This study examined capital structure and financial performance of firms in the oil and gas sector in Nigeria. Expo-facto research design was adopted and the population covered all the 12 listed Oi and Gas firms in Nigeria; out of which, 10 firms were randomly sampled. The study covered 10 years, spanning from 2010-2019 and the data used were gathered from the financial reports of the sampled firms. A regression analysis was carried out on the panel data with regards to pooled Ordinary Least Square (OLS) estimation, fixed effect estimation and random effect estimation. It was discovered that total debt ratio, long-term debt ratio and short-term debt ratio have a negative effect on return on asset with their respective coefficient values of -0.504, - 0.291, and -0.422. However, the negative effect was only significant for short-term debt ratio with the probability value of 0.000, as against the insignificant negative effect of total debt ratio and long-term debt ratio with their respective probability values of 0.423 and 0.098. In the same vein, debt equity ratio has a positive and significant effect on return on asset to the tune of 0.352(0.002<0.05). It was concluded that the effect of capital structure on financial performance of firms, in terms of return on equity was statistically significant. Thus, it was therefore recommended that financial managers should establish a clear policy for capital structure that will engender the right mix of equity and debt that will improve firms’ profitability.

Keywords : Capital Structure, Financial Performance, Return on Equity, Debt Equity Ratio, Total Debt Ratio, Return on Equity.