Licensing & Concessions

Access to Nigeria's petroleum resources is governed by a system of licences and leases that grant companies the right to explore, develop, and produce hydrocarbons. The PIA introduced a modernised licensing framework while preserving transitional arrangements for existing concessions. Understanding this system is essential for anyone involved in upstream investment or asset transactions in Nigeria.

Types of Petroleum Licences

The PIA introduced new licence designations while providing for the conversion of legacy instruments. The table below compares the old and new frameworks.

Under the PIA, a PPL is granted for an initial period of six years, with a possible renewal of another six years for onshore and shallow-water blocks, or longer for deep-water and frontier areas. A PML is granted for an initial period of twenty years and is renewable for further periods of twenty years, provided the leaseholder meets its work programme commitments and fiscal obligations.

Licensing Rounds and Bid Processes

The PIA mandates that new petroleum licences and leases be awarded through open, competitive, and transparent bidding processes conducted by the NUPRC. This replaced the historically opaque discretionary system under which the Minister of Petroleum Resources had the power to award blocks directly - a process that was widely criticised for enabling political patronage and corruption.

Nigeria has conducted several major licensing rounds over the decades. The 2005 bid round and the 2007 mini bid round attracted significant interest, though some awards were subsequently mired in controversy and litigation. More recently, the NUPRC conducted the 2022 mini bid round - the first under the PIA - offering 57 blocks across onshore, shallow-water, and deep-water basins. This round drew over 400 applications from Nigerian and international companies.

The bid process typically involves pre-qualification, technical evaluation of work programme commitments, financial evaluation (including signature bonuses), and the final award by the NUPRC. Signature bonuses - upfront payments made upon the grant of a licence or lease - vary significantly depending on the block's prospectivity, terrain, and competitive interest.

Marginal Field Allocations

Nigeria's marginal field programme, established under the Marginal Fields Development Decree of 1996, was designed to promote indigenous participation in upstream oil and gas production. Under this programme, the government identifies fields within existing OMLs that have been left unproduced for ten or more years and allocates them to Nigerian-owned companies.

The first marginal field bid round was conducted in 2003, with 24 fields awarded to 31 companies. However, progress was slow - many awardees struggled to raise financing and technical capacity. By 2020, only a handful of marginal field operators had achieved first oil.

A second round was launched in 2020-2021, offering 57 marginal fields. This round attracted intense interest, with over 600 applications received. The government raised approximately $500 million in signature bonuses from the second round, significantly more than the first. The marginal field programme has succeeded in increasing indigenous participation but continues to face challenges related to access to capital, technical expertise, and community relations.

Farm-in and Farm-out Transactions

Farm-in and farm-out transactions are a common mechanism for transferring interests in petroleum assets. In a farm-out, the holder of a licence or lease (the "farmor") assigns a portion of its interest to another company (the "farmee"), typically in exchange for the farmee carrying some or all of the farmor's share of exploration or development costs.

Under the PIA, all assignments and transfers of interests in petroleum licences require the prior consent of the NUPRC (for upstream assets) or the NMDPRA (for midstream assets). The minister's consent is also required for transfers that result in a change of control. Applications for consent must be accompanied by details of the transaction, proof of the farmee's technical and financial capability, and payment of the applicable processing fees.

Farm-in/farm-out transactions have been pivotal in Nigeria's upstream sector, particularly during the period of IOC divestment from onshore and shallow-water assets from the 2010s through to 2025. Companies such as Renaissance Africa Energy, Seplat, Oando, Aiteo, First E&P, and Heirs Holdings acquired significant portfolios through this mechanism, completing the most substantial ownership restructuring in Nigerian upstream history.

Licence Revocation

The PIA strengthened the grounds and procedures for licence revocation. The NUPRC may revoke a petroleum licence or lease on several grounds, including failure to commence or continue operations as required by the work programme, non-payment of rents, royalties, or other fiscal obligations, material breach of licence conditions, and fraud or misrepresentation in the application process.

Before revoking a licence, the NUPRC must give the holder at least 30 days' written notice specifying the grounds for revocation and allowing the holder to remedy the breach or make representations. If the holder fails to remedy the breach within the notice period, the NUPRC may proceed with revocation. The revocation decision is subject to judicial review.

Revocation has historically been a contentious issue in Nigeria, with several high-profile cases involving disputes over the validity of original awards, allegations of non-performance, and claims of politically motivated revocations. The PIA's clearer procedural requirements aim to reduce the scope for arbitrary or capricious revocation decisions.