I have had quite a number of enquiries recently on the investment opportunities in the Nigeria's oil and gas industry. Below is some vital info that might be benefitial. Please note that this is not wholly correct as most areas are subject to government and operational changes with time. Contact the relevant bodies for latest updates.
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Upstream
The Nigerian Oil and Gas reserves have grown tremendously since its first discovery in 1956, from a modest figure of 0.184 billion barrel of oil and 2.260 billion cubic feet of gas in 1958 to more than 30 billion barrels of oil, 3.80 billion barrels of condensate and about 170 trillion cubic feet of gas, as at December 2005.
The Nigerian Oil and Gas reserves have grown tremendously since its first discovery in 1956, from a modest figure of 0.184 billion barrel of oil and 2.260 billion cubic feet of gas in 1958 to more than 30 billion barrels of oil, 3.80 billion barrels of condensate and about 170 trillion cubic feet of gas, as at December 2005.
Present civilian government has introduced various incentives for increasing oil reserves and gas utilization. These iclude, a Memorandum of Understanding (MOU) negotiated and agreed to guarantee a notional profit margin of US $2/bbl which was revised to include the Reserves Addition Bonus clause, which qualify the operator for a tax credit for additions to reserves that exceeds its production for a year. Opening up of other basins, which are blocked into concessions and awarded to competent entrepreneurs for exploration and development. The basins are Benin, Anambra, Benue Trough, Chad and the Deep and Ultra-deep offshore area of Nigeria.
The first four of these basins are relatively un-explored while the Deep and Ultra-deep offshore are still partially explored. The opening-up significantly increased the number of companies exploring for hydrocarbon in Nigeria from just a few to over 60 with about 46 of them discovering oil, gas and/or condensate in significant qualities. This brought about the conversion of 91 of 177 Oil Prospecting Licenses (OPLs) to Oil Mining Leases (OMLs) (as at 2003). Seventeen of these companies have gone into actual production. In the deep and ultra-deep offshore terrain, 12 companies have discovered oil and gas in commercial quantities (source-nnpc). This encouraging result made the Government to open up more than 40 new blocks to interested entrepreneurs for competitive bidding process since the year 2000 to 2005.
Government also awarded 24 of the 200 fields classified as marginal by operators due to low ranking in their investment portfolio and/or remoteness to existing facilities to 32 local companies. These 24 Marginal fields have an estimated reserve of about 300 million barrels of crude.
Government also encourages drilling that will target deeper horizon by giving exploration, first and second appraisal incentive to wells that investigate depths in excess of 500 meters beyond that of the deepest well in the field.
Some of the major activities in which investment opportunities abound include but not limited to the following: Surveying; Civil Works Seismic Data Acquisition and Interpretation. Also are other geological activities, drilling operations, crude oil transportation and storage as well as production.
Upstream Opportunities
•Surveying - tropical and planimetric; and sea bottom survey, Civil Works- mud pit construction, concrete works at rig sites, Seismic data acquisition and interpretation, Drilling operations, Pipelining, Crude oil transportation and storage, Exploration and production of oil and gas products, Manufacturing of consumable materials in exploration such as explosives, Detonators, steel casting, magnetic tapes etc.
I encourage research for development of local substitutes for items such as medium pressure valves, pumps, shallow drilling equipment, drilling mud, bits fittings, drilling cement etc. This will definitely attract government assistance.
Down-stream Opportunities
In view of the enormous potentials in this sector, some fiscal incentives have also been put in place by the government for investors are as follows:Gas Production Phase
•Applicable tax rate under the Petroleum Profit Tax (PPT) Act to be at the same rate as company tax currently at 30%.
•Capital Allowance at the rate of 20% per annum in the first four years, 19% in the fifth year and the remaining 1% in the books.
•Investment Tax Credit of the current rate of 5%.•Royalty at the rate of 7% on shore and 5% offshore.
Gas Transmission and Distribution.
•Capital allowance as in production phase above.
•Tax rate as in production phase.
•Tax holiday under pioneering status.
LNG Projects.
•Applicable tax rate under PPT is 45%.
•Capital allowance is 33% per year on straight-line basis in the first three years with 1% remaining in the books.
•Investment tax credit of 10%.
