The Petroleum Industry Act, 2021 (PIA) represents a comprehensive overhaul of Nigeria’s oil and gas regime, carving out a clear legal and institutional framework for upstream exploration and production. The Act falls under the exclusive legislative competence of the Federal Government (see Sch. 2 of the 1999 Constitution) and empowers the new Nigerian Upstream Petroleum Regulatory Commission (NUPRC) to issue and regulate exploration and production licences. In practice, this means that all upstream petroleum licences and any dispute over them are governed by federal law and administered by NUPRC. By introducing distinct licence categories, codifying tenure rights, and requiring open, competitive bidding, the PIA aims to provide tenure security and transparency for investors. Notably, Nigerian law protects upstream licence rights as “immovable property” under s.44 of the Constitution, and forbids compulsory acquisition of such licences except by law.
Types of Upstream Licences
Under the PIA, upstream licences are divided into three main categories:
- Petroleum Exploration Licence (PEL) – This license grants the holder a non-exclusive right to explore for petroleum in a specified area. A PEL lasts 3 years and may be renewed once for another 3-year term upon meeting prescribed conditions. Exploration under a PEL can even cover areas within a PPL or PML so long as those holders waive rights to survey results and a PEL does not confer production rights.
- Petroleum Prospecting Licence (PPL) – Authorizes exploration and appraisal drilling on a non-exclusive basis. In shallow/onshore areas a PPL is valid for an initial 3-year term (renewable once for 3 years); in deepwater or frontier areas it is valid for 5 years (renewable once). Crucially, any PPL-holder must submit a detailed Field Development Plan to NUPRC within 2 years of declaring a commercial discovery. The PIA thus ensures that exploration discoveries are promptly followed by planning for production.
- Petroleum Mining Lease (PML) – Gives the holder an exclusive right to develop and produce oil, condensates and gas in the lease area. A PML also allows continued (non-exclusive) exploration in the area. By law, a PML is granted only to a PPL-holder for each commercial discovery of oil or gas, once all licence conditions are satisfied. A PML may run for up to 20 years (renewable thereafter), but the holder must maintain production and failure to produce can trigger revocation and reversion of the asset to the state.
Importantly, any upstream licence or lease may be granted only to a company incorporated in Nigeria. Individuals or ordinary partnerships are statutorily prohibited from holding PELs, PPLs or PMLs. The Act even imposes penalties on non-corporate operators. This corporate-only requirement is intended to facilitate transparency and ensure accountability.
Licensing Process and Eligibility
Licences under the PIA are awarded by NUPRC through a competitive, rules-based process. The Act’s Section 73 expressly mandates that licence rounds be conducted on the principles of competitiveness, openness and transparency. In practice, this means that acreage bid rounds are held openly and often online, with technical and financial bids evaluated against published criteria. For example, the first PIA-era licensing round (in 2024) was widely lauded as “the most transparent ever,” with live digital bidding and oversight by NEITI (the Extractive Industries Transparency Initiative) observers. The round’s design emphasized fair access (bidders did not know the outcome in advance) and even introduced bid bonds to ensure winners develop the acreage.
To qualify for a licence, applicants must meet statutory eligibility criteria. They must be Nigerian companies (with foreign equity subject to local-content limits under the Act), properly incorporated and in good standing. They must also possess the technical capacity and financial wherewithal to carry out the work programme. In assessing bids, NUPRC looks at factors such as proposed work commitments, safety/environmental plans, and (where relevant) plans to monetize gas. Notably, the PIA shifted emphasis away from high signature bonuses to focusing on quality of the development plan. This change is intended to attract investors who prioritise field development over pay-to-play fees.
At all times, NUPRC’s oversight is guided by detailed regulations. The Commission is empowered to request additional information, examine bidders’ credentials, and enforce Nigerian content rules. By law, NUPRC must keep a public register of all upstream licences, leases and permits. This public register (to be posted on its website) increases transparency by allowing anyone to verify who holds a given petroleum interest. In short, licence awards under the PIA are no longer ad hoc ministerial deals but formal processes subject to statutory safeguards.
Transfer and Revocation of Licences
The PIA imposes strict rules on the transfer (assignment or novation) of petroleum licences. No licensee may assign or transfer any participating interest without NUPRC/Ministerial consent. In fact, Section 96 makes unauthorized transfer a ground for revocation. In practice, a licensee wishing to transfer an interest must apply to NUPRC; if NUPRC deems it appropriate, it will recommend the transfer to the Minister, who must then formally consent. (For PEL transfers, only NUPRC’s written approval is needed, but any PPL or PML transfer still requires Ministerial consent.) These provisions are intended to prevent backdoor changes in control and to ensure the regulator maintains a complete record of who ultimately operates each block.
