Recent Developments in Nigeria’s Oil & Gas Sector 2018
6.1. Divestment of assets The International Oil Companies (IOCs) operating in Nigeria are disposing their interest in some onshore and shallow-water blocks, in a bid to rationalize their asset portfolios, and shift strategic development focus to the deep offshore operations in Nigeria. These blocks are being disposed under negotiated bid arrangements.
Most of the blocks are recognized oil fields, while others are gas fields. Since most of the blocks are in the onshore and shallow-water areas of the Niger Delta regions, the fiscal regimes applicable to joint venture operations (as described under section 1,1 above) are applicable to these blocks.
6.2. Granting of pioneer status incentive to indigenous exploration and production companies
The Nigerian Investment Promotion Commission (NIPC or the Commission) expanded the list of pioneer industries/products to include petroleum, in the first quarter of 2012. Following this change, a number of exploration and production (E&P) companies applied to the Commission for pioneer status. Some of these companies succeeded in convincing the NIPC of their eligibility for the status and were subsequently awarded pioneer certificates. However, the major drawback to the companies’ ability to enjoy the fiscal incentives conferred by the status, was that the Federal Inland Revenue Service (FIRS) did not honour the pioneer certificates.
However, the FIRS’s has recently changed its position and now honours pioneer status certificates granted to indigenous E&P companies, even without the certificates being gazetted and notwithstanding the legal issues on the applicability or otherwise of the Industrial Development (Income Tax Relief) Act – the legal framework for pioneer status – to E&P companies’ petroleum operations.
The implication of the above development is that E&P companies that obtain pioneer status can now enjoy the following fiscal benefits:
- Tax holiday with respect to Petroleum Profits Tax and Companies Income Tax for three (3) to five (5) years .
- Exemption of dividend paid from pioneer profits from Withholding Tax
- Ability to carry forward losses incurred during the pioneer period
Typically, the application for pioneer status should be made within 12 months of commencement of commercial production.
6.3. Sale of marginal fields by the Federal Government of Nigeria (FGN) The FGN has commenced the marginal fields licensing round aimed at increasing the participation of indigenous operators in the upstream sector of the oil and gas industry.
The bidding process for 31 marginal fields commenced in 2013. Out of the 31 marginal fields being allocated, 16 are located onshore, while the remaining 15 are located in the continental shelf of Nigeria. This process is expected to be completed in April 2014, but completion may be delayed beyond this month.
Only indigenous operators are eligible for bidding for the marginal fields. However, some of the successful bidders would require various levels of financial and technical support. Therefore, potential investors can partner with these (successful) indigenous companies to provide the requisite technical and financial support.