Nigeria has introduced a new fiscal incentive that could improve the commercial outlook for fresh deep offshore oil and gas developments, allowing qualifying projects to begin their profit-oil sharing arrangement at 70 per cent for contractors and 30 per cent for the government.
The measure 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.
A central feature of the order is the Profit Oil Reset, which gives an eligible new development its own starting point on the profit-oil sliding scale. This means a greenfield project entering an existing contract area will not automatically take on the higher government share that may already apply to older production in that area.
Once approved, the reset begins at 70:30 between the contractor and government for the eligible project. The Gazette specifies that the sliding scale will restart only for the approved development, regardless of the profit-oil ratio that existing production elsewhere in the same contract area has already reached.
The arrangement is targeted specifically at new developments rather than existing fields. To qualify, a project must be a greenfield crude oil or non-associated gas development for which a Final Investment Decision had not been taken when the order commenced.
The FID must be reached by December 31, 2029. An extension may be granted where force majeure prevents the operator from meeting the deadline.
The qualifying development must also be ring-fenced for cost recovery and tax purposes. Following approval of the reset, the contractor and government are required to execute an addendum to the relevant Production Sharing Contract within 30 days.
The fiscal support does not stop at profit-oil sharing. The order introduces a Standard Production Tax Credit of up to $3 per barrel for qualifying projects with producible reserves of up to 400 million barrels. Projects with reserves above that level can receive up to $4.50 per barrel.
Future leases may qualify for another $1 per barrel, subject to the conditions set out in the order.
For deep offshore gas projects, qualifying gas with lower hydrocarbon liquids content can attract a tax credit of up to $1 per thousand standard cubic feet, while gas with higher liquids content can receive up to $0.50 per thousand cubic feet.
A Supplementary Production Tax Credit may also be granted on a case-by-case basis. The combined standard and supplementary credits cannot exceed $11.50 per barrel for oil projects or $8 per barrel of oil equivalent for non-associated gas projects.
The incentives are being introduced into a sector where offshore developments demand large amounts of capital, advanced technology and long investment horizons. Geological uncertainty, project costs and market conditions can further influence the economics of such developments, making fiscal certainty an important consideration for investors.
Professor Emeritus of Petroleum Economics, Wumi Iledare, welcomed the investment objective but urged that the policy should ultimately be judged by the additional value it creates for Nigeria.
He said the critical petroleum economics question was how much incremental value the tax remission would generate for the country compared with the economic rent and government revenue forgone.
Iledare also warned that an incentive that merely transfers rent from government to an investor on a project that would have proceeded regardless would not necessarily create additional public value.
The potential investment impact is nevertheless significant. Iledare pointed to reported prospects of unlocking up to $50 billion in investment, beginning with the approximately $10 billion Bonga Southwest project. He stressed, however, that investment announcements alone should not determine whether the policy succeeds.
The order also places emphasis on activities being carried out within Nigeria. Project work is expected to be undertaken domestically except where an activity is on the critical path or carrying it out in Nigeria would cost more than 10 per cent above the alternative. Such exceptions must be covered by an approved Nigerian Content Plan.
The Nigeria Revenue Service is expected to publish implementation guidelines within 45 days. These will cover the application procedure, economic valuation methodology, computation templates, monitoring arrangements and ring-fencing requirements.
There are also provisions for recovering benefits obtained improperly. Tax credits may be withdrawn and recovered where an applicant has used false statements, misrepresentation or incorrect data, or has breached the conditions attached to the approval.
For Nigeria, the new framework represents an attempt to improve the investment case for undeveloped deep offshore resources while protecting the country against incentives that fail to produce corresponding economic gains. Its success will ultimately depend on whether the fiscal concessions translate into projects, capital, production and broader value for the Nigerian economy.
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