By Seun Ibiyemi
The Federal Government has approved a special production-linked tax credit for Shell Plc’s Bonga Southwest Aparo deepwater oil project in a fresh bid to attract billions of dollars in investment and boost Nigeria’s crude oil production.
According to a Bloomberg report published on Tuesday, President Bola Tinubu approved fiscal terms granting Shell and its partners a tax rebate of $11.50 for every barrel of crude oil produced from the project, more than double the standard incentive currently available under Nigeria’s fiscal regime.
The report, which cited sources familiar with the development, said the incentive is expected to accelerate the long-delayed Bonga Southwest Aparo project towards a Final Investment Decision.
The sources added that the production-linked tax credit would also be extended to other international oil companies undertaking new deepwater projects in Nigeria and would remain in place until at least 2029.
“Nigeria granted Shell Plc a production-linked tax credit for a deepwater project, an incentive that will be offered to other oil majors as Africa’s biggest producer seeks to boost production,” Bloomberg reported.
“Terms approved by President Bola Tinubu to push the Bonga Southwest Aparo project toward a final investment decision give Shell and its partners a rebate of $11.50 per barrel of crude produced.”
The latest development represents another step in the Federal Government’s efforts to restore investor confidence in Nigeria’s oil and gas sector after years of declining investment driven by crude theft, pipeline vandalism, insecurity, ageing infrastructure and regulatory uncertainty.
The Bonga Southwest Aparo field is regarded as one of Nigeria’s largest undeveloped deepwater assets and is expected to attract about $20 billion in foreign direct investment.
According to the Nigerian National Petroleum Company Limited, the project is projected to produce about 150,000 barrels of crude oil per day when it begins operations, significantly enhancing Nigeria’s production capacity.
Responding to inquiries, a spokesperson for Shell confirmed that the company was continuing work on the project.
“Shell continues to progress the Bonga Southwest Aparo project toward development and will communicate material updates through official channels,” the spokesperson said.
Officials of the Nigerian National Petroleum Company Limited and the Office of the President’s Special Adviser on Energy did not comment on the development.
The tax incentive forms part of a broader package of reforms introduced by the Tinubu administration since May 2023 to revive Nigeria’s petroleum sector and improve the country’s attractiveness to investors.
In recent years, the Federal Government has introduced several executive orders designed to unlock stalled projects, enhance competitiveness and encourage fresh investment in the oil and gas industry.
One of the previous executive orders limited production tax credits to 20 per cent of a licence holder’s annual tax liability to offset operating costs, a framework the government said aligned with international standards.
Industry stakeholders believe the enhanced tax credit could improve the commercial viability of deepwater projects, where production costs are considerably higher than those associated with onshore operations.
The development comes as Nigeria records a gradual recovery in crude oil production.
Data released by the Nigerian Upstream Petroleum Regulatory Commission showed that Nigeria’s crude oil output rose to an average of 1.56 million barrels per day in June, the country’s highest monthly production level since April 2020.
The increase has been attributed to improved security around oil infrastructure, renewed investment in upstream operations and government reforms aimed at restoring production levels.
READ ALSO:Tinubu approves Fiscal Incentive to Unlock $20bn Bonga Southwest deepwater project
However, concerns persist among investors over the durability of the incentives because executive orders can be challenged in court or amended by future administrations.
According to Bloomberg, Shell has requested that the Federal Government publish the tax-credit order in the Official Gazette to strengthen its legal standing and provide greater certainty for investors.
Documents seen by the publication indicated that government officials have already begun the process of gazetting the order.
Nigeria has struggled for years to attract substantial investment into its upstream petroleum sector as multinational oil companies delayed or suspended major projects due to insecurity, fiscal uncertainty and rising operating costs.
The Tinubu administration hopes that unlocking projects such as Bonga Southwest Aparo will increase crude oil production, attract foreign investment, create jobs and strengthen government revenues.
