The Federal Government has sanctioned a unique production-linked tax incentive for Shell Plc’s Bonga Southwest Aparo deepwater oil initiative in a new effort to unlock billions in investments and boost Nigeria’s crude oil output.
A Bloomberg report on Tuesday revealed that President Bola Tinubu authorized fiscal conditions that give Shell and its partners a tax rebate of $11.50 for each barrel of crude oil extracted from the project, exceeding twice the usual incentive provided under Nigeria’s fiscal structure.
The report, referencing individuals knowledgeable about the issue who requested anonymity as the information is not public yet, indicated that the incentive is anticipated to assist in advancing the long-stalled Bonga Southwest Aparo project towards a Final Investment Decision.
The sources also revealed that the same production-linked tax incentive would be available to other international oil firms working on new deepwater initiatives in Nigeria and would be effective until at least 2029.
The report stated, “Nigeria awarded Shell Plc a tax credit tied to production for a deepwater project, an incentive that will also be extended to other oil giants as Africa’s largest producer aims to increase output, as per sources familiar with the situation.”
“Conditions authorized by President Bola Tinubu to advance the Bonga Southwest Aparo project toward a final investment decision provide Shell and its partners with a discount of $11.50 per barrel of crude produced, according to sources who requested anonymity as the details are not public.” That’s over twice the usual quantity.
The progress signifies an additional stride in the Federal Government’s initiatives to rebuild investor trust in Nigeria’s oil and gas sector following years of dwindling investment resulting from oil theft, pipeline damage, insecurity, outdated infrastructure, and regulatory ambiguity.
The Bonga Southwest Aparo project represents one of Nigeria’s largest untapped deepwater oil fields and is expected to draw around $20bn in foreign direct investment.
The Nigerian National Petroleum Company Limited states that the initiative is anticipated to generate approximately 150,000 barrels of crude oil daily once operational, greatly enhancing Nigeria’s oil production ability.
In response to inquiries, a Shell spokesperson stated that the company is still progressing with the project’s development. The representative stated, “Shell is moving forward with the development of the Bonga Southwest Aparo project and will provide significant updates via official channels.”
According to the report, representatives from the Nigerian National Petroleum Company Limited and the Office of the President’s Special Adviser on Energy did not reply to requests for comments regarding the situation.
The most recent incentive is included in a larger set of reforms implemented by the Tinubu administration since it took office in May 2023 to rejuvenate Nigeria’s ailing petroleum sector.
In the last three years, the Federal Government has released multiple executive orders aimed at enhancing the nation’s competitiveness, drawing new investments, and unblocking delayed oil and gas initiatives.
An early executive order restricted production tax credits to 20 percent of a license holder’s yearly tax obligation to alleviate operating expenses, a rate that the government claimed was competitive with global industry benchmarks.
Stakeholders expect that the increased tax credit may enhance the economic feasibility of costly deepwater projects, where production expenses are considerably greater than those of onshore facilities.
The report mentioned that the government’s initiatives to boost crude oil production are starting to show positive outcomes.
Data published on Sunday by the Nigerian Upstream Petroleum Regulatory Commission revealed that Nigeria’s crude oil output increased to an average of 1.56 million barrels daily in June, marking the nation’s highest monthly production since April 2020.
The rise indicates enhanced security for essential oil infrastructure, revitalized investments in upstream activities, and governmental reforms intended to recover production rates.
The report indicated that investors still have concerns regarding the sustainability of fiscal incentives, as executive orders may face legal challenges or alterations by future administrations.
To tackle those issues, Shell has allegedly asked the Federal Government to announce the tax-credit order in the Official Gazette, a step that would bolster its legal position and offer more assurance for investors.
Internal government documents reviewed by Bloomberg revealed that officials have initiated the process of publishing the order.
Nigeria has faced challenges for years in drawing new investment into its upstream oil sector, as multinational oil firms postponed or halted significant projects because of fiscal unpredictability, security issues, and increasing operational expenses. Numerous deepwater projects have continued to be hindered even after the implementation of the Petroleum Industry Act in 2021.
The Tinubu government has since emphasized reforms designed to counteract the drop in investments via executive orders, tax incentives, and regulatory changes.
The government anticipates that initiating projects like Bonga Southwest Aparo will not only increase crude oil output but also attract billions in foreign investments, generate employment, and bolster government income.
