Sopuruchi Onwuka

Nigeria’s increasingly aggressive use of petroleum licensing rounds to attract investment, expand exploration and raise oil and gas production risks producing the opposite of the desired outcome if the management of license awards continues to leave critical commercial and operational relationships unresolved.

The warning is becoming more evident as the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) moves to enforce the “drill-or-drop” provisions of the Petroleum Industry Act (PIA) 2021 against holders of recently awarded petroleum prospecting licenses whose assets remain inactive.

The Commission on September 14, served an enforcement notice to holders of licenses awarded under the 2020 Marginal Field Bid Round, the 2022/2023 Mini Bid Round and the 2024 Licensing Round is, warning them of impending loss of their licenses for lack of activity, while offering to help mediate internal disputes and resolve operating difficulties.

But beyond the immediate threat of relinquishment and revocation, what has become apparent is that the process that churns out acreages to investors is not equally effective at ensuring that the award structures can deliver timely exploration, development and needed production boost.

Oracle Intelligence reports that under the prevailing production growth agenda, the administration of President Bola Tinubu has targeted an additional one million barrels per day in the short term and overall national production of three million barrels per day.

To achieve this, policymakers and regulators have deployed fiscal incentives, successive licensing rounds and stronger enforcement of work commitments, with the intention of moving assets quickly from award to exploration, development and production.

Yet increased access to acreage has not automatically translated into the expected level of field activity across all newly awarded assets; and industry analysts attribute part of the problem to the way some awards have produced partnerships involving investors with different financial strength, technical competence, operational capacity and investment appetite.

Whereas it is traditional for players in the high risk and high reward petroleum industry to forge partnerships that drive joint ventures in exploration and production, the present difficulty becomes particularly acute because partners in the awarded licenses complain that they did not voluntarily collaborate in the bidding. Some participants stated that they became aware of their partners only after the results were announced.

Consequently, investors with different levels of preparedness and capacity have had to negotiate commercial relationships after receiving the awards, exposing a potentially costly design problem in an industry where time is capital.

Thus, whereas policy drivers and regulators wanted the licensees to hit the ground running, most of the consortiums have spent months or years resolving issues of participating interests, operatorship, funding obligations, cash calls or technical responsibilities.

In some cases, the post-award negotiations have reportedly produced buyouts of smaller participants by dominant partners. In others, partners have struggled to agree on operating arrangements, while some relationships have deteriorated into disputes. The result, according to the analysis supplied, is that acreage can become trapped in partnership negotiations rather than move into drilling programmes.

While some of the private commercial disagreements would eventually be resolved, they evidently delay commencement of work programmes on the awarded assets.

And the postponed field activities ultimately defeat the goal of urgent production boost, leading to distortions in government’s fiscal plans, and propelling massive external borrowings.

The prevailing impasse creates a fundamental paradox in Nigeria’s licensing policy. The objective of bringing more investors into the upstream industry is defeated when the resulting ownership structures are not sufficiently aligned to execute the work programme. And the NUPRC is now attempting to correct the consequences through enforcement.

In its directive pushed out to the industry on September 14, the NUPRC reminded licensees that petroleum prospecting licenses have finite terms and that continued entitlement to the acreage depends on fulfilment of approved work programmes.

Under the PIA, the commission maintains, acreage is granted to be worked; acreage that is not worked within its term returns to the Federal Government.

The regulator has therefore threatened measures including refusal of extensions, relinquishment, calling in work-performance securities and revocation proceedings against non-performing acreage.

However, the commission acknowledged that every delay does not represent deliberate asset hoarding.

Chief Executive of the NUPRC, Mrs Oritsemeyiwa Eyesan, expressly acknowledged that licensees can encounter financing constraints, rig availability problems, security challenges, host-community issues, infrastructure deficiencies, regulatory approvals and partner disputes.

She announced that the Commission has given affected operators until October 31, 2026, to explain their constraints and submit mitigation measures and revised implementation timelines.

The acknowledgement by the NUPRC thus raises a question beyond the immediate responsibility of the license holders. And there have been questions on whether the regulator should wait until after a problematic award has been made before discovering that the consortium is commercially or operationally incapable of moving the asset forward.

As earlier canvassed, there is nothing inherently wrong with partnerships or with deliberately widening participation by indigenous companies and new entrants. Indeed, broadening participation is one of the legitimate objectives of Nigeria’s licensing policy. The problem arises when participation becomes an end in itself and the resulting ownership structure is not tested sufficiently against the overriding objective of putting petroleum assets into production.

Global licensing practice provides a useful reference point. World Bank guidance on petroleum-rights allocation says prequalification is increasingly used to ensure that bidders possess the financial and technical capacity to undertake substantial exploration or development programmes. It also identifies the need for allocation systems to favour the company or consortium best able to perform the required work and to resist political and lobbying pressures that could distort allocation.

The same body of guidance stresses that transparent allocation systems should clearly disclose objectives, procedures and award criteria. Such systems are intended not merely to demonstrate procedural fairness but to make bidders understand what is required and reduce opportunities for external pressure to distort the allocation of rights.

