How NUPRC Broke New Ground With Historic Deep Offshore Oil & Gas Contract

In what industry experts are calling a transformative moment for Nigeria’s oil and gas sector, a historic Production Sharing Contract (PSC) covering the deep offshore blocks PPL 2000 and PPL 2001 was formally executed last Monday.

The agreement, signed in Abuja, brings together the Nigerian National Petroleum Company Limited (NNPC Ltd), TotalEnergies EP Nigeria Limited, and South Atlantic Petroleum (Deep Offshore) Limited as joint partners in developing some of Nigeria’s most promising offshore hydrocarbon resources.

This PSC marks the first contract awarded after the 2024 deep offshore licensing bid round and represents a significant evolution in how Nigeria manages its petroleum resources under the recently enacted Petroleum Industry Act (PIA) 2021. The contract’s signing sets a new benchmark for transparency, investor confidence, and fiscal terms in Nigeria’s upstream petroleum sector.

Setting The Stage: A New Era for Nigeria’s Offshore Industry

The Nigerian oil and gas sector has historically been the backbone of the country’s economy, accounting for over 90 per cent of export revenues and a significant portion of government income. However, decades of underinvestment, regulatory uncertainty, and complex contract structures have slowed deep offshore development and discouraged some investors.

The enactment of the PIA in 2021 was designed to reverse this trend by overhauling the legal and regulatory framework governing the petroleum industry. Among its many provisions, the PIA mandated a transparent, competitive licensing process, culminating in the 2024 deep offshore bid round—the first of its kind under the new law.

The PSC for PPL 2000 and PPL 2001 is the direct outcome of that process, reflecting a new paradigm for petroleum exploration and production in Nigeria.

What Makes This PSC Different?
Several key features distinguish this PSC from previous agreements:

Comprehensive Coverage of Oil and Gas

Unlike earlier contracts that focused primarily on crude oil, this PSC explicitly includes both crude oil and natural gas. This is particularly important given Nigeria’s strategic gas reserves and its ambitions to become a regional gas hub.

Gas Profit Split & Monetization Incentives

One of the most innovative elements of the PSC is the introduction of a gas profit split, a fiscal mechanism designed to incentivize the commercial development of Non-Associated Gas (NAG)—natural gas reserves not directly linked to oil production. By encouraging gas monetization, Nigeria aims to diversify its energy portfolio and reduce reliance on oil revenues.

Robust Fiscal Terms

The contract includes a $10m signature bonus; production bonuses at 2 million barrels, 35 million barrels, and 100 million barrels milestones, with cash equivalents where applicable; and a profit oil split that rewards increasing cumulative production;

A 70 per cent cost oil limit to ensure a balanced cost recovery regime; clearly defined royalty rates; and detailed rules on recoverable and non-recoverable costs.

These fiscal terms are designed to maximize government revenue while providing investors with attractive returns.

Inside The PSC: Legal & Operational Framework:

The PSC was developed in strict compliance with Section 85(3) of the PIA and Regulation 23(1) of the Petroleum Licensing Round Regulation 2022. This legal foundation enshrines the contract as a critical component of the license award process, ensuring that all operations comply with Nigeria’s updated petroleum laws.

The contract document itself is expansive, comprising 32 clauses and 13 appendices. It outlines the governance and oversight responsibilities of NNPC Ltd as the Concessionaire, acting on behalf of the Federation; the duties and obligations of the contractors (TotalEnergies and South Atlantic Petroleum); and the environmental, social, and operational standards to be upheld during upstream petroleum activities.

By capturing the nuances of the PIA, the PSC sets a precedent for the industry’s future contracts, promoting accountability, efficiency, and sustainable development.

The PSC signing ceremony was attended by key stakeholders in Nigeria’s petroleum sector. Among the most notable voices were Bayo Ojulari, Group Chief Executive Officer (GCEO) of NNPC Ltd, and Gbenga Komolafe, Chief Executive Officer (CEO) of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).

In his address, the NNPC GCEO Bayo Oulari emphasized the strategic importance of the PSC, stating, “Today marks a major milestone not just for NNPC Ltd, but for Nigeria’s entire petroleum industry. This PSC is a testament to our commitment to unlocking the full potential of our deep offshore resources in a manner that is transparent, fair, and geared toward national prosperity.”

