HOW ATTRACTIVE IS THE NIGERIAN FISCAL REGIME, WHICH IS

INTENDED TO PROMOTE INVESTMENT IN MARGINAL FIELD

DEVELOPMENT?

IRETEKHAI J.O. AKHIGBE ∗

iretekhai.a@virgin.net

ABSTRACT: Nigeria’s existing oil reserve base of 35.9 billion barrels, which is
currently producing 2.4 million barrels of oil per day, is projected to have been
depleted in 33 years time. As the nation displays an acute petroleum dependency for
its revenue, the government has understandably initiated a policy intended to boost
the reserves to 40 billion barrels by 2010. One of the approaches to achieve this
objective is the development of marginal petroleum concessions. This approach may
result in the introduction of 300 million barrels to the existing reserves. Nigeria’s
marginal concessions’ fiscal regime stands to influence the success of the
government’s objective. This paper, compares the Nigerian approach to the United
Kingdom’s petroleum fiscal regime, and is intended to ascertain the Nigerian regime’s
attractiveness with regard to investment.

LIST OF ABBREVIATIONS

API American Petroleum Institute

APRT Advance Petroleum Revenue Tax
CFA Cross-field Allowance
CT Corporation Tax
DPR Department of Petroleum Resources
ITF Industrial Training Fund
JV Joint Venture
NNPC Nigerian National Petroleum Corporation
NPV Net Present Value
NSITF Nigeria Social Insurance Trust Fund
OA Oil Allowance
PRT Petroleum Revenue Tax

∗
Iretekhai Akhigbe is an Engineer (Imperial College London, UK), and Energy Economist (CEPMLP -
University of Dundee, UK). His experiences include petroleum investment analysis (Oceanic Minerals
Ltd, UK) and regulation involving petroleum exploration and exploitation (Nigeria - Sao Tome &
Principe Joint Development Authority).

1
PSA Production Sharing Agreement
PSC Production Sharing Contract
ROR Rate of Return
S Safeguard
SCT Supplementary Charge to Corporation Tax
SPD Supplementary Petroleum Duty
UKCS United Kingdom Continental Shelf

1. INTRODUCTION

In 2002 1 the Federal Republic of Nigeria embarked upon the licensing of 24 marginal
oil fields containing about 300 million barrels of crude oil. Awards were made to
indigenous companies in 2003 2 . The prospects of the successful development and
production of these fields rest upon the attainment of commerciality thresholds via oil
price appreciation, and the propriety of the applicable fiscal regime.

One condition for the development of these fields is currently present - a high oil
price regime prevails. However, the unpredictable and widely fluctuating nature of oil
prices is such that the current regime cannot be solely relied upon to sustain the
economic development of these fields. Accordingly, the propriety of Nigeria’s fiscal
regime, as it applies to the marginal fields, comes into question.

The significance of the subject under review is a component of a looming threat to the
country’s revenue. Nigeria’s economy displays considerable petroleum dependence,
and retains a much greater relative dependence than many other oil-producing nations.
This dependence is illustrated in Table 1. 3 .

1
Alexander’s Oil and Gas Connections, Nigeria Pre-qualifies Indigenous Firms for Marginal Field
Blocks, http://www.gasandoil.com/goc/company/cna22854.htm (last viewed on 1 May 2006).
2
Alexander’s Oil and Gas Connections, Nigeria Awards Oil Fields to Local Companies,
http://www.gasandoil.com/goc/company/cna31220.htm (last viewed on 1 May 2006).
3
Joint United Nations Development Programme / World Bank Energy Sector Management Assistance
Programme (ESMAP), Taxation and State Participation in Nigeria’s Oil and Gas Sector. (August
2004), http://wbln0018.worldbank.org/esmap/site.nsf/files/057-
04+Nigeria+Taxation_McPherson.pdf/$FILE/057-04+Nigeria+Taxation_McPherson.pdf (last visited
on 23 March 2006).

2
 Table 1: Relative Petroleum Dependence

Nigeria’s proven petroleum reserves were estimated in January 2006 to be 35.9 billion
barrels of oil, with a production rate of 2.4 million barrels per day 4 . The country’s
Department of Petroleum Resources (DPR) has stated that there will be a depletion of
the reserves within 33 years.

As depletion directly impacts upon 70 per cent of governmental revenue and 95 per
cent of the country’s foreign exchange earnings, the government has adopted a policy
in an attempt to secure its oil revenue. In particular, it intends to increase its reserves
and production capacity to 40 billion barrels, and 4 million barrels per day
respectively, by 2010 5 .

