Our motive in business advisory Network hereinafter referred to as [BAN] is to encourage persons Nigerians and Foreigners alike not to dabble into investment without adequate information at their disposal BAN has consultants in this field that will help you get all you require in this field so you can avoid hiccups in setting up your business in Nigeria. You can always reach us for guidance on Email or via social media platforms or phone call.
OIL&GAS
Oil was discovered in Oloibiri in Nigeria by Shell Darcy in June 1956. Since its discovery it has dominated Nigeria economy contributing almost 80% of government revenue and over 90% of the foreign exchange earnings. It is estimated that Nigeria has 33 billion barrels of Oil reserve and about 187 trillion cubic feet of Natural gas reserve. With this figure in Natural gas reserve Nigeria has the tenth largest reserve in the world and 30% of African gas reserve.
We will classify investments in this field into two categories.
- Upstream sector
- Downstream sector
The Upstream and Downstream sectors of the oil industry are high yielding investment areas. The Upstream sector incorporates oil exploration and production. It also includes gas exploration whereas the Downstream incorporates refining, petrochemicals, marketing and distribution of products derived from crude oil and Natural gas. Business in any of these sectors are regulated by the federal government through the department of petroleum resources ‘DPR’.
UPSTREAM BUSINESSES IN NIGERIA
CRUDE OIL SALES
WHO AND HOW YOU CAN BUY AND SELL CRUDE OIL FROM NIGERIA
This has been an area a lot of prospective investors have lost money either due to fraud or lack of proper information/guidance. To purchase crude oil in Nigeria is simple. The joint venture between the federal Government of Nigeria and the oil majors which is operated by NNPC on behalf of the government sells the government quota of the extracted crude following the procedure explained below.
SALE AND PURCHASE OF GOVERNMENT EQUITY/NNPC CRUDE OIL AND GAS
WHAT NNPC DOES
- NNPC sells Crude Oil, Natural Gas Liquids (Domestic & Export) and LPG mix based on term contract
- For Crude oil-it gives One year term contract
- For Natural Gas Liquids (Domestic & Export) and LPG mix it gives two (2) years term contract.
- All term contracts/ invitation to tender are advertised in both Foreign and Local media.
- All prospective Companies wishing to tender for the Sale and Purchase of Nigerian Crude Oil, Natural Gas Liquids (Domestic & Export) and LPG mix shall present relevant documentations as contained in the guidelines as advertised
- Sale and Purchase of Nigerian Crude Oil, Natural Gas Liquids (Domestic & Export) and LPG mix are subject to Terms and conditions as will be advised in the term sheets and general form of agreement
- Crude oil, Natural Gas Liquids (Domestic & Export) and LPG mix allocations are done two months ahead of the lifting month
- Crude Oil, Natural Gas Liquids (Domestic & Export) and LPG mix are only allocated to Term Contract holders
The pricing of crude Oil is based on an Average of five (5) days Platts publication of Dated Brent price around the B/L date, plus or minus the Official Selling Price (OSP) for the month as published by NNPC.
WHAT NNPC DOES NOT DO
- NNPC does not employ the Services of any Agent (s) or third parties for the Sale and Purchase of Nigerian Crude Oil, Natural Gas Liquids (Domestic & Export) and LPG mix
- NNPC does not introduce or recommend its potential Term contract holders to any third party or Agent (s)
- NNPC does not have any Off-OPEC Allocation (s)
- NNPC does not require Companies to pay any money into individual’s Personal/Companies Account (s) or any Account that is not Designated by the Government for Crude Oil, Natural Gas Liquids (Domestic & Export) and LPG mix
- NNPC does not issue any Authority to Sell to individuals or Companies
What the above procedure means is that to buy crude oil directly through NNPC you need to have been given a term contract after you have tendered but you can also buy from those who have term contract with NNPC and this is where you need experience and people with hands on expertise like our law firm so as to critically check and introduce you to a reputable firm so as to avoid fraud.
Other upstream business opportunities in Nigeria
With proven oil and gas reserves of 32.5 billion barrels and 187 trillion cubic feet respectively, numerous investment opportunities abound in upstream operations of the Petroleum industry as categorized below:
- 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.
- Search for development of local substitutes for items such as medium pressure valves, pumps, shallow drilling equipment, drilling mud, bits fittings, drilling cement etc.
In order to reduce the investors’ risk, speculative seismic data acquisition is carried out in the deep offshore using the services of reputable data acquisition companies. In the inland area, there is direct involvement in exploration activities.
Nigeria’s production cost per barrels is one of the lowest worldwide. Huge reservoirs of hydrocarbon are found in Nigeria. Government has also provided generous fiscal terms both for oil production and gas utilization. The economic environment ensures easy repatriation of profit by investors. Productions from new ventures are guaranteed by Governments deliberate policies.
An even field is provided for all operations in the Petroleum Regulations and the monitoring agency -the Department of Petroleum Resources.
Investment opportunities in the downstream sector
Downstream- Gas
- Domestic Production and Marketing of Liquefied Natural Gas (LPG).
- 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 the use of gas instead of wood.
- 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. - Establishment of chemical industries e.g. distillation units for the production of Naphtha and other special boiling point solvents used in food processing.
- Linear Alkyl Benzene, Carbon Black and Polypropylene producing industries.
- Development of Phase II (Phase III to commence later) in Nigeria’s Petrochemical Programme
- The NLNG Projects.
- Small-scale production of chemicals and solvents e.g. chlorinated ethane, Formaldehyde, Acetylene etc. from natural gas.
- 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.
- Products Transportation and Marketing. Associated with products distribution and marketing is a chain of manufacturing and maintenance businesses 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, Bituminous-based water/damp proof building materials
Asphalt storage, packaging and blending plants.
INCENTIVES BY GOVERNMENT
In view of the enormous potentials in this sector, some fiscal incentives have 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) which has a reduced tax rate compared to petroleum profit tax ‘PPT’
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.
In 1998, 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