Nigeria’s Strategic Gas Sector Reforms and TotalEnergies’ PSC: A Catalyst for Attracting Upstream Investment in Africa

Nigeria’s gas sector is undergoing a transformative phase, driven by bold policy reforms and landmark partnerships that position the country as a pivotal player in Africa’s energy landscape. The 2025 Upstream Petroleum Operations (Cost Efficiency Incentives) Order, coupled with TotalEnergies’ recent production-sharing contract (PSC) in the Niger Delta, underscores Nigeria’s commitment to attracting upstream investment while aligning with global decarbonization goals. This analysis evaluates the investment potential of Nigeria’s reformed gas sector, focusing on the interplay between regulatory innovation, fiscal incentives, and strategic partnerships.

Policy Reforms: A Foundation for Competitiveness

The Nigerian government’s 2025 reforms, signed by President Bola Ahmed Tinubu, introduce performance-based tax incentives to reduce upstream operating costs and enhance competitiveness. Companies achieving cost-efficiency benchmarks can claim tax credits equivalent to 50% of the government’s gain, though these credits are capped at 20% of the company’s annual tax liability [1]. This structure balances investor rewards with fiscal prudence, ensuring the government retains a significant share of value creation.

The reforms are part of a broader strategy to address historical inefficiencies, such as delayed project execution and high unit operating costs. By publishing annual cost benchmarks for onshore, shallow-water, and deep-water projects, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and Federal Inland Revenue Service (FIRS) aim to create transparency and accountability [2]. These measures align with the 2021 Petroleum Industry Act (PIA), which has already catalyzed $13.5 billion in upstream investments in 2024, including projects like Shell’s Iseni Gas Project and TotalEnergies’ Ubeta Gas Project [3].

TotalEnergies’ PSC: A Model for Future Deals

TotalEnergies’ recent PSC with South Atlantic Petroleum (Sapetro) for deepwater blocks PPL 2000 and 2001 exemplifies the success of Nigeria’s reform agenda. The $10 million signature bonus and output-based incentives—such as production bonuses tied to 35 million and 100 million barrels of output—reflect a risk-mitigated approach for investors [4]. The 70% cost recovery cap ensures fiscal discipline while allowing the company to retain a substantial portion of profits.

Crucially, the PSC is the first in Nigeria to comprehensively cover both crude oil and natural gas, with robust terms for monetizing non-associated gas. This aligns with the government’s goal to reduce gas flaring and boost domestic gas utilization, which is critical for achieving a 61% methane emissions reduction by 2030 [5]. TotalEnergies’ 80% stake, combined with Sapetro’s 20% local participation, also underscores the PIA’s emphasis on local content development, fostering technology transfer and domestic capacity building [6].

Investor Reactions and Risk Mitigation

Despite Nigeria’s progress, investor sentiment remains cautious. The sector has seen a negative 12.2% year-to-date return in 2025, driven by global energy transition pressures and domestic challenges like fuel subsidy removal [7]. However, TotalEnergies’ alignment with Nigeria’s ESG goals—such as zero routine flaring and methane reduction technologies—positions the company to capitalize on global gas sector benchmarks [8].

The PSC’s performance-based incentives and streamlined regulatory framework mitigate operational risks. For instance, the NUPRC’s digital transformation initiatives and cluster development model for deepwater projects have reduced turnaround times and enhanced data integrity [9]. These reforms, combined with the Midstream and Downstream Gas Infrastructure Fund (MDGIF), create a more predictable environment for capital allocation [10].

Comparative Attractiveness: Nigeria vs. Global Peers

Nigeria’s 2025 reforms have elevated its status as Africa’s top upstream investment destination. According to Wood Mackenzie, the country secured three out of four Final Investment Decisions (FIDs) in 2024, outpacing peers like Angola and Mozambique [11]. The government’s 2024 licensing round, offering 19 exploration blocks, further signals confidence in the sector’s potential [12].

