The Federal Government has introduced a major fiscal incentive for new deep offshore oil and gas projects, allowing qualifying developments to restart the profit-oil sharing scale at 70:30 in favour of contractors.
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 gazetted by the government.
A review of the official Gazette showed that the new Profit Oil Reset is designed to make fresh deep offshore developments more commercially attractive by shielding new projects from the higher government profit-oil shares that may apply to older production within the same contract area.
Under the order, where a Profit Oil Reset is approved, the profit-oil sliding scale will restart specifically for the eligible project, with contractors receiving 70 per cent while the government receives 30 per cent at the beginning of the new development.
The Gazette stated that the allocation would commence at a 70:30 ratio between the contractor and government for the eligible project, even where existing production elsewhere in the same contract area had already moved to a higher step on the profit-oil sliding scale.
The provision means operators will not automatically inherit the higher government profit-oil share applicable to mature production when investing in a new greenfield development within an existing contract area.
However, the incentive is not available to every project.
The order specifies that the development must be a greenfield crude oil or non-associated gas project for which a Final Investment Decision had not been taken when the order commenced.
The FID must be taken on or before December 31, 2029, although extensions may be granted where force majeure prevents the operator from meeting the deadline.
The qualifying development must also be ring-fenced for cost recovery and tax purposes. Once a reset is approved, the government and contractor are required to execute an addendum to the relevant Production Sharing Contract within 30 days.
Beyond the profit-oil reset, the Federal 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 higher reserves can receive up to $4.50 per barrel, while future leases can receive an additional $1 per barrel, subject to the conditions contained in the order.
For deep offshore gas projects, the tax credit is set at up to $1 per thousand standard cubic feet for qualifying gas with lower hydrocarbon liquids content. Projects with higher liquids content can 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.
The combined standard and supplementary credit is capped at $11.50 per barrel for oil projects and $8 per barrel of oil equivalent for non-associated gas projects.
The order is intended to stimulate investment in deep offshore fields, which require significant capital outlays, advanced technology and long development periods.
Professor Emeritus of Petroleum Economics, Wumi Iledare, welcomed the investment objective but cautioned that the incentives must generate additional value for Nigeria.
“The more important petroleum economics question is: How much incremental value will the tax remission create for Nigeria relative to the economic rent and government revenue forgone? That is the test that should guide our assessment of DOEO 2026,” Iledare said in a commentary sent to the correspondent.
He added that an incentive that merely transfers rent from government to an investor on a project that would have proceeded anyway may not create additional public value.
Iledare noted that deepwater projects were capital-intensive and exposed to geological, cost and market risks, making fiscal stability critical to investment decisions.
The new order comes as the Federal Government seeks to attract fresh capital into the upstream sector and reverse years of declining investment and production challenges.
Iledare said the reported potential to unlock up to $50bn in investment, beginning with the approximately $10bn Bonga Southwest project, was significant.
However, he stressed that investment announcements alone should not determine whether the policy succeeds.
The order also requires project activities to be carried out in Nigeria, except for critical-path activities or where executing them domestically would be more than 10 per cent more expensive.
Such exceptions are subject to an approved Nigerian Content Plan.
The Nigeria Revenue Service is expected to publish implementation guidelines within 45 days. The guidelines will cover the application procedure, economic valuation methodology, computation templates, monitoring and ring-fencing requirements.
The government has also included clawback provisions under the order.
These provisions allow wrongly obtained tax credits to be withdrawn and recovered where an applicant uses false statements, misrepresentation or incorrect data, or breaches the conditions attached to its approval.
