Nigeria Upstream Fiscal and Regulatory Guide – 2024
Summary
The upstream fiscal and regulatory outlook of Nigeria underwent a comprehensive reform with the Petroleum Industry Act (PIA) of 2021. Nigeria has implemented different contractual regimes for oil exploration and production, including Production Sharing Agreements (PSAs), Joint Ventures and concessions in the form of Sole Risk agreements, with special conditions for marginal fields. In the latest reform, the Nigerian National Petroleum Corporation (NNPC) is replaced with a limited liability company, NNPC Ltd, and is now enabled for joint venture arrangements, signaling a structural shift within the industry.
The PIA of 2021 aimed to establish a comprehensive framework encompassing regulation, legality, fiscal policies, and governance for the nation's petroleum sector, alongside providing funding for the development of communities. Enacted by President Muhammadu Buhari in August 2021, it represented a significant effort to overhaul Nigeria's petroleum industry, which constitutes over 85% of the country's exports and around 30% of budget revenues. The PIA introduces several alterations to enhance the fiscal attractiveness of oil and gas assets, as detailed in the report.
The fiscal burden varies depending on the regime, with different cost and risk levels associated with each. The timing of taxation being generally front-loaded, and the state participation requirements in PSAs and JVs with the NNPC, significantly increase the discounted state take. PSAs used to offer the most competitive fiscal terms available in Nigeria, but the framework has become less attractive over time, with an increasing state profit share, and lower cost deduction caps, whilst JVs and Sole Risk regimes' fiscal terms were harmonised and improved with the PIA.
“Nigeria Upstream Fiscal and Regulatory Guide”, presents the essential information relating to the terms which govern investment into Nigeria's upstream oil and gas sector. The report sets out in detail the contractual framework under which firms must operate in the industry, clearly defining factors affecting profitability and quantifying the state’s take from hydrocarbon production. Considering political, economic and industry specific variables, the report also analyses future trends for Nigeria’s upstream oil and gas investment climate.
Scope
- Overview of current fiscal terms governing upstream oil and gas operations in Nigeria
- Assessment of the current fiscal regime’s state take and attractiveness to investors
- Charts illustrating the regime structure, and legal and institutional frameworks
- Detail on legal framework and governing bodies administering the industry
- Levels of upfront payments and taxation applicable to oil and gas production
- Information on application of fiscal and regulatory terms to specific licenses
- Outlook on future of fiscal and regulatory terms in Nigeria
- Gain insights into the regulatory landscape: Get a comprehensive overview of the fiscal and regulatory environment.
- Understand the impact on business operations: Learn how the regulatory burden affects the cost of doing business.
- Assess risks and challenges: Identify the potential risks and challenges associated with operating in the country.
- 1 Executive Summary
- 1.1 Regime Overview ─ Production Sharing Agreement
- 1.2 Regime Overview – Joint Venture and Concession Agreements
- 1.3 Timeline
- 2 State Take Assessment
- Profitability
- State Take
- Price and cost sensitivity
- 3 Key Fiscal Terms – Production Sharing Agreements
- 3.1 Bonuses and Fees
- Rental Fees
- Gas Flaring
- Signature Bonus
- Production Bonus
- 3.2 Royalties
- Royalty (Post-PIA)
- Royalty (Pre-PIA)
- 3.3 Cost Recovery
- Cost Recovery Limit
- Recoverable Costs
- 3.4 Profit Sharing
- Under PIA
- Model Contract
- and 2000 Model Contracts – Deepwater and Inland Basin
- Pre-2005 Contracts – Onshore and Shallow Water
