Explainer: What to know about FG’s offshore incentives

President Bola Tinubu signed an order on deep offshore oil and gas projects incentives to encourage investment in Nigeria's offshore oil fields. The incentives aim to unlock up to $50 billion in deep offshore investment, starting with the $10 billion Bonga South West project. The order provides tax relief and profit-sharing arrangements for eligible projects.

The Standard Production Tax Credit (Standard PTC) incentivizes projects with existing leases that have a Final Investment Decision (FID) but face force majeure events or future leases. Developers can receive a production tax credit of $3.00 per barrel or 20% of the fiscal oil price, depending on the lower rate, for a cumulative production of 150 million barrels.

For reserves exceeding 400 million barrels, the incentive increases to $4.50 per barrel or 20% of the fiscal oil price for a cumulative production of 500 million barrels.

In the case of future leases awarded after the effective date, developers receive an additional Standard PTC of $1.00 per barrel up to a cumulative production of 500 million barrels. For non-associated gas projects, developers receive an incentive of $1.00 per thousand standard cubic feet (mscf) of gas sold or 30% of the fiscal gas price, whichever is lower.

The order also outlines a new profit-sharing formula for non-associated gas production, with the government receiving 20% of the gas in projects with reserves of 1 trillion cubic feet (TCF), increasing to 35% for reserves over 1 TCF, 45% for reserves up to and including 3 TCF, 50% for reserves between 3 and 5 TCF, and 60% for reserves over 5 TCF. The government will also receive the highest share of 60% for reserves over 7 TCF.

Experts caution that the government should exercise caution in offering generous profit-sharing formulas to avoid reducing revenue benefits to the country. They express concern over the potential for poorly managed contracts similar to those in the 1990s, which resulted in heavy commercial losses for Nigeria.