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With a 68% decline in investments in Nigeria's oil & gas industry, the Federal Government is taking decisive action to reverse the trend. A series of tax incentives, executive orders, and policy reforms are set to attract over $10 billion in new investments within the next 12-18 months. What does this mean for investors?
Introduction
With a recorded 28% decline in oil and gas investments globally and about 68% decline in investments in Nigeria’s Oil & Gas industry, it has therefore become imminent to attract investment in Nigeria’s highest revenue generating sector and foreign exchange earner. As of Q1 2024, at least 4 major divestments in the industry were announced thereby increasing the number of assets available for sale in the sector. In a 2024 report by Wood Mackenzie, upstream oil and gas capex has been declining globally over the last decade, further reducing Nigeria’s share of the capex from a third to about one sixth of the total.
Whilst divestments present an opportunity for local investors to have a hat in the game, the Federal Government of Nigeria is not relenting in its efforts to halt the decline in investments. In the first half of Year 2024, a handful of initiatives were deployed in form of Executive Orders, Presidential Directives and Guidelines, towards the delivery of a competitive Internal Rate of Return (IRR) for Oil & Gas Projects and the attraction of over $10 billion in new investments within the next 12-18 months. These initiatives are discussed below.
Oil and Gas Companies (Tax Incentives, Exemption, Remission, Etc.) Order 2024
In furtherance of the statutory powers conferred on the President to make an Order exempting a class of companies and their assessable profits from applicable taxes or to remit taxes paid by such companies in accordance with a fiscal framework and tax incentives, the Oil and Gas Companies (Tax Incentives, Exemption, Remission, Etc) Order (“Order”) was issued in February 2024. The Order introduced tax credits and tax allowances for qualifying upstream companies, a gas utilization investment allowance for qualifying midstream companies and proposed incentives for deep-water oil and gas projects.
Incentives for Upstream Projects
The tax credit incentives apply to Non-Associated Gas (NAG) greenfield developments in onshore and shallow water locations that attain first gas production not later than the 1st of January 2029. The tax credit is dependent on the volumes of Hydrocarbon Liquids (HCL content) and is calculated to be:
The lower of US$1.00 per thousand cubic feet or 30% of the fiscal gas price, where the HCL content does not exceed 30 barrels per million SCF; and
The lower of US$0.50 per thousand cubic feet or 30% of the fiscal gas price, where the HCL content exceeds 30 barrels per million SCF but does not exceed 100 barrels per million SCF.
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Important Notice: The information contained in this Article is intended for general information purposes only and does not create a lawyer-client relationship. It is not intended as legal advice from Jackson, Etti, & Edu (JEE) or the individual author(s), nor intended as a substitute for legal advice on any specific subject matter. Detailed legal counsel should be sought prior to undertaking any legal matter. The information contained in this Article is current to the last update and may change. Last Update: October 1, 2024.
