Nigeria Cuts Oil Firms' Recovery Ceiling to Boost Budget Income Amid Low Oil Prices

Nigeria has lowered the cost-recovery cap for oil firms with production-sharing contracts to 70% from 80%, aiming to boost government revenue amid lower crude oil prices. The move will impact oil majors like Shell, ExxonMobil, Chevron, and TotalEnergies. The government aims to increase its stake in oil production while ensuring good returns for contractors. The change is expected to help Nigeria meet its fiscal deficit targets.

In a strategic move to bolster government revenue amidst lower crude oil prices, Nigeria has reduced the cost-recovery cap for oil firms with production-sharing contracts. The new threshold, set at 70%, is a 10% decrease from the previous 80% ceiling [1]. This adjustment aims to enhance the government's stake in oil production while ensuring a good return on investment for contractors.

The decision, announced by Bashir Ojulari, group chief executive officer of the Nigerian National Petroleum Co. Ltd., is expected to impact major oil companies such as Shell, ExxonMobil, Chevron, and TotalEnergies. These firms operate deepwater offshore fields like Agbami, Egina, and Akpo, which account for roughly a third of Nigeria's total oil output [1].

The International Monetary Fund projects that Nigeria's fiscal deficit could expand to 4.7% of gross domestic product this year, up from 4.1% in 2024, primarily due to lower oil prices. Nigeria's 2025 budget was initially planned based on an optimistic oil price of $75 per barrel and a production target of 2.06 million barrels per day, but current prices and volumes are falling short of these projections [1].

The Nigerian government's move to lower the cost-recovery cap is part of its efforts to manage the budget deficit. The balance of 30% unrecoverable cost, or profit oil, will be shared between the companies and the government according to the terms of their specific contracts [1].

As of August, Nigeria's excess crude account (ECA) stood at $535,823.39, indicating a healthy financial buffer for the government [2]. This move is expected to contribute to the government's goal of maintaining fiscal stability amidst challenging economic conditions.

References:
[1] https://www.bloomberg.com/news/articles/2025-09-01/nigeria-cuts-oil-firms-cost-recovery-cap-to-boost-budget-income
[2] https://www.facebook.com/groups/1048083815220416/posts/25116431287958999/