On February 28, 2024, President Bola Ahmed Tinubu issued the Oil and Gas Companies (Tax Incentives, Exemption, Remission, etc.) Order, 2024. The Order provides for certain fiscal incentives aimed at supporting companies within the Nigerian oil and gas industry. The incentives include tax credits to promote non-associated gas greenfield development, investment allowances to support gas utilization companies operating in the midstream oil and gas industry, and other proposed incentives specifically targeted at deep-water oil and gas projects.
Introduction
On February 28, 2024, President Bola Ahmed Tinubu issued the Oil and Gas Companies (Tax Incentives, Exemption, Remission, etc) Order, 2024 (the “Order”). The Order provides for certain fiscal incentives aimed at supporting companies within the Nigerian oil and gas industry. The incentives include tax credits to promote non-associated gas greenfield development, investment allowances to support gas utilization companies operating in the midstream oil and gas industry, and other proposed incentives specifically targeted at deep-water oil and gas projects.
In this note, we examine the key provisions of the Order and its possible impacts on the Nigerian oil and gas industry.
Tax Credits for Non-Associated Gas Greenfield Development
The Order grants specific tax credit incentives to non-associated gas (“NAG”) greenfield developments in onshore and shallow water locations, with first gas production on or before January 1, 2029.1 These tax credit rates vary based on the Hydrocarbon Liquids (“HCL”) contents. In cases where the HCL contents do not exceed 30 (thirty) barrels per million standard cubic feet, companies are eligible for a gas tax credit at the rate of US$1 (One Dollar) per thousand cubic feet or 30% (thirty per cent) of the fiscal gas price, whichever is lower.
The Order also grants NAG greenfield projects with first commercial production after January 1, 2029, with a gas tax allowance at a rate of US$0.50 (Fifty Cents) per thousand standard cubic feet or 30% (thirty per cent) of the fiscal gas price, whichever is lower. However, it is important to note that the HCL contents must not exceed 100 barrels per million standard cubic feet.
Tax allowances refer to deductions that can made from gross income when calculating taxable income. This effectively reduces the amount of income subject to taxes.
The HCL contents in a non-associated gas field shall be determined by guidelines issued by the Nigerian Upstream Petroleum Regulatory Commission (“NUPRC”).
The gas tax credit shall apply for a maximum duration of ten years, after which it shall transition into a gas tax allowance. The allowance can be claimed on the condition that where the HCL contents do not exceed 30 (thirty) barrels per million standard cubic feet, there shall be a gas tax credit at the rate of US$1 (One Dollar) per thousand cubic feet or 30% (thirty per cent) of the fiscal gas price, whichever
is lower.
Further, the Order stipulates that the gas tax credit any company is entitled to shall not exceed the income tax payable by the company for that year.
In addition, the gas tax credit shall not be combined with the Associated Gas Framework incentives for the same greenfield NAG project. The Associated Gas Framework Agreement, 1992 (“AGFA”), introduced fiscal incentives by the Federal Government to national gas producers aimed at reducing gas flaring by allowing oil companies to offset their investments in gas projects from oil revenues.
Moreover, the Order allows companies to carry forward to e next year a gas tax credit surplus. However, the tax credit surplus can only be carried forward for a maximum of three (3) years. The fiscal price for calculating a gas tax credit under the Order shall be the same price used for determining royalties under the Petroleum Industry Act.
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