Nigeria Introduces New Fiscal Incentives to Attract Deepwater Oil and Gas Investments

In an attempt to revitalize Nigeria’s energy sector, the Honourable Minister of Finance and Coordinating Minister of the Economy, Wale Edun, has announced two significant fiscal incentives aimed at boosting investment in deepwater oil and gas production. The incentives, approved by President Bola Ahmed Tinubu, are part of the government’s efforts to accelerate the country’s transition to cleaner energy sources and boost declining oil and gas revenue.

The first initiative, the Value Added Tax (VAT) Modification Order 2024, introduces VAT exemptions for gas, diesel, electric vehicles, and clean cooking equipment. It also provides tax credits for new investments in deepwater oil and gas exploration. This aligns with Nigeria’s commitment to advancing its energy transition while encouraging investments in both renewable and fossil energy sources.

The second incentive, outlined in the Notice of Tax Incentives for Deep Offshore Oil & Gas Production, formalizes a 2023 VAT waiver on petroleum products, including liquefied petroleum gas (LPG), compressed natural gas (CNG), and associated equipment. The waiver has now been extended to include liquefied natural gas (LNG) and clean cooking equipment, further positioning Nigeria as a competitive market for energy investment.

For the first time since basin exploration commenced in 1991, Nigeria is establishing a fiscal framework for deepwater gas, a significant development under the government’s Presidential Gas for Growth Initiative. This initiative aims to fast-track natural gas development, reduce dependence on fossil fuels, and make gas more affordable for domestic consumption.

Commenting on the development, Henry Ademola Adigun, an oil and gas analyst, explained, “It is intended to make investments in deepwater projects more attractive. It supports projects like Bonga 2 and others to ensure their completion. The idea is to improve the fiscal climate for gas and deepwater investments. It’s a good initiative to accelerate Nigeria’s energy transition process using gas.”

Dr. Justice ‘Mina Derefaka, a New Energy Value Chain expert, added, “Another plus side of this new investment in deepwater projects is that it will lead to the development of more oil and gas infrastructure, creating jobs across the value chain from exploration to production and related services. This will not only boost local employment but also contribute to economic growth through increased activity in the sector.”

Derefaka emphasized that despite the global energy transition, oil and gas will remain a key part of Nigeria’s economy. “Increased investment in deepwater projects will help Nigeria raise oil production, leading to higher export revenues. In the long term, successful projects will generate tax revenues and royalties that can be reinvested into the economy and public services,” he said.

Sam Aiboni, an Energy and Investment Solicitor, argued that Nigeria could do more in its critical oil and gas sector to attract global investors, “Consent for outstanding transfer of interest and approval of major projects would send a loud message to the investment community that Nigeria is open for business.”

 

In February 2022, Seplat Energy, one of Nigeria’s leading independent energy companies, announced a landmark $1.2 billion acquisition of ExxonMobil’s offshore shallow water assets in Nigeria. However, nearly three years later, the deal remains stuck in political and regulatory limbo.

Despite initial approval by the Nigerian Presidency, the Nigeria Upstream Regulatory Commission (NUPRC) and the Nigerian National Petroleum Corporation Limited (NNPCL) publicly opposed the deal, leading to a series of conflicting public statements. The lack of alignment with the Presidency has left the future of the acquisition uncertain, raising concerns over Nigeria’s ability to efficiently manage large-scale energy transactions.

The Nigerian government’s move comes at a critical time, as international oil companies have been diverting deepwater investments to other markets. Since Nigeria’s last deepwater project, Egina, was approved in 2013, IOCs have committed over $82 billion to more competitive markets, with plans for an additional $90 billion in deepwater projects globally. With these fiscal reforms, Nigeria aims to attract between $5 billion and $10 billion in new investments over the near- to medium-term.

Dr. Derefaka also highlighted that by promoting gas development, Nigeria can enhance its domestic energy security, diversify its revenue streams, and position natural gas as a cleaner, more sustainable energy source. “These incentives will focus on developing Nigeria’s underutilized natural gas resources, which remain largely untapped,” he said.

“These reforms could reverse the trend of international oil companies (IOCs) directing investments elsewhere, positioning Nigeria to capture future investments as IOCs expand their portfolios”

With these fiscal incentives now in effect, Nigeria is positioning itself to regain competitiveness in the global energy market, targeting substantial investments in deepwater oil and gas projects that will play a critical role in the country’s economic growth.

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