Overview Of The Implementation Guidelines Issued By The Minister Of Finance In Respect Of The Oil And Gas Companies (Tax Incentives, Exemption, Remission,etc) Order 2024

Introduction

On February 28, 2024, President Bola Ahmed Tinubu issued the Oil and Gas Companies (Tax Incentives, Exemption, Remission. Etc.) Order 2024¹ (the "Order") which granted specific tax incentives is aimed at unlocking investment in the Nigerian oil and gas industry. The Order was issued pursuant to the President's powers under the Companies Income Tax Act to exempt the profits of any company from tax or to remit the taxes of any company² . The Order granted the following tax incentives – (i) tax credits and allowances for nonassociated gas ("NAG") greenfield developments in onshore and shallow water locations, where the hydrocarbon liquid ("HCL") content falls between 0-100 barrels per million standard cubic feet of gas; (ii) capital and gas utilization investment allowance on qualifying expenditure incurred on plant and equipment by companies in the midstream oil and gas sector in respect of new and ongoing gas utilization project. (Our review of the Order can be found here).

Pursuant to the powers granted under the Order³ , the Minister of Finance, (the "MoF"), in collaboration with the Federal Inland Revenue Service (the "FIRS") and the Nigerian Upstream Petroleum Regulatory Commission (the "NUPRC"), issued the Implementation Guidelines for the Oil and Gas Companies (Tax Incentives, Exemption, Remission, Etc) Order 2024 (the "Implementation Guidelines") on April 23, 2024.

Application

The Implementation Guidelines apply to (i) companies with licenses or leases producing NAG from greenfield onshore and shallow water locations and (ii) midstream gas companies undertaking gas utilization projects. The Implementation Guidelines is split into the following three sub guidelines:

1. The Federal Inland Revenue Service Guideline on the applicability of Tax Credits and Allowances for Non-Associated Gas Greenfield Development;
2. The Federal Inland Revenue Service Guideline on the applicability of the Midstream Capital and Gas Utilization Allowance; and
3. The Nigerian Upstream Petroleum Regulatory Commission Guideline on Hydrocarbon Liquid Content in a Non-Associated Gas Field.

A. Guideline on the Applicability of Tax Credits and Allowances for NonAssociated Gas Greenfield Development (the "GTC Guideline")

The GTC Guideline provides for the application and implementation of the gas tax credit granted in respect of NAG greenfield development in onshore and shallow water locations.

Eligibility

To be eligible for the GTC, a company must have a valid license or lease and must have achieved first gas production on or before 1January 2029⁴ . Where a company achieves first gas production after 1 January 2029, it will be entitled to a Gas Tax Allowance (GTA) rather than a GTC.

Computation of GTC and GTA Rates

The GTC is determined as follows:

1. where the HCL content per MMSCF5 is between 0 – 30 barrels, the GTC rate is the lower of US$1 per thousand SCF and 30% of the Fiscal Gas Price.
2. where the HCL content per MMSCF is between 30 – 100 barrels, the GTC rate is the lower of US$0.5 per thousand SCF and 30% of Fiscal Gas Price.
3. Where the HCL content per MMSCF is above 100 barrels, the company is to revert to existing legislation governing the oil and gas sector.

The GTA is also determined as follows:

1. Where the HCL content per MMSCF is between 0 – 100 barrels, GTA rate is the lower of US$0.5 per thousand SCF and 30% of Fiscal Gas Price.
2. Where the HCL content per MMSCF is above 100 barrels, the company is to revert to existing legislation such as the PPTA and PIA.

Carryover of GTC Surplus

Where the GTC granted to an eligible company exceeds the amount of the Companies Income Tax due from that company in an accounting period (Gas Tax Credit Surplus), the surplus can be carried forward for a maximum period of three (3) accounting years, after which any unutilised surplus will lapse⁶ .

Filing of separate tax computation

The GTC Guideline clarifies that companies eligible for the GTC are not entitled to claim the Associated Gas Framework Agreement ("AGFA") incentive for the same greenfield NAG project.⁷ Eligible companies are required to file separate tax computations for the greenfield NAG project.

Restrictions

The GTC can only be claimed by a company that achieved first gas production on or before 1 January 2029 and for a maximum period of 10 years, provided that the HCL content does not exceed 100 barrels per MMSCF. The GTA also can only be claimed by a company that achieved first commercial gas production after 1 January 2029, provided that the HCL content does not exceed 100 barrels per MMSCF.

Transition from GTC to GTA

Companies granted GTC in greenfield development may be eligible for GTA after the expiration of the maximum period of 10 years.

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Footnotes

1. https://www.nuprc.gov.ng/wp-content/uploads/2024/03/Oil-and-Gas-Companies-Tax-Incentives-Exemption-Order-2024-publication.pdf

2. Section 23(2) and Section 89 of the Companies Income Tax Act.

3. Paragraph 12 of the Order.

4. the date certified by the NUPRC as the first gas production date.

5. "MMSCF" Million Standard Cubic Feet.

6. Paragraph 6.0 of the GTC Guideline.

7. See paragraph 9.0 of the GTC Guidelines. The incentives provided under the AGFA have been codified into sections 11 and 12 of the PPTA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.