The new fiscal incentive gives qualifying projects a 70:30 contractor-government profit-oil split to attract fresh investment into Nigeria’s deep offshore sector

President Bola Ahmed Tinubu has approved a new Deep Offshore Profit-Oil Reset designed to make fresh oil and gas developments more commercially attractive, allowing qualifying projects to restart the profit-oil sharing scale at 70:30 in favour of contractors even where older production in the same contract area has already moved to a higher government share.

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The provision is contained in the Deep Offshore Oil and Gas Projects Incentives (Tax Remission) Order, 2026, signed by Tinubu on August 6, 2026, and subsequently gazetted by the Federal Government.

The policy represents a significant attempt to improve the economics of new deep offshore developments, particularly projects requiring substantial capital, advanced technology and lengthy development periods.

Under the order, an approved profit-oil reset applies only to the eligible new project. The contractor receives 70 per cent of profit oil while the government receives 30 per cent at the beginning of the new development.

The Gazette states that the sliding scale will restart for an approved project “notwithstanding that existing production elsewhere in the same contract area has already graduated the profit oil ratios to a higher step”.

In practical terms, an operator investing in a new greenfield development within an existing contract area would not automatically inherit the higher government profit-oil share that has become applicable to older, more mature production.

The Deep Offshore Profit-Oil Reset is, however, subject to strict eligibility requirements.

The qualifying 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 came into force.

The FID must be reached on or before December 31, 2029, although the deadline may be extended where force majeure prevents the operator from meeting the requirement.

The project must also be ring-fenced for cost recovery and tax purposes. Once a reset has been approved, the government and contractor are required to execute an addendum to the relevant Production Sharing Contract within 30 days.

Alongside the profit-oil reset, the government has introduced a Standard Production Tax Credit for qualifying projects.

Oil projects with producible reserves of up to 400 million barrels can receive up to $3 per barrel, while projects with larger reserves can qualify for up to $4.50 per barrel.

Future leases may attract an additional $1 per barrel, subject to the conditions established by the order.

For deep offshore gas projects, the tax credit can reach $1 per thousand standard cubic feet for qualifying gas with lower hydrocarbon liquids content, while projects with higher liquids content can receive up to $0.50 per thousand standard cubic feet.

A Supplementary Production Tax Credit may also be granted on a case-by-case basis.

The combined standard and supplementary credit is capped at $11.50 per barrel for qualifying oil projects and $8 per barrel of oil equivalent for non-associated gas projects.

The incentives come as the Federal Government seeks to encourage fresh investment in Nigeria’s upstream industry after years of concerns over declining capital expenditure, production constraints and the competitiveness of the country’s fiscal terms.

Professor Emeritus of Petroleum Economics, Wumi Iledare, welcomed the investment objective but said the policy should ultimately be judged by the additional value it creates 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?” Iledare said.

He added that an incentive should not simply shift economic benefits from the government to an investor if the project would have proceeded without the concession.

“An incentive that merely transfers rent from government to an investor on a project that would have proceeded anyway does not necessarily create additional public value,” he said.

Iledare noted that deepwater developments face substantial capital, geological, cost and market risks, making fiscal stability an important consideration when investors assess projects with long development cycles.

The policy is expected to be closely watched because of its potential to unlock significant capital in Nigeria’s offshore petroleum industry.

Iledare said the reported potential for up to $50 billion in investment, including about $10 billion associated with the Bonga Southwest project, was significant, although he cautioned against measuring the success of the policy solely through investment announcements.

The order also contains Nigerian content requirements.

Project activities are expected to be carried out in Nigeria except for critical-path activities or circumstances where domestic execution would cost more than 10 per cent above the alternative, subject to an approved Nigerian Content Plan.

The Nigeria Revenue Service is expected to issue implementation guidelines within 45 days.

Those guidelines are expected to cover the application process, economic valuation methodology, computation templates, monitoring procedures and project ring-fencing requirements.

The government has also built clawback provisions into the framework.

Tax credits may be withdrawn and recovered where an applicant obtains benefits through false statements, misrepresentation, inaccurate data or breaches of approval conditions.

The new fiscal regime therefore combines stronger incentives with conditions intended to ensure that the concessions translate into actual investment and broader economic value.

For Nigeria, the central test will be whether the more attractive terms can unlock commercially viable offshore projects while preserving a fair share of petroleum rents for the public.

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If successfully implemented, the policy could provide a powerful boost to deep offshore investment and strengthen the country’s efforts to increase production, attract capital and sustain long-term upstream development.