How court battles cloud Nigeria’s oil prospects

By the time Nigeria passed the Petroleum Industry Act in 2021, the country’s oil sector had endured nearly a decade of drift.

Investors complained of regulatory uncertainty, opaque fiscal terms and endless litigation. Output slid, capital fled, and marginal fields, once touted as engines of indigenous participation, became graveyards of stalled licences.

Four years on, the picture has begun to change. The PIA has reset the rules of the game, the Nigerian National Petroleum Company Limited (NNPC) has embarked on a sweeping divestment programme, and regulators have relaunched licensing rounds designed to attract fresh capital.

The government’s ambition is stark: lift crude output to 2.5 million barrels per day by 2026, up from current levels that hover well below capacity.

Yet just as Nigeria begins to settle into the gains of reform, a new source of uncertainty is emerging, not from policy reversals or militant attacks, but from the courts.

A series of recent judicial decisions, particularly from the High Courts, is creating unease across the oil and gas industry.

Operators, lawyers and regulators warn that poorly reasoned rulings risk undermining the credibility of the PIA, destabilising ongoing asset transfers and sending unsettling signals to both local and international investors at a delicate moment.

“The concern is not that courts are asserting oversight,” said one senior upstream executive. “It is that some judgments show a fundamental misunderstanding of how the industry works and the laws governing it.”

Reform momentum meets legal friction

The tensions have come into sharp focus through the Dawes Island marginal field dispute, a case that industry observers say exemplifies broader dysfunction in how Nigeria’s legal system handles complex energy sector matters. The outcome could have implications far beyond one field in Rivers State, potentially affecting billions of dollars in planned investments.

At stake is the credibility of the Petroleum Industry Act of 2021, landmark legislation designed to modernise Nigeria’s oil and gas framework after decades of false starts. The law was meant to provide clarity and predictability for investors. Instead, recent court decisions are generating the opposite effect.

A Test Case for Reform

The Dawes Island controversy centres on a Federal High Court ruling in Lagos that sided with Eurafric Energy Limited, a company that had held a prospecting licence for 17 years without bringing the field into commercial production. When the government declined to renew the expired licence in 2020 and subsequently awarded it to Petralon 54 Ltd in June 2022, Eurafric challenged the decision.

Justice A. Awogboro ruled that the Ministry of Petroleum Resources had breached applicable guidelines in revoking Eurafric’s licence. But the judgment has sparked fierce criticism from industry experts who argue it reflects a fundamental misunderstanding of petroleum law and operations.

The court’s reasoning, critics contend, conflated well testing with commercial production, applied legislation retroactively, and relied on unsigned documents whilst ignoring established technical protocols. Perhaps most significantly, the ruling appeared to endorse the concept of indefinite licence holding without development, precisely the problem Nigeria has struggled to overcome for decades.

“This judgment runs counter to every principle the PIA was designed to enforce,” said a senior industry lawyer who requested anonymity to speak candidly about ongoing litigation. “The ‘drill or drop’ philosophy is fundamental to marginal field policy. You cannot allow operators to sit on assets indefinitely whilst the nation loses revenue.”

The contrast in performance is stark. Whilst Eurafric produced no commercial barrels and paid no royalties during its tenure, Petralon has drilled two wells within a year, evacuated approximately 150,000 barrels, submitted an approved field development plan, and remitted government revenues. A third well is in planning.

Lawyers representing Eurafric Energy Limited argued that the ruling, far from undermining the PIA, actually upholds fundamental principles of natural justice and due process that must underpin any functional regulatory system.

The company claimed it had invested millions of dollars beyond its contractual obligation to keep the joint venture alive when partners failed to meet their commitments.

Eurafric’s legal team pointed to what they describe as procedural irregularities in the 2020 revocation and subsequent re-award to Petralon.

They cited evidence presented to the court showing that Petralon, originally a minority partner in a joint venture with Eurafric, allegedly lobbied regulators through secret petitions and backdoor communications to secure sole ownership of a field in which Eurafric held majority stake and operator status.