Introduction
Nigeria’s upstream petroleum sector is undergoing a period of significant transition. Over the past few years, the industry has witnessed a wave of divestments by international oil companies (“IOCs”), the emergence of indigenous operators as owners of upstream oil and gas assets, and an increased regulatory emphasis on environmental sustainability, asset integrity, and responsible resource management. While these developments have created significant investment opportunities, they have also brought renewed attention to an aspect of the upstream petroleum value chain that has historically received comparatively less scrutiny than exploration and production which is the legal, operational and financial consequences of decommissioning petroleum assets at the end of their economic life.
Inadequately planned or poorly executed decommissioning may give rise to significant environmental, financial and regulatory risks. Abandoned wells, ageing infrastructure, and inadequate environmental remediation may expose operators to substantial statutory and common law liabilities while increasing environmental and safety risks for host communities. At the same time, uncertainty around decommissioning obligations can influence investment decisions, financing arrangements, and upstream asset transactions. Equally, uncertainty regarding the scope, timing and funding of decommissioning obligations can materially affect investment decisions, reserve-based lending, acquisition financing, asset valuations and upstream mergers and acquisitions (“M&A”) transactions. Consequently, decommissioning is no longer regarded merely as an end-of-life operational exercise but as a fundamental component of prudent asset lifecycle management and environmental, social and governance (“ESG”) compliance.
Recognising the importance of a structured end-of-life regulatory framework, the Petroleum Industry Act, 2021 (“PIA”) introduced a statutory framework governing the decommissioning and abandonment of upstream petroleum facilities, which was subsequently operationalised by the Nigerian Upstream Petroleum Decommissioning and Abandonment Regulations, 2023. However, practical implementation of the 2023 framework exposed a number of operational and commercial challenges, particularly regarding the timing for submission of Decommissioning and Abandonment Plans, establishment and management of the Decommissioning and Abandonment Fund, and the practical administration of operators’ compliance obligations. In response, the Nigerian Upstream Regulatory Commission (“NUPRC”) issued the Nigerian Upstream Petroleum Decommissioning and Abandonment Regulations, 2026 (“2026 Regulations”), repealing the 2023 Regulations and introducing targeted reforms intended to improve regulatory certainty, strengthen implementation, and align compliance requirements more closely with the lifecycle of upstream petroleum projects.
This article examines the principal innovations introduced by the 2026 Regulations and analyses their legal and commercial implications for upstream operators, investors, lenders, acquirers and other stakeholders participating in Nigeria’s upstream petroleum industry.
Notable Changes Introduced under the 2026 Regulations
1. Submission of Decommissioning and Abandonment Plan
One of the most significant innovations introduced by the 2026 Regulations relates to the timing and regulatory integration of the preparation and submission of Decommissioning and Abandonment (“D&A”) Plans. Every holder of a Petroleum Prospecting Licence (“PPL”) or Petroleum Mining Lease (“PML”) is required to maintain an approved D&A Plan, which constitutes the principal regulatory document governing the eventual decommissioning and abandonment of petroleum wells, installations, structures and associated facilities upon the cessation of petroleum operations or at the end of their economic life. Importantly, the approved D&A Plan also forms the basis for estimating decommissioning costs and determining the annual contributions payable into the Decommissioning and Abandonment Fund (“D&A Fund”), thereby linking technical decommissioning planning directly with an operator’s long-term financial assurance obligations. Unlike the 2023 Regulations, which adopted a relatively uniform approach, the 2026 Regulations align the preparation and submission of D&A Plans with the regulatory lifecycle of petroleum projects, thereby ensuring that decommissioning considerations are embedded from the earliest stages of project development.
Therefore, holders of a PPL are required to submit a D&A Plan simultaneously with their application for approval of the Work Programme, whilst holders of a PML must submit their D&A Plan together with the application for approval of the Field Development Plan (“FDP”). In addition, operators with existing approved D&A Plans are required to submit updated plans within six months of the commencement of the 2026 Regulations to ensure continued alignment with the revised regulatory framework.
Whereas, previously, every licensee or lessee was required to submit a D&A Plan within one year of the commencement of the 2023 Regulations, and new licensees and lessees were required to submit their D&A Plan as part of their field development plan, without the differentiated Petroleum Prospecting Licence and Petroleum Mining Lease stages which have now been introduced.
