FG offers 70:30 profit oil split for new fields

n n

The Federal Government has introduced a major fiscal incentive for new deep offshore oil and gas projects, allowing qualifying developments to restart the profit-oil sharing scale at 70:30 in favour of contractors, even where existing production in the same contract area has already moved to a higher government share.

n

The provision is contained in the Deep Offshore Oil and Gas Projects Incentives (Tax Remission) Order, 2026, signed by President Bola Tinubu on August 6, 2026, and gazetted by the government.

n

A review of the official Gazette obtained by The PUNCH showed that the new Profit Oil Reset is designed to make fresh deep offshore developments more commercially attractive by ring-fencing new projects from the more burdensome profit-oil sharing levels reached by older production.

n

Under the order, where a Profit Oil Reset is approved, the profit-oil sliding scale will restart specifically for the eligible project, with the contractor receiving 70 per cent and the government 30 per cent at the beginning of the new development.

n

The Gazette stated, “Where a Profit Oil Reset is approved, the applicable profit oil sliding scale shall restart only for the approved eligible project development, such that the allocation of profit oil ratios between Contractor and the Concessionaire shall commence at a ratio of 70:30 as between the contractor and government in respect of the eligible project development, notwithstanding that existing production elsewhere in the same contract area has already graduated the profit oil ratios to a higher step in the profit oil sliding scale.”

n

The provision means operators will not automatically inherit the higher government profit-oil share applicable to mature production when investing in a new greenfield development within an existing contract area.

n

However, the incentive is not available to every project. The order specifies that the development must be a greenfield crude oil or non-associated gas project for which a Final Investment Decision had not been taken when the order commenced.

n

The FID must be taken on or before December 31, 2029, although extensions may be granted where force majeure prevents the operator from meeting the deadline.

n

The order also requires the qualifying development to be ring-fenced for cost recovery and tax purposes. Once a reset is approved, the government and contractor must execute an addendum to the relevant Production Sharing Contract within 30 days.

n

Beyond the profit-oil reset, the government introduced a Standard Production Tax Credit of up to $3 per barrel for qualifying projects with producible reserves of up to 400 million barrels, while projects with higher reserves can receive up to $4.50 per barrel.

n

Future leases can receive an additional $1 per barrel, subject to the conditions in the order. For deep offshore gas projects, the tax credit is set at up to $1 per thousand standard cubic feet for qualifying gas with lower hydrocarbon liquids content, while projects with higher liquids content can receive up to $0.50 per thousand standard cubic feet.

n

A Supplementary Production Tax Credit will also be available on a case-by-case basis, with the combined standard and supplementary credit capped at $11.50 per barrel for oil projects and $8 per barrel of oil equivalent for non-associated gas projects.

n

The order is intended to stimulate investment in deep offshore fields, which require huge capital outlays, advanced technology and long development periods.

n

Commenting, Professor Emeritus of Petroleum Economics, Wumi Iledare, in a commentary sent to our correspondent, welcomed the investment objective but cautioned that incentives must produce additional value for Nigeria.

n

He said, “The more important petroleum economics question is: How much incremental value will the tax remission create for Nigeria relative to the economic rent and government revenue forgone? That is the test that should guide our assessment of DOEO 2026.”

n

Iledare added, “An incentive that merely transfers rent from government to an investor on a project that would have proceeded anyway does not necessarily create additional public value.”

n

He noted that deepwater projects were capital-intensive and exposed to geological, cost and market risks, making fiscal stability critical to investment decisions.

n

The new order comes as the Federal Government seeks to attract fresh capital into the upstream sector and reverse years of declining investment and production challenges.

n

Iledare said the reported potential to unlock up to $50bn in investment, beginning with the approximately $10bn Bonga Southwest project, was significant, but stressed that investment announcements alone should not determine whether the policy succeeds.

n

The order also requires project activities to be carried out in Nigeria, except for critical-path activities or where executing them domestically would be more than 10 per cent more expensive, subject to an approved Nigerian Content Plan.

n

The Nigeria Revenue Service is expected to publish implementation guidelines within 45 days, including the application procedure, economic valuation methodology, computation templates, monitoring and ring-fencing requirements.

n

The government has also provided clawback provisions, allowing wrongly obtained tax credits to be withdrawn and recovered where an applicant uses false statements, misrepresentation, incorrect data or breaches approval conditions.

n n