Abuja, December 29, 2025 –
In a significant boost to Nigeria’s public finances, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has announced that presidential approval has been granted to write off the majority of the Nigerian National Petroleum Company Limited (NNPC Ltd)’s outstanding obligations as of December 31, 2024.
According to details from the Federation Account Allocation Committee (FAAC) report, NNPC Ltd’s outstanding obligations reported in October 2025 stood at approximately $1.48 billion and ₦6.33 trillion, primarily related to oil liftings under Production Sharing Contracts (PSC), Modified Carry Agreements (MCA), and Joint Venture (JV) royalty receivables.
Following recommendations from a stakeholder alignment committee on the reconciliation of indebtedness between NNPC Ltd and the Federation, the approval effectively “nils off” $1.42 billion and ₦5.57 trillion of these amounts. This leaves remaining obligations for the January to October 2025 period at $56.8 million and ₦1.02 trillion.
The NUPRC clarified that it has made the appropriate accounting entries to reflect this write-off. The move is part of ongoing efforts to reconcile and streamline remittances to the Federation Account.
Despite challenges such as fluctuating crude oil prices and production dips, the NUPRC remitted a total of ₦8.79 trillion to the Federation Account from January to October 2025. This includes JV and PSC royalty receivables from NNPC Ltd, as well as receipts under initiatives like Project Gazelle.
October 2025 saw notable improvements in royalty inflows, with oil and gas royalties reaching ₦807.08 billion – a ₦143.28 billion increase from September, signaling a recovery trend.
Analysts view the presidential intervention as a step toward resolving longstanding reconciliation issues in the oil sector, potentially easing financial pressures on NNPC Ltd while ensuring continued revenue flows to federal, state, and local governments.
What Are Production Sharing Contracts (PSCs)?
Production Sharing Contracts (PSCs), also known as Production Sharing Agreements (PSAs), are a common type of agreement in the oil and gas industry between a host government (or its national oil company) and an international oil company (or consortium of companies, often called the “contractor”). These contracts govern the exploration, development, and production of hydrocarbon resources in a specified area.
PSCs originated in Indonesia in the 1960s and became popular in developing countries, particularly in Asia, Africa, and the Middle East. They allow governments to retain ownership of the natural resources while attracting foreign expertise and capital for high-risk exploration activities.
Key Features of PSCs
Government Ownership: The host government remains the owner of the hydrocarbons in the ground. Title to the contractor’s share only transfers at a defined delivery point after production.
Risk Allocation: The contractor bears all exploration risks and costs. If no commercially viable discovery is made, the contractor receives no compensation.
No Upfront Payment for Resources: Unlike traditional concessions, the contractor does not buy rights to the resources upfront.
How Production Sharing Contracts Work
Once production begins after a successful discovery, the produced oil (or gas) is allocated in a specific sequence:
Royalty Oil: A portion (often 10-20%) is paid directly to the government as royalty. This is sometimes deducted first from gross production.
Cost Oil/Cost Recovery: The contractor recovers its approved capital and operating expenditures from a portion of the remaining production (typically capped at 40-80% of annual production, known as the “cost recovery limit”). This reimburses exploration, development, and production costs.
Profit Oil: The remaining production (after royalty and cost recovery) is split between the government and the contractor according to a pre-agreed ratio. This split can be fixed or sliding-scale, often based on factors like:
Production rates
Oil prices
Cumulative recovery (e.g., “R-factor”: ratio of revenues to costs)
Taxes: The contractor usually pays income tax on its share of profit oil. In some cases, the government’s share includes tax oil.
The contractor is responsible for operations, while a joint management committee (with representatives from both sides) often oversees decisions.
Example of Production Allocation
Assume annual production of 100 barrels:
Royalty: 10% → 10 barrels to government
Cost Recovery: Up to 50% of remaining (90 barrels) → Up to 45 barrels to contractor (for costs)
Profit Oil: Remaining 45 barrels split, e.g., 70% government (31.5 barrels), 30% contractor (13.5 barrels)
Total: Government ~41.5 barrels + taxes; Contractor ~58.5 barrels (costs + profit share).
PSCs in Nigeria
In Nigeria, PSCs are widely used, especially for deepwater and offshore fields since the 1990s. The Nigerian National Petroleum Company Limited (NNPC Ltd) represents the government as concessionaire. Contractors (e.g., TotalEnergies, Shell, ExxonMobil) handle operations under PSCs governed by laws like the Deep Offshore and Inland Basin Production Sharing Contract Act.
Recent examples include NNPC signing new PSCs with partners like TotalEnergies for exploration blocks, aiming to boost production. Obligations under Nigerian PSCs (e.g., royalties, cost recovery) can lead to reconciliations, as seen in reports of outstanding amounts related to liftings and receivables.
Advantages and Challenges
For Governments: Retain sovereignty, maximize revenue, gain technology transfer.
For Contractors: Potential for high returns if successful, clear cost recovery mechanism.
Challenges: Complex negotiations, disputes over cost recoverability, sliding scales that adjust with profitability.
PSCs differ from joint ventures (where partners share costs/risks proportionally) or service contracts (where contractors are paid a fee without production share). They strike a balance, making them a preferred model in many resource-rich nations.
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Presidential Approval Clears Bulk of NNPC Ltd’s Outstanding Obligations to Federation