The revised submission framework represents more than a procedural amendment; it reflects a deliberate policy shift towards lifecycle regulation of upstream petroleum assets. By requiring decommissioning planning at the Work Programme and FDP approval stages, the Commission has effectively positioned decommissioning as a core project development consideration rather than an obligation to be addressed towards the end of field operations.
From a regulatory perspective, this approach enables NUPRC to evaluate the technical feasibility of proposed developments alongside the operator’s long-term decommissioning strategy before approving key project milestones. This is consistent with international regulatory practice, where financial assurance and decommissioning planning increasingly form part of the initial field development approval process rather than subsequent compliance exercises.
Similarly, the revised framework is likely to influence upstream mergers and acquisitions. Given the recent wave of IOC divestments and the acquisition of mature producing assets by indigenous companies, prospective purchasers will be expected to undertake more rigorous due diligence of approved D&A Plans, underlying cost estimates, funding assumptions and historical compliance with the Regulations. These issues are also likely to become increasingly important in negotiating purchase price adjustments, indemnity provisions, escrow arrangements and post-completion liability allocation.
2. Decommissioning and abandonment Fund
Another notable development under the 2026 Regulations is the enhancement of the framework governing the establishment, funding, and administration of the Decommissioning and Abandonment Fund (the “Fund”). Recognising that inadequate financial provision has historically undermined decommissioning efforts, the 2026 Regulations introduce more detailed requirements aimed at ensuring that sufficient funds are available to meet decommissioning obligations when they become due. Under the 2026 Regulations, every holder of a PPL or PML is required to establish the Fund, within 180 days following the approval of the Work Programme or grant of the licence, which is to be funded through annual contributions based on the approved cost estimates contained in the operator’s D&A Plan. The 2023 Regulations ascribed a stricter timeline for a licensee or lessee to establish the Fund, which was not later than 90 days from the date of commencement of production, in the case of new licences or leases, or within 90 days from the commencement of the Regulations, in the case of existing licences or leases of a producing field. This reduced timeline, presumably, significantly hampered access to the financing necessary for establishment of the fund, which would in turn significantly increased the likelihood of regulatory noncompliance.
The 2026 Regulations further prescribe the manner in which the Fund is to be established, managed, and administered. The fund is required to be held in an escrow account in either a Nigerian or foreign financial institution that meets certain requirements. The Nigerian financial institution must meet the national rating of A+ or its equivalent published by either Standard & Poor 500, Fitch Ratings Inc., Moody’s Investors Service Inc., Agusto & Co. or GCR Ratings, while the foreign financial institution must meet the minimum credit rating of A+ or its equivalent published by either Standard & Poor 500, Fitch Ratings Inc., or Moody’s Investors Service Inc. Where the ratings of any financial institution where the D&A Fund is held falls below the statutory prescribed minimum threshold, the licensee or lessee is expected to, within 90 days, apply to NUPRC for the approval of another financial institution that meets the minimum credit rating requirement for the purpose of opening a new escrow account and transfer of the funds to the new account opened.
This is vastly different from what was obtainable under the 2023 Regulations. Under which a licensee or lessee had a window of 30 days within which to apply for approval to change financial institutions. Furthermore, the Fund could be held only by the Central Bank of Nigeria (CBN). The exception to this, were International Oil Companies (IOCs) in joint venture or production sharing contract arrangements with the Nigerian National Petroleum Company Limited (NNPCL) who were required to remit a minimum of 15% to CBN as their annual contribution to the Fund. Also, where a license or lease was held under a joint venture with NNPC, the 2023 Regulations imposed a specific escalating contribution schedule. International Oil Companies were required to pay a minimum of 15% of their pro-rata contribution into the Central Bank of Nigeria held account, rising to a minimum of 25% after three years, and their full contribution from the fifth year onward, a contribution scale which did not resurface in the 2026 Regulations.
The enhanced funding framework introduced by the 2026 Regulations, not only strengthens investor confidence but also provides greater assurance to lenders, host communities, and the government that the financial burden of decommissioning will not ultimately be transferred to third parties. In addition, a well-funded and properly administered Fund enhances the bankability of upstream projects by providing greater certainty regarding future environmental liabilities and long-term financial commitments.