However, Nigeria still ranks 9th in Africa’s 2024 investment attractiveness index, lagging behind countries with more stable regulatory environments [13]. Challenges such as infrastructure gaps and security concerns persist, but the administration’s focus on market-linked gas pricing and modular processing infrastructure—exemplified by the NLNG Train 7 expansion—addresses these gaps [14].

Conclusion: A Strategic Pivot for Africa’s Energy Future

Nigeria’s gas sector reforms and TotalEnergies’ PSC represent a strategic pivot toward a competitive, sustainable energy economy. By harmonizing fiscal incentives with environmental goals and regulatory clarity, the country is repositioning itself as a hub for responsible upstream investment. While challenges remain, the alignment of policy, private-sector expertise, and global energy transition trends suggests that Nigeria’s gas sector is poised to unlock significant value for investors and the nation alike.

Source:
[1] Nigeria enacts cost efficiency tax incentives for oil and gas [https://www.ey.com/en_gl/technical/tax-alerts/nigeria-enacts-cost-efficiency-tax-incentives-for-oil-and-gas-upstream-petroleum-sector]
[2] Nigeria's New Presidential Directive on Cost Efficiency [https://www.energyreforms.ng/publications/putting-every-barrel-to-work-nigeria-s-new-presidential-directive-on-cost-efficiency-/]
[3] Nigeria Leads Africa as Top Upstream Investment [https://energychamber.org/nigeria-leads-africa-as-top-upstream-investment-destination-aec-applauds-governments-policy-reforms/]
[4] TotalEnergies is Awarded Two Offshore Exploration Permits [https://totalenergies.com/news/press-releases/nigeria-totalenergies-awarded-two-offshore-exploration-permits]
[5] Nigeria's Strategic Deepwater Oil Expansion [https://www.ainvest.com/news/nigeria-strategic-deepwater-oil-expansion-high-impact-investment-opportunity-energy-secured-africa-2509/]
[6] FG, TotalEnergies, Sapetro Sign Deepwater PSC for Niger Delta [https://theelectricityhub.com/fg-totalenergies-sapetro-sign-deepwater-psc-for-niger-delta/]
[7] Investors dump oil, gas stocks over negative YTD investment returns [https://guardian.ng/business-services/investors-dump-oil-gas-stocks-over-negative-ytd-investment-returns/]
[8] TotalEnergies: Nigeria's Energy Future Depends on People [https://www.naijapreneur.com/totalenergies-nigerias-energy-future-depends-on-people-not-just-oil/]
[9] NAICE 2025 RECAP: SHOWCASING REGULATORY EXCELLENCE AND STRATEGIC REFORMS [https://www.nuprc.gov.ng/naice-2025-recap-showcasing-regulatory-excellence-and-strategic-reforms/]
[10] NUPRC HIGHLIGHTS AT NOG ENERGY WEEK [https://www.nuprc.gov.ng/pia-and-executive-orders-drive-strategic-reforms-in-nigerias-oil-and-gas-sector-nuprc-highlights-at-nog-energy-week/]
[11] Nigeria Leads Africa in Oil and Gas Investment [https://furtherafrica.com/2025/01/22/nigeria-tops-africas-oil-and-gas-investment-with-us13-5b-in-2024/]
[12] Nigeria Emerges as Top Destination for Oil and Gas..., [https://africa.businessinsider.com/local/markets/wood-mackenzie-report-nigeria-emerges-as-top-destination-for-oil-and-gas-investments/rpvs8c4]
[13] Nigeria Ranks 9th in Africa's 2024 Investment Destinations..., [https://www.tekedia.com/nigeria-ranks-9th-in-africas-2024-investment-destinations-recorded-no-foreign-capital-investment-in-oil-sector-in-q1-2024/?srsltid=AfmBOoqqU09JFj3DqKjvwdSQTtdLHaFjlOrFrgCU3s_mK12sb8yBcASo]
[14] Nigeria to Showcase Executive Order Reforms, Investment [https://aecweek.com/nigeria-to-showcase-executive-order-reforms-investment-opportunities-at-aew-2025/]