Revocation of licences is governed by the PIA’s Chapter 13 (Section 96). The Act lists numerous explicit grounds on which a PPL or PML may be revoked. These include failure to drill or produce for more than 180 days without justification, material breach of licence terms (e.g. work commitments), non-payment of royalties, false information in the application, persistent environmental violations, and even insolvency of the licensee. Importantly, failure to comply with a court or arbitral award in relation to the licence is also a ground for revocation. In all cases, Section 96 requires due process: NUPRC must issue a formal notice of default to the licence-holder (and publish it in the Gazette), and allow at least 60 days for remedy. Only if the default is not cured will NUPRC recommend revocation and the Minister order the licence cancelled (with the revocation gazetted). This procedure ensures that revocation is not arbitrary and that licensees have a fair opportunity to correct breaches. (For PML revocations, the Minister must also appoint an interim operator within 30 days to maintain production.)
Transition of Legacy Licences
The PIA provides transitional arrangements for holders of old Petroleum Act licences. In general, existing Oil Prospecting Licences (OPLs) and Oil Mining Leases (OMLs) remain valid until their expiry under the old law; on expiry, those companies must apply anew for PPLs or PMLs under the PIA. However, current holders may optionally convert old licences via a Conversion Contract. This is a special agreement (approved by Minister) that substitutes the old licence for the equivalent PIA licence. Conversion is permitted only if all pending disputes over the licence are settled beforehand. Thus a company that had an OPL with unrelinquished acreage could convert part of it to a PPL/PML by contract, provided it terminates litigation and any arbitration related to that block.
Special rules apply to marginal fields (small fields developed by indigenous firms). A producing marginal field continues to operate at its original fiscal terms but must convert to a PML within 18 months of the PIA’s effective date. A non-producing marginal field, by contrast, is converted into a PPL and the holder must (like any PPL-holder) submit a development plan for commercialisation. Notably, the PIA prohibits the creation of any new marginal fields going forward.
For perspective, under the old Petroleum Act the grant of a new OML out of an OPL was discretionary and often denied (as in South Atlantic Petroleum Ltd v. Minister). In contrast, the PIA’s Section 81(1) now provides that “a petroleum mining lease shall be granted” for each qualified commercial discovery by a PPL-holder. By replacing the word “may” with “shall”, the PIA ensures that a licensee who has met all conditions and secured regulatory approval of its field development plan has a legal right to a PML. In effect, conversion from prospecting to production is now a statutory entitlement, not a matter of administrative whim.
Transparency and Investor Implications
The PIA was explicitly designed to boost investor confidence by improving transparency and predictability. Section 318 and related provisions, for instance, obligate all oil companies to publish beneficial ownership data via the corporate registry and NEITI, reducing opacity about who really owns upstream assets. More broadly, all licensing decisions and agreements are now expected to follow published criteria and be disclosed to NEITI and the public. Indeed, observers note that the first PIA-era bidding round was so open that NEITI commended NUPRC on its approach. The combination of statutory open bidding (Section 73(a) PIA) and oversight by civil-society observers is unprecedented in Nigeria’s history.
Other reforms bolster transparency: for example, the PIA requires NUPRC to maintain a public register of leases and permits, and all licence terms (royalties, taxes, work programmes) are more clearly defined in law. The Act also streamlines joint-venture approvals (e.g. for farmouts) under written guidelines, further reducing grey areas. Overall, these measures, along with electronic government platforms aim to eliminate corrupt discretion and reassure investors that upstream assets are awarded on merit.
Cherut Chambers frequently advises foreign and local clients on navigating this new environment, ensuring compliance with the PIA’s transparency and governance requirements.
Conclusion
In summary, the Petroleum Industry Act 2021 has recast exploration and production rights in Nigeria on a modern footing. Upstream operators now deal with a detailed, public framework rather than ad hoc ministerial orders. Nonetheless, constitutional and statutory checks remain vital. Notably, the Supreme Court in NNPC Ltd v. Famfa Oil Ltd affirmed that the government (and its agents) cannot seize a company’s licence interest without lawful authority, in that case striking down NNPC’s unilateral appropriation of a 60% stake in Famfa’s licence as unconstitutional. Similarly, Section 44 of the Constitution protects a licensee’s property rights (licences being treated as immovable property) against uncompensated takeover. In the PIA era, these protections are reinforced by the Act’s clear conversion and revocation rules.
For investors and licensees, the PIA offers a more stable but also more rigorously regulated regime. Companies can generally expect to turn discoveries into production (thanks to the “shall grant” rules), but they must be diligent in meeting work commitments, health/safety/environment standards, and reporting obligations.
We are well-positioned to assist clients, from initial licence applications and due diligence to licence transfers and PIA compliance audits. Through expertise, we help ensure that upstream ventures in Nigeria proceed smoothly under the new Act.