3. Decommissioning Obligations in Asset Sales and Transfers
The 2026 Regulations introduce greater clarity on the treatment of decommissioning obligations in the context of licence transfers, assignments, and other upstream asset transactions. Recognising the increasing number of divestments within Nigeria’s upstream sector, the 2026 Regulations provides that where the whole or part of an interest in the licence or lease is assigned, novated or otherwise transferred to another party, the proportionate legal and
equitable interests, rights and obligations of the licensee or lessee in respect of
the decommissioning and abandonment obligations shall be deemed to be attached to the property transferred to the transferee. This reinforce the principle that decommissioning liabilities must be adequately addressed as part of any transfer of petroleum assets and remain subject to the oversight and approval of NUPRC.
This development is particularly significant for parties involved in upstream mergers and acquisitions. Prospective buyers and investors will be required to undertake more detailed due diligence on existing decommissioning obligations, including the adequacy of approved D&A Plans and funding arrangements. For sellers, it underscores the importance of maintaining compliance throughout the life of the asset, as unresolved decommissioning obligations may affect transaction timelines, valuation, and regulatory approvals.
4. Well Suspension and Shut-Ins
Another notable innovation is the introduction of a broader framework governing the suspension and shut-in of petroleum wells. Under the 2026 Regulations, a licensee or lessee intending to suspend a well is required to submit an application to NUPRC, stating the justification for the proposed suspension. Once approval is granted, the well must be suspended in a manner that allows for its safe re-entry, ensures that pressure control equipment can be deployed without compromising existing well barriers, and preserves the integrity of the well for eventual abandonment. The 2026 Regulations also prescribe clear timelines for shut-in and suspended wells. A well may not remain shut in for operational reasons for more than one year, unless NUPRC expressly approves an extension. Similarly, a suspended well may remain in that state for a maximum period of four years, subject to any further extension granted by NUPRC upon satisfactory justification and in accordance with applicable guidelines.
Approval to suspend a well was previously subject to a fixed three-year suspension period, extendable on application made not later than three months before the end of the initial three-year period. Where the licensee or lessee failed to apply for an extension as required under the 2023 Regulations, or the Commission declined the extension, the licensee was required to complete abandonment of the well within one month of the expiry of the three year period, failing which the Commission could access the Fund and engage a third party to carry out the abandonment.
A significant retention by the 2026 Regulations pertains to the enforcement mechanism where a licensee or lessee fails to apply for, or obtain, an extension of the suspension period. In such circumstances, the operator is required to abandon the well within the prescribed period. Failure to do so empowers NUPRC to access the D&A Fund and appoint a third party to carry out the abandonment of the well. This development ensures that non-producing wells are not left in prolonged suspension without a clear operational or decommissioning strategy. It also strengthens regulatory oversight, promotes responsible asset management, and reduces the environmental and safety risks associated with ageing or inactive petroleum infrastructure.
Collectively, these provisions underscore NUPRC’s commitment to strengthening regulatory compliance and ensuring that decommissioning obligations are treated as enforceable statutory responsibilities rather than discretionary operational commitments.
Conclusion
The 2026 Regulations mark an important evolution of Nigeria’s decommissioning framework. By strengthening planning requirements, enhancing financial assurance mechanisms, introducing clearer operational standards, and reinforcing regulatory oversight, the 2026 Regulations provide a more practical framework for managing end-of-life petroleum assets. As implementation progresses, stakeholders will need to adopt a proactive approach to compliance to ensure that decommissioning obligations are effectively managed throughout the lifecycle of petroleum operations. Although operators may face increased compliance and funding obligations, the enhanced regulatory framework provides certainty for investors, lenders, and other stakeholders, while supporting the long-term objective of balancing commercial development with environmental responsibility and international best practices.
Ozioma Agu is a Partner at Stren & Blan Partners and supervises the Firm’s Energy, Finance and Infrastructure Sector. Oghenemega Igbru and Olaore Akinyemi are Associates in the Firm’s Energy, Finance and Infrastructure Sector.
Stren & Blan Partners is a full-service commercial Law Firm that provides legal services to diverse local and international Clientele. The Business Counsel is a weekly column by Stren & Blan Partners that provides thought leadership insight on business and legal matters.
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