Nigeria Upstream Fiscal and Regulatory Guide

Nigeria primarily offers production-sharing agreements and sole risk contracts for upstream operations. In 2019, the country increased royalties payable on crude oil and condensate produced in inland basins and deepwater areas. The updated regime increases the fiscal burden for new investments in these areas, which may reduce the level of interest in the upcoming licensing round depending on the acreage offered. The government is also seeking to increase revenue generated from current PSCs though back-dated arrears. This, coupled with the non-passage of the Petroleum Industry Bill (now split into four separate bills) both reduces the stability of Nigeria's investment climate and increases uncertainty for investors which may extend into the medium term, particularly as the planned bills are expected to overhaul the current petroleum regulations, including the existing deepwater PSC framework.

“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

Reasons to buy

Understand the complex regulations and contractual requirements applicable to Nigeria’s upstream oil and gas sector

Evaluate factors determining profit levels in the industry

Identify potential regulatory issues facing investors in the country’s upstream sector

Utilize considered insight on future trends to inform decision-making

Table of Contents

1. Table of Contents

1.1. List of Tables

1.2. List of Figures

2. Executive Summary

2.1. Regime Overview – Production Sharing Agreement

2.2. Regime Overview – Joint Venture and Royalty Tax Agreements

2.3. Timeline

2.4. State Take Assessment

3. Key Terms – Production Sharing Agreements

3.1. Royalties, Bonuses and Fees

3.1.1. Signature Bonus

3.1.2. Production Bonus

3.1.3. Royalties

3.2. Cost Recovery

3.2.1. Limit on Recovery

3.2.2. Recoverable Costs

3.2.3. Petroleum Profits Tax

3.3. Profit Sharing

3.3.1. 2005 Model Contract

3.3.2. 1993 and 2000 Model Contracts – Deepwater and Inland Basin

3.3.3. Pre-2005 Contracts – Onshore and Shallow Water

3.4. Direct Taxation

3.4.1. Education Levy

3.4.2. NDDC Levy

3.5. Indirect Taxation

3.5.1. Withholding Tax

3.5.2. Value Added Tax

3.5.3. Customs Duties

3.6. License Terms

3.6.1. Duration and Relinquishments

3.6.2. Work Obligation

3.6.3. Abandonment Fund

4. Key Terms – Joint Venture, Sole Risk and Marginal Fields

4.1. Royalties, Bonuses and Fees

4.1.1. Rental Fees

4.1.2. Royalties

4.2. Direct Taxation

4.2.1. Petroleum Profits Tax

4.2.2. Capital Allowances

4.2.3. Petroleum Investment Allowance (PIA)

4.2.4. Pioneer Tax Holiday

4.2.5. Education Tax and NNDC Levy

4.2.6. Companies Income Tax

4.2.7. Withholding Tax

4.2.8. MoU Regime (JVs only)

4.2.9. Minimum Profit Margin

4.2.10. Tax Inversion

4.2.11. Gas Utilization Incentives

4.2.12. Gas Flaring

4.3. Indirect Taxation

4.3.1. Value Added Tax

4.3.2. Import Duties

4.3.3. State Participation

5. Regulation and Licensing

5.1. Legal Framework

5.1.1. Governing Law

5.1.2. Contract Type

5.1.3. Title to Hydrocarbons

5.2. Institutional Framework

5.2.1. Licensing Authority

5.2.2. Regulatory Agency

5.2.3. National Oil Company

5.3. Licensing Process

5.3.1. Licensing Rounds

5.3.2. Marginal Field Rounds

5.4. Local Content

6. Appendix

6.1. References

6.2. Contact Us

6.3. Disclaimer

List of Tables

1.1. List of Tables

Table 1: Regime Overview

Table 2: Nigeria, Key Events Since 2000

Table 3: Nigeria, PSA, Minimum Signature Bonus By Terrain or Area (US$), 2005 Bid Round

Table 4: Nigeria, PSA, Required Production Bonus, OPL 905, 2007

Table 5: Nigeria, PSA, Required Production Bonus, OPL 245, 2003

Table 6: Nigeria, DOIBPSC Amendment, Royalty Rates By Terrain And Exploration Maturity, 2019

Table 7: Nigeria, DOIBPSC Amendment, Royalty Rates By Commodity Price, 2019

Table 8: Nigeria, PSA, Royalty Rates (%), 1999 DOIBPSC Decree and 2005 Model PSA

Table 9: Nigeria, PSAs, Onshore and Shallow Water Royalty Rates (%), Pre-2005

Table 10: Nigeria, PSA, Profit Sharing Framework, 2005 Model PSA

Table 11: Nigeria, PSA, Profit Sharing Framework, Deepwater and Inland Basin, Pre-2005

Table 12: Nigeria, PSA, Example Production Sharing Framework, Onshore and Shallow Water, Pre-2005

Table 13: Nigeria, PSA, Work Program Commitments, Selected PSAs

Table 14: Nigeria, JV and Sole Risk, Royalty Rates (%) – Liquids

Table 15: Nigeria, JV and Sole Risk, Royalty Rates (%) – Gas

Table 16: Nigeria, Marginal Fields, Royalty Rates (%) – Gas

Table 17: Nigeria, JV and Sole Risk, Petroleum Investment Allowance Rates (%)

Table 18: Nigeria, Guaranteed Profit Margin, Applicable Between US$15/bbl and US$19/bbl, 2000 MoU

Table 19: Nigeria, Guaranteed Profit Margin, Applicable Between US$12.50/bbl and US$23/bbl, 1991 MoU

Table 20: Nigeria, Guaranteed Profit Margin, Applicable Between US$12.50/bbl and US$23/bbl, 1986 MoU

Table 21: Nigeria, Tax Inversion Operating Cost Thresholds (US$/bbl), 2000 MoU

Table 22: Nigeria, Bid Parameters, 2005 Bid Round

Table 23: References

List of Figures

1.2. List of Figures

Figure 1: Regime Flow Chart – Production Sharing Agreements

Figure 2: Regime Flow Chart – Joint Venture, Sole Risk, and Marginal Fields

Figure 3: Nigeria, Indicative NPV10/boe, IRR and State Take Comparison, and Price and Cost Sensitivity Analysis

Figure 4: Nigeria, Legal Framework

Figure 5: Nigeria, Institutional Framework

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