- 3.5 Direct Taxation
- Hydrocarbon Tax
- Chargeable Profits glossary
- Petroleum Profit Tax (Abolished after PIA)
- Education Levy
- NDDC Levy
- Host Community Development Tax
- 3.6 Deductions and Depreciation
- Capital Allowances
- Production Allowances
- 3.7 Indirect Taxation
- Withholding Tax
- Value Added Tax
- Customs Duties
- 4 Key Fiscal Terms – Joint Venture, Sole Risk and Marginal Fields
- 4.1 Fees, Levies and Bonuses
- Rental Fees
- Gas Flaring
- 4.2 Royalties
- Royalty (Post-PIA)
- Royalty (Pre-PIA)
- 4.3 Taxation
- Hydrocarbon Tax
- Chargeable Profits
- Corporate Income Tax
- Petroleum Profit Tax (Abolished after PIA)
- Education Levy
- NDDC Levy
- Host Community Development Tax
- Pioneer Tax Holiday
- Indirect Taxes
- 4.4 Tax Incentives
- Tax Inversion
- Gas Utilisation Incentives
- 4.5 State Participation
- 4.6 MoU Regime (JVs only)
- Minimum Profit Margin
- 5 Regulation and Licensing
- 5.1 Legal Framework
- Governing law
- Contract Type
- Title to Hydrocarbons
- 5.2 Institutional Framework
- 5.3 Licensing Process
- Duration and Relinquishments
- Work Obligations
- Abandonment Fund
- 6 Appendix
- 6.1 References
- 7 About GlobalData
- 8 Contact Us
- List of Tables
- Table 1: Regime Overview: Production Sharing Agreements and Concession Agreements
- Table 2: Regulatory Overview and Outlook
- Table 3: Nigeria, Key Events Since Year 2000
- Table 4: Nigeria, Rental fees by license and duration
- Table 5: Nigeria, PSA, Minimum Signature Bonus By Terrain or Area (US$), 2005 Bid Round
- Table 6: Nigeria, PSA, Required Production Bonus, OPL 905, 2007
- Table 7: Nigeria, PSA, Required Production Bonus, OPL 245, 2003
- Table 8: Nigeria, Liquid Royalty Rates (%) Under PIA, 2021 Onwards
- Table 9: Nigeria, Gas And NGLs Royalty Rate (%) Under PIA, 2021 Onwards
- Table 10: Nigeria, Liquid Royalty Rates (%) Based on Oil Price Under PIA, 2021 Onwards
- Table 11: Nigeria, DOIBPSC Amendment, Royalty Rates By Terrain And Exploration Maturity, 2019
- Table 12: Nigeria, DOIBPSC Amendment, Royalty Rates by Commodity Price, 2019
- Table 13: Nigeria, PSA, Royalty Rates (%), 1999 DOIBPSC Decree and 2005 Model PSA
- Table 14: Nigeria, PSAs, Onshore and Shallow Water Royalty Rates (%), Pre-2005
- Table 15: Nigeria, PSA, Profit Sharing (%) Under PIA
- Table 16: Nigeria, PSA, Profit Sharing Framework, 2005 Model PSA
- Table 17: Nigeria, PSA, Profit Sharing Framework, Deepwater and Inland Basin, Pre-2005(1993 & 2000 model)
- Table 18: Nigeria, PSA, Profit Sharing Framework, Deepwater and Inland Basin, Pre-2005(OML 123/OML 124 & OML 126/OML 137)
- Table 19: Nigeria, Hydrocarbon tax, PIA Converted or New licenses
- Table 20: Nigeria, Capital Allowances Rates (%) Under PIA
- Table 21: Nigeria, PSA, Production Allowance for New Leases Under PIA
- Table 22: Nigeria, JV and Sole Risk, Royalty Rates (%) - Liquids
- Table 23: Nigeria, JV and Sole Risk, Royalty Rates (%) - Gas
- Table 24: Nigeria, Marginal Fields, Royalty Rates (%) - Gas
- Table 25: Nigeria, Tax Inversion Operating Cost Thresholds (US$/bbl), 2000 MoU
- Table 26: Nigeria, Guaranteed Profit Margin, Applicable Between US$15/bbl and US$19/bbl, 2000 MoU
- Table 27: Nigeria, Guaranteed Profit Margin, Applicable Between US$12.50/bbl and US$23/bbl, 1991 MoU
- Table 28: Nigeria, Guaranteed Profit Margin, Applicable Between US$12.50/bbl and US$23/bbl, 1986 MoU
- Table 29: Nigeria, PSA, Work Program Commitments, Selected PSAs
- Table 30: References.
- List of Figures
- Figure 1: Regime Flow Chart – Production Sharing Agreement
- Figure 2: Regime Flow Chart – Concession Agreements
- Figure 3: Nigeria, Indicative NPV10/boe, IRR (%). Project returns by Regime and Resource Type
- Figure 4: Nigeria, State Take Comparison. State-take by Regime and Resource Type
- Figure 5: Nigeria, State Take, Price & Cost Sensitivity.
- Figure 6: Nigeria, Legal Framework.
- Figure 7: Nigeria, Institutional Framework.
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