Nigeria’s crude oil generally has a gravity between 21 degrees API and 45 degrees API.
The main export crudes are:
Bonny Light (37 degrees API)
Forcados (31 degrees API)
About 65% of Nigeria’s oil is above 35 degrees API and has a very low sulphur content.
Nigeria’s crude is characterized as paraffinic and low in sulphur.
Examples of Nigeria’s Light Crude Oil
Bonny Light
Forcados Blend
Qua Iboe Terminal (QIT) Blend
Escravos Blend
Antan Blend
Brass Blend
Agbami Blend
Proven Oil and Gas Reserves
As of the end of 2024, proven oil and gas reserves are as follows:
Total Proven Oil Reserves: 37.50 billion barrels
Crude Oil: 31.56 billion barrels (composed of hydrocarbons)
Condensates: 5.94 billion barrels
Natural Gas Reserves: 209.26 trillion cubic feet (TCF)
Associated Gas: 102.59 TCF
Non-Associated Gas: 106.67 TCF
Estimates of Nigeria’s undiscovered gas reserves range from 300 - 600 TCF.
Nigeria is described predominantly as a gas province with some oil due to high-quality gas rich in liquids and low in sulphur.
Due to a lack of gas infrastructure, 75% of associated gas is flared.
Division of the Industry in Nigeria
Broadly divided into four sectors:
Upstream Sector
Midstream Sector
Downstream Sector
Services Sector
Upstream Sector
Characterized by exploration and production of crude oil and gas.
It is the most important sector in the Nigerian economy, accounting for over 90% of the country’s exports and 80% of the Federal Government's revenue.
Major activities include:
Exploration (mineral right acquisition, seismic studies)
Development (well drilling, casing, installation of pipelines, terminals)
Production (using oil rigs, Floating Production, Storage and Offloading - FPSO)
Participants in Upstream Sector
Companies engaged in E&P (Exploration and Production) activities are crucial for the state of the economy.
Licenses Granted Under Upstream Operation
Oil Exploration License (OEL):
Confers non-exclusive rights to explore for petroleum using surface geological methods for a specified period.
Renewed on a 1-year term.
Oil Prospecting License (OPL):
Confers right to surface and subsurface exploration in a maximum area of 2,590 sq. km.
Duration is 5 years for Joint Venture, onshore and shallow water operators and 10 years for Deep Offshore and Inland Basin Production Sharing Contracts (PSCs).
Oil Mining Lease (OML):
Grants exclusive right to explore, produce, transport and carry away petroleum from a leased area.
The term is usually a maximum of 20 years but renewable.
Conditions include discovery in commercial quantity and production capacity.
Awards of Oil and Gas Exploration Licenses (Pre-PIA)
Licenses were granted through direct negotiation or discretionary allocation by the Federal Government prior to 1999.
To enhance transparency, the Federal Government now favors competitive tenders for license awards.
Fiscal Arrangements in Nigerian Upstream Sector
Major fiscal arrangements in Nigeria’s upstream sector involve:
Joint Venture (JV)
Production Sharing Contracts (PSCs)
Service Contracts (SC)
Marginal Field Concessions (MFC)
Joint Venture (JV)
Standard agreement between Nigeria National Petroleum Corporation (NNPC) and multinational oil companies (MOCs).
Both parties share funding and production in proportion to their equity holdings.
Taxation under Joint Ventures
Taxed under the Petroleum Profits Tax Act (PPTA) at 65.75% for the first five years and 85% afterwards, adjusted by MOU provisions for profit margins under specific conditions.
Notable operators include Shell, ExxonMobil, ChevronTexaco, Total Elf, and Agip.
Production Sharing Contracts (PSC)
Established in 1993, allowing contractors to recover costs from commercial production.
Cost oil and tax oil recovery mechanisms based on a defined formula.
The applicable PPT rate is 50% for profit-sharing arrangements.
Service Contracts
Contractors conduct exploration and production on behalf of NNPC at their own risk, charging fees based on outputs of oil production.
