The President of Nigeria, Bola Ahmed Tinubu (the "President"), on 6 March 2024, signed Executive Orders on oil and gas reform and issued three (3) policy directives in a bid to enhance investments in the energy sector and establish Nigeria as the preferred investment destination for the energy industry in Africa.

This is a BIG ask, but we will get into that later.

In this Client Alert, we discuss the key highlights of the President's directives.

According to the State House, the President, in recognising the urgency to accelerate investments, has directed the:

  1. introduction of fiscal incentives for non-associated gas projects, midstream and deepwater projects;
  2. radical streamlining of contract approval processes and the adoption of "deemed approval" in as little as 15 days by relevant governmental authorities; and
  3. application of local content requirements without hindering project delivery schedules or cost competitiveness

(together, the "Directives").

  1. The Oil and Gas Companies (Tax Incentives, Exemption, Remission, etc.) Order, 2024 (the "Fiscal Incentives Directive")

    The Fiscal Incentives Directive seeks to fire up (pardon the pun) gas investments and development, and includes the following highlights:


    1. Gas Tax Credits ("GTC") for Non-Associated Gas ("NAG") greenfield developments: GTC shall apply to NAG greenfield developments, in onshore and shallow water areas, with first gas production on or before 1 January 2029.

      Specifically, where the hydrocarbon liquids content ("HCL") of the gas does not exceed 30 barrels per million standard cubic feet ("scf"), the GTC shall be US$1.00 per thousand cubic feet or 30% of the fiscal gas price, whichever is lower. If the HCL content exceeds 30 barrels per million scf, but does not exceed 100 barrels per million scf, the GTC shall be US$0.50 per thousand cubic feet or 30% of the fiscal gas price, whichever is lower. 

      For NAG greenfield projects starting production after 1 January 2029, with HCL content not exceeding 100 barrels per million scf, a Gas Tax Allowance ("GTA") shall apply at US$0.50 per thousand scf or 30% of the fiscal gas price, whichever is lower.

      Important to note that HCL content in a NAG field will be determined in guidelines issued by the Nigerian Upstream Petroleum Regulatory Commission ("NUPRC").

      GTC for NAG projects shall apply for 10 years. Afterwards, they transition into a GTA at the rates detailed above. To prevent double dipping, the GTC for a company in a year must not exceed its income tax payable for that year, and the GTC must not be combined with incentives from the Associated Gas Framework Agreement ("AGFA") for the same greenfield NAG project.

      Unused tax credits can be carried forward for up to 3 years. The fiscal gas price calculation will be based on the price used for determining royalties under the Petroleum Industry Act, 2021 ("PIA").

    2. Utilization Investment Allowance for any new and ongoing midstream project: Gas utilisation companies are eligible for this allowance when procuring plant and equipment related to new or ongoing projects within the midstream oil and gas sector.

      The gas utilisation investment allowance, which is 25% of the actual expenditure incurred on such plant and equipment procured, is implemented by allowing companies to deduct this investment allowance from their assessable profits, starting from the year of purchase of the relevant plant and equipment. The gas utilisation investment allowance will not be considered in the determination of the residue of the qualifying expenditure incurred on such plant and equipment.

      It is worth noting that midstream gas companies cannot enjoy or assert claims to the allowance incentive until the expiration of the tax-free period outlined in section 39(1) of the Companies Income Tax Act, as amended ("CITA").

      Also, companies will be ineligible to claim the gas investment allowance on qualifying expenditures for plant and equipment within 5 years from the expenditure date if the:


      1. company sells or transfers the equipment to a party acquiring it for a business unrelated to the seller's business, or for scrap;
      2. procured plant or equipment is used for purposes other than gas utilization; or
      3. expenditure on equipment procurement is not a genuine business transaction or is considered artificial or fictitious.
         

Furthermore, if a gas utilization allowance has been claimed for a specific plant or equipment, it shall not be eligible for another gas utilization investment allowance by the acquiring entity or subsequent purchaser.

  1. The implementation of commercial enablers for new brownfield and greenfield investments in the deep water: The goal here is to achieve a competitive Internal Rate of Return ('IRR") for investments in the deep water. Prior to the President's (who also doubles as the Minister for Petroleum Resources ("Minister")) introduction of the fiscal incentives for this purpose, the shareholders of the Nigerian National Petroleum Company Limited ("NNPC") (being the Ministry of Finance Incorporated and the Ministry of Petroleum Incorporated) are required to take steps to procure that NNPC considers and implements commercial facilitators for new brownfield and greenfield investments in deep water regions.

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