drilling as soon as possible, underscoring a commitment to responsible and timely project execution. SAPETRO Managing Director Mr. Chukwuemeke Anagbogu commended NUPRC for its exemplary leadership throughout the process, describing it as “very transparent and completely free.”
Also, recent asset divestments by Shell Petroleum Development Company (SPDC) and Mobil Producing Nigeria Unlimited (MPNU) to Renaissance Africa Energy and Seplat Energy, respectively, have significantly advanced Nigeria’s push to increase crude oil output. These divestments have empowered indigenous operators to play a more central role in Nigeria’s pursuit of increased production.Renaissance, which took over SPDC’s assets, exceeded its initial production target by 40% within its first month of operations, delivering a notable boost to national output.
The acquisition has also enhanced local participation, improved operational efficiency and unlocked new potential in onshore and shallow water fields.Seplat Energy’s acquisition of MPNU in December 2024 expanded its asset base to 11 oil blocks and 48 fields. It has subsequently ramped up production from 50,000 to over 130,000 barrels of oil equivalent per day, with targets of 140,000 by year-end. Investments in drilling, asset revitalisation and gas projects like the Assa North–Ohaji South (ANOH) Gas Plant, are expected to boost gas output and further strengthen Nigeria’s production capacity.
Nigeria’s strategic reforms, exemplified by the landmark PSC and renewed regulatory commitment, have set a transformative course for the nation’s upstream oil sector. With increased investor confidence, enhanced operational efficiency and a clear roadmap for unlocking deep-water resources and non-associated gas, Nigeria is poised to realise its ambitious production targets and solidify its position as a leading energy producer. This collaborative effort among government, industry stakeholders and international partners not only promises to boost crude oil output and diversify energy resources but also strengthens the country’s economic resilience and energy security, laying a sustainable foundation for growth and development in the decades ahead.
James, a Fellow of the Nigerian Guild of Editors, lives in Abuja.
