NUPRC Model Concession Agreement (2025 Licensing Round): Back-In Rights, Cost Recovery and Key Negotiation Risks for Licensees

 With the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) advancing pre-qualified applicants into the data leasing and bid submission phase of the 2025 Oil Licensing Round, the upstream licensing process has now firmly entered its commercial and contractual phase.

For consortiums, independents, and international oil companies participating in the 2025 Oil Licensing Round, a comprehensive review of the legal and economic architecture of the NUPRC Model Concession Agreement (2025), issued pursuant to Section 85 of the Petroleum Industry Act 2021, is critical. Beyond serving as the contractual framework for the award process, the NUPRC Model Concession Agreement directly influences bid economics, capital allocation, risk allocation, and valuation assumptions well before award. It also establishes the legal and commercial parameters that will govern project execution following a successful bid.

Accordingly, it would be a strategic mistake to treat the NUPRC Model Concession Agreement as mere post-award boilerplate. Assumptions embedded within financial models and bid submissions are often informed by the contractual allocation of costs, risks, and entitlements. As a result, a failure to interrogate the agreement at an early stage may translate into material and, in some cases, irreversible commercial exposure during project execution.

Amongst a number of material considerations arising under the NUPRC Model Concession Agreement, one key driver of such exposure is the Government's participation regime under Section 85(4) of the Petroleum Industry Act, which forms the statutory foundation for the carried interest structure embedded in upstream petroleum contracts.

Statutory Back-in Rights

Under Section 85(4) of the Petroleum Industry Act, contracts issued under the upstream licensing framework are required to incorporate a carried interest structure with respect to Government participation. In this regard, the statute provides that any such contract shall include terms under which the Government, acting through the Nigerian National Petroleum Company Limited (Nigerian National Petroleum Company Limited) (NNPC Ltd), is entitled to participate in the relevant Petroleum Prospecting Licence (PPL) or Petroleum Mining Lease (PML) up to a maximum participating interest of 60%, with such participation capable of being exercised as a bid parameter and from any time following the grant of the licence or lease.

Where this participation right is exercised, the PIA further requires that the contractual framework provide for the Government to refund its proportionate share of unrecovered proven costs from the date of participation. Such reimbursable costs are expressly limited to those relating to development and production activities and are statutorily excluded from covering bonuses, penalties, interest, premiums, or any form of cost mark-up.

The statutory framework also clarifies several additional features of this participation regime. First, no upfront financial contribution is required from the Government at the point of entry. Second, the determination and verification of unrecovered proven costs is to be undertaken through an agreed expert determination mechanism. Third, the reimbursement of such costs may be effected either in cash or in kind, including through future production entitlements or other forms of petroleum recovery linked to the participation date.

Contractual and Economic Issues Arising from Back-In Rights

Firstly, there remains a broader question as to the long-term legal durability of the statutory back-in rights regime itself. While that issue falls outside the scope of this article, it represents a separate layer of legal uncertainty that participants in the 2025 Licensing Round may wish to monitor closely.

Secondly, and more immediately, the NUPRC Model Concession Agreement introduces a number of drafting choices that materially affect how the carried interest regime operates in practice, particularly in relation to cost recovery timing, interest-linked NNPC Credits, and the classification of reimbursable expenditure. We discuss a few considerations below.

1.     Participation Date versus Lease Commencement: Statutory Intent and Cost Recovery Alignment

The PIA mandates that the Government refund its proportionate share of unrecovered proven costs from the “date of its participation”. The text implies that the actual date on which NNPC Ltd elects to participate in the licence and assumes an economic interest is the relevant date, rather than the later Lease Commencement Date. Section 85(4) does not appear to be contingent on lease conversion, but on the point at which the Government enters the project as a co-participant in its economics.

To reinforce this position, the PIA further provides that reimbursable costs are those relating to development and production activities, which indicates that costs incurred after participation, whether during the PPL or PML phase, are intended to fall within a shared cost base. This reflects a clear regulatory intention that the Government’s reimbursement obligation attaches from the participation date, and is not deferred to lease formalisation.

By expressly tying economic participation to lease formalization, the Model Concession Agreement is essentially excluding costs incurred during the PPL phase, even where such costs relate to appraisal drilling, early production testing, and pre-development activities that are expressly contemplated under Section 85(4) as part of the shared economic risk base following participation.

2.        Interest-Earning NNPC Credits

A further commercial issue arises in the treatment of financing costs and interest under the Model Concession Agreement. While the PIA regulates what constitutes recoverable cost in a carried interest structure and expressly excludes interest, premiums, financing uplifts, and similar returns from the reimbursement base, the Model Concession Agreement introduces a an additional construct. It provides that where NNPC Ltd elects to fund development expenditure upfront through what is described as “NNPC Credits,” such amounts shall earn interest at a rate to be agreed between the parties. In substance, these NNPC Credits operate as State-funded carry treated as a credit instrument within the project structure, thereby shifting the contractual framework from reimbursement logic into a distinct category of investment return economics, under which the State is positioned to generate a negotiated return through interest.

While the commercial rationale for this introduction can be debated, the issue here is that the PIA does not appear to contemplate this second layer of economics or establish any parallel mechanism by which State-funded participation in a carried interest structure becomes a yield-bearing credit instrument within the upstream licensing framework.

Key Takeaway

The NUPRC Model Concession Agreement (2025) presents a highly complex regulatory baseline for successful bidders. While designed to reflect the statutory intention behind the Petroleum Industry Act (PIA) 2021, a strict textual analysis demonstrates that certain key provisions of the NUPRC Model Concession Agreement (2025), may conflict with extant legislation.

This publication is provided Balogun Harold for general informational purposes only and does not constitute legal advice. Specific circumstances may require tailored legal analysis. For consultation requests, please reach out to your usual Balogun Harold contact or via support@balogunharold.com