Nigeria’s oil revenue has surged to account for 70% of government earnings, even as the country grapples with a dip in crude oil production.
A significant shift in the petroleum industry landscape is unfolding as local oil companies now produce more than half of Nigeria’s crude output up from 40% earlier this year following the divestment of onshore and shallow-water assets by international oil companies (IOCs).
Nigeria’s Upstream Petroleum Regulatory Commission confirmed earlier this week that indigenous firms have filled the production gap left by IOCs like Shell, ExxonMobil, Eni, and TotalEnergies.
These companies are pivoting toward deep-water and cleaner energy assets as part of global energy transition policies.
This development aligns with the federal government’s ambition to increase daily crude oil output by an additional one million barrels by 2026.
“Yes, it’s a good development that we have local companies taking up more of the share,” said Mr. Enebi Okpaluwa, Head of Natural Resources and Climate Governance at the Budget Foundation, in a televised interview.
“But it’s a mixed bag it’s not just a success story; it also signals the retreat of major international players and exposes our late start in building indigenous capacity.”
Multiple Factors Driving Oil Sector Profitability
Despite the exit of key global operators, oil companies in Nigeria especially local ones are declaring strong profits.
Mr. Okpaluwa said higher oil prices (averaging around $80 per barrel), increased domestic production, and favourable foreign exchange conditions drove profitability in 2024.
However, these profits are under threat. As of mid-2025, global oil prices have dropped to around $65 per barrel a decline of 18–25% from last year’s average.
The federal government benchmarked Nigeria’s budget at $75 per barrel, so the current dip could trigger fiscal stress.
“If prices remain at this level, we may face a wider budget deficit and challenges in meeting fiscal targets,” Okpaluwa warned. “Our production trajectory is promising, but pricing volatility remains a serious concern.”
Petroleum Industry Act (PIA) Gains Ground Amid Government Implementation Challenges
The Petroleum Industry Act (PIA), passed in 2021, has begun to reshape Nigeria’s regulatory and fiscal oil environment, according to the expert.
Mr. Okpaluwa acknowledged that the PIA was instrumental in enhancing clarity and predictability in the sector, thereby improving investor confidence.
“We are still in the implementation phase, but yes, things are beginning to shape up,” he stated. “The fiscal clarity, registration reforms, and executive orders are helping reposition Nigeria as a viable investment destination.”
High Cost of Production Still a Major Hurdle
Nigeria continues to face stiff global competition due to its high cost of oil production. According to Okpaluwa, the average production cost is $20–$30 per barrel for onshore assets, and over $40 per barrel offshore well above global averages. In contrast, top producers like Saudi Arabia produce oil for under $10 per barrel.
Factors contributing to Nigeria’s high costs include insecurity, pipeline vandalism, administrative fees, and legacy inefficiencies from pre PIA operations.
Energy Transition and Local Content: Double-Edged Outlook
Although many see local companies leading production as progress for national content development, Okpaluwa cautioned that Nigeria may be joining the industry late, as global decarbonisation is already driving it toward decline.
“Yes, we’re seeing true local ownership and some tech transfer, but the oil industry is in its evening years,” he said. “Global trends are shifting to renewables, and Nigeria needs to look ahead toward minerals, lithium, cobalt, and nickel for sustainable economic future.”
He urged the government to use current oil revenues as a springboard to diversify the economy, pointing to examples like Dubai, which moved away from oil dependency well before reserves declined.
Energy Transition Strategy Must Be Economically Grounded
Nigeria’s energy transition plan must be shaped not just by environmental factors but by economic survival, according to Okpaluwa.
While Nigeria’s global emissions footprint is small, its economic dependency on fossil fuel revenues places it at risk as demand from major markets like the EU begins to fall.
“Europe accounts for at least 40% of our crude exports, and their emissions policies are tightening,” he explained. “This isn’t just about climate it’s about Nigeria’s economic future. We must convert today’s oil wealth into tomorrow’s diversified prosperity.”
Government Production Outlook: Promising But Capped by OPEC Quotas
Despite improvements in curbing oil theft and strengthening security, Nigeria’s production capacity is currently constrained by its OPEC quota, which stands at 1.5 million barrels per day. The country is already hitting that limit, and any desire to increase output will require negotiation within the cartel.
“We’re on the right track with reforms and security, but OPEC limitations and declining global demand may soon pose structural barriers to growth,” Okpaluwa concluded.
Nigeria’s oil sector is at a crossroads. While indigenous firms are rising and profits are improving due to recent gains, the future demands strategic foresight. To thrive, Nigeria must act urgently to reduce production costs, modernise infrastructure, and reinvest oil revenue into renewable sectors and economic diversification.