FG PROPOSES 70:30 PROFIT-SHARING FORMULA FOR NEW OIL FIELDS
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By:Tajudeen Aminat
The Federal Government has introduced a new fiscal incentive for deep offshore oil and gas developments, allowing qualifying projects to begin with a 70:30 profit-oil sharing ratio in favour of contractors, even where older production within the same contract area has already reached a higher government share.
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 subsequently gazetted.
The new “Profit Oil Reset” is aimed at making new deep offshore projects more attractive by preventing fresh developments from automatically adopting the higher government profit-oil share applicable to mature production within the same contract area.
Under the policy, an approved eligible project will restart the profit-oil sliding scale, with contractors receiving 70 per cent and the government 30 per cent at the initial stage of production.
The incentive is, however, limited to qualifying greenfield crude oil or non-associated gas projects for which a Final Investment Decision had not been taken before the order came into effect.
The FID must be reached on or before December 31, 2029, although the deadline may be extended where force majeure prevents the operator from meeting the requirement.
The order further requires qualifying projects to be ring-fenced for cost recovery and tax purposes, while the government and contractor must execute an addendum to the relevant Production Sharing Contract within 30 days of approval.
In addition to 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. Projects with larger reserves may receive up to $4.50 per barrel.
Future leases may also qualify for an additional $1 per barrel, subject to the conditions stipulated in the order.
For deep offshore gas projects, the tax credit will be up to $1 per thousand standard cubic feet for qualifying gas with lower hydrocarbon liquids content, while projects with higher liquids content may receive up to $0.50 per thousand standard cubic feet.
A supplementary production tax credit will also be available on a case-by-case basis, with the combined standard and supplementary credits capped at $11.50 per barrel for oil projects and $8 per barrel of oil equivalent for non-associated gas projects.
The government said the incentives are intended to encourage investment in deep offshore developments, which typically require significant capital, advanced technology and lengthy development periods.
Professor Emeritus of Petroleum Economics, Wumi Iledare, welcomed the investment objective but cautioned that the incentives should deliver additional value to Nigeria.
He noted that the key consideration should be whether the tax remission would generate enough additional value to justify the revenue and economic rent the government may forgo.
The new policy comes as the Federal Government seeks to attract fresh capital into Nigeria’s upstream oil sector and address declining investment and production challenges.
Iledare noted that the potential to unlock up to $50bn in investment, including the approximately $10bn Bonga Southwest project, could be significant, but stressed that investment announcements should not be the sole measure of the policy’s success.
The order also requires project activities to be undertaken in Nigeria, except for critical-path activities or where domestic execution would cost more than 10 per cent above the international alternative, subject to an approved Nigerian Content Plan.
The Nigeria Revenue Service is expected to issue implementation guidelines within 45 days, covering the application process, economic valuation methodology, computation templates, monitoring and ring-fencing requirements.
The government has also included clawback provisions, allowing improperly obtained tax credits to be withdrawn and recovered where applicants provide false information, misrepresent facts, submit incorrect data or violate approval conditions.
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