Ojulari highlighted the significance of integrating gas into the PSC framework.

He said, “The inclusion of gas terms, particularly the profit gas split, signals our understanding that gas is the fuel of the future—not just for Nigeria, but globally. This contract aligns with Nigeria’s vision to grow its gas production to 10 billion standard cubic feet per day by 2027, supporting industrialization and export opportunities.”

He also acknowledged the role of strong regulatory frameworks and governance in attracting investment:
“Our focus on robust contract terms, backed by the Petroleum Industry Act, demonstrates that Nigeria is open for business—investor-friendly yet fiercely protective of national interests.”

NUPRC CEO Gbenga Komolafe echoed these sentiments, emphasizing the regulator’s role:
“The Nigerian Upstream Petroleum Regulatory Commission is proud to support this historic PSC, which exemplifies the kind of clear, balanced, and comprehensive contracts needed to attract serious investment into Nigeria’s deep offshore sector.”

Komolafe noted the PSC’s alignment with PIA mandates,“This contract sets a benchmark for compliance and transparency. It integrates lessons learned from previous licensing rounds and reflects our commitment to effective regulation and oversight. It ensures the federation gets maximum value while fostering investor confidence.”

He acknowledged the long-standing presence of both companies in Nigeria, with TotalEnergies operating in the country for over 60 years and Sapetro for 30 years.

The award, he emphasized, is a direct result of the transparent, reform-driven framework introduced under the Petroleum Industry Act (PIA) 2021.

Komolafe paid glowing tributes to President Bola Tinubu for his transformative leadership in the sector, citing his decisive reforms and strategic directives that have repositioned Nigeria as a viable investment destination.

He highlighted Executive Orders 40, 41, and 42 focused on fiscal incentives, local content enhancement, and contract efficiency, respectively as key enablers of the current investment boom.

Reflecting on the challenges encountered during the 2024 Licensing Round, Komolafe noted that attracting investors was not without difficulty.

However, with presidential approval, he said the Commission implemented a pragmatic solution by introducing minimum signature bonuses as consideration for asset awards.

This move, he explained, brought Nigeria in line with international best practices, following the example of countries such as Thailand, Israel, Guyana, and Brazil, which have shifted away from heavy front-loaded bonuses to more investor-friendly models.

“This helped attract serious investors without front-loading financial burdens,” he added.

The Managing Director of TotalEnergies, Mr Mathieu Bouyer emphasized Total Energies’ commitment to Nigeria, highlighting their presence for over 60 years.

He outlined the company’s plans to progress swiftly and responsibly with the implementation of the agreed work program, noting that Total is actively working towards spudding its first well on the blocks in the shortest possible time frame.

He expressed the commitment of the partners to deliver results that will benefit all stakeholders, reinforcing Nigeria content, creating jobs, and generating value for the country and its people.

Economic and Strategic Implications
The signing of the PSC is more than just a bureaucratic exercise—it is a catalyst for economic growth and energy security.

Boosting Oil Production:

Nigeria has struggled in recent years to maintain and grow its crude oil production levels amid declining reserves and underinvestment. The PPL 2000 and 2001 PSC, with its incentives for increasing production, is expected to contribute significantly toward achieving the government’s target of 2 million barrels per day by 2027.

Unlocking Gas Potential

With global energy demand shifting toward cleaner fuels, natural gas presents a huge opportunity for Nigeria. The gas profit split and the contract’s strong emphasis on gas monetization reflect a national strategy to leverage gas resources for power generation, industrialization, and export via liquefied natural gas (LNG).

Job Creation & Local Content

Beyond production targets, the PSC also mandates compliance with Nigeria’s local content laws. This means more jobs for Nigerians, greater participation of local companies in upstream operations, and broader economic benefits for host communities.

The signing of the Production Sharing Contract for PPL 2000 and PPL 2001 is a defining moment in Nigeria’s energy history. It underscores a shift toward a more transparent, investor-friendly, and balanced petroleum industry—one where the government and private investors share both the risks and rewards of developing Nigeria’s deep offshore hydrocarbon wealth.

With this PSC, Nigeria takes a confident step toward realizing its full potential as a global energy player, anchored by sound policies, robust contracts, and visionary leadership.