The contractor pays income tax on service fees under the Companies Income Tax Act at 30%.
Marginal Field Contracts
Defined as unproduced fields with booked and reported reserves for over 10 years.
The Federal Government encourages IOCs to assign marginal fields to indigenous operators to enhance industry inclusiveness.
Marginal Field Objectives
Expand indigenous participation in the oil industry
Increase oil and gas reserves
Provide opportunities for rationalization and employment
Midstream Sector in Nigeria
Covers processing, storage, and transportation of crude oil and liquefied natural gas.
Involves pipelines, tankers, and construction for transportation.
Downstream Sector of the Industry
Encompasses marketing, refining, storage, and distribution of petroleum products.
Operators are divided into Majors (64% market share) and Independent Marketers (IPMAN).
Types of Products in the Downstream Sector
Black Products:
Low Pour Fuel Oil (LPFO), High Pour Fuel Oil (HPFO), Liquefied Petroleum Gas (LPG), bitumen, lubricants.
White Products:
Premium Motor Spirit (PMS), Automotive Gas Oil (AGO), kerosene, etc.
Tax Regime for Downstream Companies
Taxed under Companies Income Tax (CITA).
Black products subject to Value Added Tax (VAT), while white products are exempt.
Oil Servicing Companies
Act as contractors to upstream and downstream companies, providing various technical services and supports.
Contracts are subject to 1% deduction from the contract price, treated as expenses.
Services Provided by Oil Service Companies
Exploration support, drilling services, production support, refining, communication, well logging.
Regulatory Agencies Overseeing Oil and Gas Operations in Nigeria
Local Agencies:
Ministry of Petroleum Resources, NNPC, DPR, NDDC, FIRS.
Key Functions:
Policy formulation, regulation, registration certification, audit, and revenue collection.
International Regulatory Agencies
OPEC, American Petroleum Institute (API), Extractive Industries Transparency Initiative (EITI).
Challenges Facing the Industry in Nigeria
Policy Uncertainty:
Includes price regulation, penalty regimes, and fiscal provisions.
Poor Infrastructure:
Infrastructure deficit affecting midstream and downstream sectors.
Insecurity:
Pipeline vandalism and kidnappings affecting operations, with over 1,000 incidents recorded between 2019 and 2020.
Petroleum Industry Act (PIA)
Enacted to provide an overarching legal, governance, regulatory, and fiscal framework for the Nigerian petroleum industry, addressing outdated regulations.
Objectives of the PIA
Enhance exploration and production, create a stable business environment, and provide a solid fiscal framework for increasing revenues.
Major Fiscal Provisions in PIA
Introduction of the Nigerian Hydrocarbon Tax (NHT) at 30%, changes in royalty calculations, and deductibility of expenses.
New Fiscal Regimes under the PIA
Replacement of Petroleum Profit Tax (PPT) with Hydrocarbon Tax (HT) and Companies Income Tax (CIT) for various operations.
Royalties Under PIA
Royalty rates determined by production and price. Rates include 15% for onshore, 12.5% for shallow water, and 7.5% for deep offshore operations based on specific thresholds.
Marginal Fields Regulatory Changes
Marginal fields profit taxed at 15%, with detailed royalty structures for various production scales.
Midstream Changes Under PIA
Introduction of licensing, specific regulations for infrastructure development, and establishment of a decommissioning and abandonment fund.
Downstream Changes Under PIA
New powers for the Authority to grant licenses, establish pricing frameworks, and segregation of operations.
Natural Gas Changes Under PIA
Governs profits from gas operations, establishes royalty structures, and funds dedicated to regulatory authorities and infrastructure developments.
Host Communities
Defined as communities in or adjacent to oil and gas operations, mandated to establish trust funds to support local development and economic empowerment.
Summary of Regulatory Changes
Transition from various prior bodies to consolidated authorities under PIA, including the establishment of NUPRC and NMDPRA, removing regulatory powers from NNPC and the Ministry of Petroleum Resources.