•Royalty of 7% on-shore, 5% off-shore tax deductible
Gas Exploitation (Upstream Operations)
Fiscal Arrangements are reviewed as follows:
All investment necessary to separate oil from gas from the reserves into suitable products is considered part of the oil field development.
Capital investment facilities to deliver Associated Gas in usable form at utilization or transfer points will be treated for fiscal purposes as part of the capital investment for oil development.
Capital allowances, operating expenses and basis for assessment will be subjected to the provisions of the PPT Act and the revised Memorandum of Understanding (MOU).
Gas Utilisation (Downstream Operations).
Incentives given to investors for encouragement of exploitation and utilization of Associated Gas for commercial purposes include:
Companies engaged in gas utilization are to be subjected to the provisions of the Companies Income Tax Act (CITA).
An initial tax free period of three years renewable for an additional two years.
Accelerated Capital Allowance after the tax-free period in the form of 90% with 10% retention in the books for plant and machinery.15% investment capital allowance which shall not reduce the value of the asset.
Recently, the government approved additional incentives to support the gas industry in the following areas:
- All gas developmental projects, including those engaged in power generation, liquid plants, fertiliser plants, gas distribution and transmission pipelines are to be taxed under the provisions of the Companies Income Tax Act (CITA) and not the Petroleum Profit Tax.
- All fiscal incentives under the gas utilisation downstream operations in 1997 are to be extended to industrial projects that use gas i.e. power plants, gas to liquids plants, fertiliser plants and gas distribution/transmission plants.
- The initial tax holiday is to be extended from three to five years.
- Gas is transferred at 0% PPT and 0% Royalty.
- Investment capital Allowance is increased from 5% to 15%.
- Interest on loans for gas projects is to be tax deductible provided that prior approval was obtained from the Federal Ministry of Finance before taking the loan.
- All dividends distributed during the tax holiday shall not be taxed.
Investment Opportunities in Downstream
Investment Opportunities in the Downstream sector are:
- Gas treatment
- Crude Oil and Gas conversion into refined and petrochemical products and finer chemicals
- Transportation and Marketing of the products Related ancillary services
- Refining, Petrochemicals and Gas Utilization
Nigeria's production cost per barrels is known to be one of the lowest world wide. Huge reservoirs of hydrocarbon abound in Nigeria.
From all indications, government has provided generous fiscal terms both for oil production and gas utilization.The economic environ though a little hostile recently, still ensure easy repatriation of profit by investors. An even field is provided for all operations in the Petroleum Regulations and the monitoring agency -the Department of Petroleum Resources.
Another area of interest may be the Downstream- Gas Sector:
1. Domestic Production and Marketing of Liquefied Natural Gas (LPG).
2. Domestic Manufacturing of LPG cylinders, valves and regulators, installation of filling plants, retail distribution and development of simple, flexible and less expensive gas burners to encourage theuse of gas instead of wood.
3. Establishment of processing plants and industries for the production of:
- refined mineral oil, petroleum jelly and grease
- Bituminous based water / damp proof building materials e.g. roofing sheets, floor tiles, tarpaulin,
- Building of asphalt storage, packaging and blending that may export these products.
4. Establishment of chemical industries e.g. distillation units for the production of Naphtha and other special boiling point solvents used in food processing.
5. Linear Alkyl Benzene, Carbon Black and Polypropylene producing industries.
6. Development of Phase II (Phase III to commence later) in Nigeria’sPetrochemical Programme
8. Small-scale production of chemicals and solvents e.g. chlorinated ethane, Formaldehyde, Acetylene etc. from natural gas.
9. Crude oil refining with efficient export facilities. Companies with the technology can undertake turn around maintenance of refineries. There is a tremendous scope for small-scale joint venture manufacturing concerns with foreign technical partners. Such ventures can start warehousing arrangements that will ensure continuity of supply at competitive prices.
10. Products Transportation and Marketing of associated products e.g. Lubricating Oil processing, LPG bottles and accessories, oil cans reconditioning etc.
Opportunities in Ancillary Activities.
Other investment opportunities contingent upon refining and ancillary activities are the manufacture of special products that include the following:
•Industrial and Food grade solvents: Insecticides, Cosmetics, Mineral Oil, Petroleum Jelly and Grease, etc.
Source: NNPC, DPR, Nigeria govt.
PS: verify all info before venturing into any business and make sure you contact the right agency for assistance.