The Extractive Industries Transparency Initiative (EITI) similarly places emphasis on disclosure of the process for awarding licenses, the technical and financial criteria applied, the identities of recipients and consortium members, and any material departures from the applicable legal framework. It also encourages disclosure of information that allows stakeholders to assess the efficiency and effectiveness of licensing procedures.

Nigeria has already moved in this direction formally as NEITI’s description of Nigeria’s licensing-round process includes publication of the round, prequalification on legal, financial and technical criteria, technical and commercial bid submission and evaluation, award and fulfilment of conditions.

Most importantly, the NUPRC has also publicly stated that its recent rounds are intended to be transparent, competitive and data-driven. At its July 2026 commercial bid conference, Eyesan said the true measure of success would not be the number of winners but the speed with which awards move from paper to seismic acquisition, drilling and ultimately production.

That stated standard should now be applied more rigorously to the architecture of the awards themselves.

If technical and financial capacity is a criterion before an investor enters a bid, it should also be clear how the capacity of a consortium will be assessed after the award. If a consortium is expected to develop an asset jointly, the regulatory process should ensure that participating interests, operatorship, funding obligations, technical responsibilities and dispute-resolution mechanisms are sufficiently defined to prevent the award from becoming the beginning of another round of negotiations.

It is in the foreground of the above that the Nigeria’s licensing process needs to move decisively away from processes susceptible to political interests, patronage considerations or the mere arithmetic of distributing acreage, towards internationally recognized standards of transparent, capability-based and performance-oriented allocation.

The objective should not be to exclude indigenous investors or smaller companies. Rather, it should be to ensure that local participation is compatible with demonstrable capacity, credible financing and clearly defined partnerships.

Where a smaller investor brings local knowledge or strategic value but lacks the capital to execute its share of the work, the regulatory framework should provide a transparent basis for determining how that participation can be financed without paralysing the asset.

Equally important is the need to separate political discretion from technical evaluation. The World Bank’s licensing guidance specifically identifies resistance to political and lobbying pressures as an important consideration in designing allocation systems. EITI standards, meanwhile, call for disclosure of the criteria used, the recipients and consortium members and any material deviations from established rules.

These transparency ideals have direct production consequences. Delivery of policy objectives delay when award decisions produce commercially incompatible partnerships, investors spend years negotiating how to work together, and the industry loses vibrancy. The situation translates to loss of potential royalties, taxes and production.

And where investors perceive the allocation process as uncertain or susceptible to interests outside published criteria, the country risks losing the confidence that its licensing reforms are intended to create.

Interestingly, the NUPRC is applying a similar performance-based philosophy to the Nigeria Gas Flare Commercialization Programme, indicating that the problem is rooted more in the bidding process for assets.

On September 9, Eyesan said awardees whose flare-gas sites failed to show considerable progress one year after award could face regulatory action, including revocation.

Thus, in both the upstream licensing process and the gas-flare programme, government is attempting to convert rights over petroleum resources into actual economic activity with a with the drill or drop, asserting that an has arrived for awards to be treated as conditional on performance rather than as an asset to be held indefinitely.

But industry players argue that the more sustainable approach is to improve the quality of the award before the license is issued. They argue that the regulatory agencies should know who wants an asset, can finance it, who can operate it, who the partners are, how their interests will be aligned and what happens if one of them fails to perform.

Our respondents who volunteered opinion on the matter noted that it has become particularly urgent for Nigeria to move towards more frequent licensing rounds; demanding that the NUPRC should consider regular access to acreage necessary to sustain exploration and replenish reserves.

In delivering on the expectations, the commission offered 50 blocks in 2025, with 31 companies emerging as winners of 37 blocks. But the commission has realized that the principal performance test for the entire licensing round should ultimately be measured by seismic work, drilling, development and production.

Nigeria therefore needs to move beyond celebrating the number of blocks offered, the number of bids received, or the number of winners announced. The critical numbers after a bid round should therefore shift to the volume of reserves and barrels.

The September enforcement circulars therefore transcend warning to struggling licensees to an opportunity to examine whether Nigeria’s licensing system is solving the problem it was created to solve.

The NUPRC says its objective is increased production rather than forfeiture. Its willingness to facilitate discussions with licensees facing genuine constraints is therefore appropriate. But the regulator should also examine whether some of those constraints could have been anticipated and addressed during the award process itself.

The time has come for Nigeria’s regulators to make the critical transition from licensing for participation to licensing for performance. The transition entails strengthening independent technical and financial prequalification, ensuring that consortium structures are commercially coherent before awards become binding, publishing and consistently applying objective criteria, disclosing award and ownership information, protecting the process from political and lobbying pressures, and measuring each licensing round by the speed and scale of investment and production it generates.

Nigeria does not lack petroleum resources, investor interest or ambitious production targets. What is increasingly at stake is the efficiency of the institutional machinery connecting those resources and investors to actual production.

Until that machinery is aligned more closely with global best practice, successive licensing rounds risk creating a growing inventory of awarded acreage without delivering a commensurate increase in drilling, reserves and output.