To achieve these ends, arguably only two options are available to a country. First,
opening up previously unavailable acreage or second, improving the existing fiscal
structure. Nigeria has subscribed to both options, with the licensing of the marginal
fields falling within the latter strategy.

Licence holders are unlikely to independently fund the oil field developments, but
instead compete with other oil and gas provinces for investment from the global
financial markets. The attractiveness of their region’s fiscal regime 6 features
significantly in the decision making processes which ultimately result in the success
or loss of investment capital, with further implications for Nigeria’s policy as regards
its 2010 target.

4
The Energy Information Administration, US Government, Country Analysis Brief: Nigeria.
http://www.eia.doe.gov/emeu/cabs/Nigeria/Oil.html, (last visited on 1 May 2006).
5
ibid.
6
Although the fiscal regime is one of the most significant factors, one must note that several factors
feature as part of the international competitiveness of a countries petroleum sector.

3
This paper commences with a synopsis of the key issues relating to investment in
marginal field development projects. The subsequent section then describes and
reviews the fiscal regime of the United Kingdom, a regime noted to have successfully
attracted and sustained investment in the United Kingdom Continental Shelf (UKCS).
An evaluation is then made on the basis of investment, following which the Nigerian
fiscal regime is similarly described, evaluated and contrasted against that of the
UKCS.

2. INVESTMENT PROMOTION FOR MARGINAL FIELDS

Comprehension of issues relating to investment decisions for marginal field

development requires an appreciation of the nature of such fields. That is, it requires
an appreciation of the features which render them marginal from the perspective of
their commercial viability. A review of existing literature reveals the absence of a
unified description of marginal fields.

2.1 CLASSIFICATION OF MARGINAL FIELDS

In the licensing exercise through which Nigeria offered its marginal fields, marginal
fields are described 7 as:
• Fields not considered by license holders for development because of assumed
marginal economics under prevailing fiscal terms.
• Fields which have had at least one exploratory well drilled on the structure and have
been reported as oil and gas discoveries for more than 10 years.
• Fields with crude oil characteristics different from current streams 8 which cannot be
produced through conventional methods or current technology.
• Fields with high gas and low oil reserves.
• Fields that have been abandoned by the leaseholders for upwards of 3 years for
economic reasons.
• Fields which the present leaseholders may consider farming out due to portfolio
rationalization.

7
Department of Petroleum Resources, Draught Guidelines for Farm-out and Operation of Marginal
Fields, (1996)
8
Crude oil deposits displaying higher viscosities and lower API gravity.

4
These definitions reflect some approaches utilised in other countries. The
Netherlands, and the United Kingdom through its Department of Trade and Industry,
have both classified fields in accordance with their reserve estimations. A “gas field is
considered marginal if it has a volume of less than four thousand million cubic
meters” in Holland 9 , while the United Kingdom utilises a maximal reserve content of
20 million barrels of oil as its benchmark 10 .

Another parameter used to categorise fields as marginal is the field’s productive

capability. In Texas, marginal fields are described with reference to their associated
wells which produce no more than 10 barrels per day 11 , while Indonesia utilises a
10,000 barrel per day potential12 . A further parameter for classification is the degree
by which the technological requirements for the extraction of minerals from the oil
field depart from those conventionally applied methods.

2.2 ATTRIBUTES OF MARGINAL FIELDS

The definitions and parameters used to define a field’s marginality, varied and
numerous though, may be condensed into a general theme from which the attributes
of these fields emerge. Mr Stig Svalheim 13 , of the Norwegian Petroleum Directorate,
defined them as:

“A field that may not produce enough net income to make it worth
developing at a given time: should technical or economic conditions
change, such a field may become commercial.”

9
Scolten, P., Oil and Gas Policy in the Netherlands, 6 Oil and Gas Finance and Accounting 221,
(1991), p 225.
10
Hughes, I.W.G., The DTI’s Efficiency, Scrutiny and Unitisation, 8 Oil and Gas Finance and
Accounting 209, (1993)
11
Aldrich, J. in Shirley, K., Rolling the Dice on Marginal Fields, AAPG Explorer, 24 – 25, (November
2000).
12
Van Meurs and Associates Limited, World Fiscal Systems for Oil, (New York, USA, Barrows,
1997), p 513.
13
Svalheim, S., Marginal Field Development – a Norwegian Perspective, Presentation at the 3rd PPM
Seminar, Chiang Mai, Thailand, 22 September, 2004,
http://www.ccop.or.th/projects/PPM/Seminars_files/3rdSeminar_ChiangMai/Presentation/10_Marginal
%20Field%20_NPD.pdf (last viewed 2 May, 2006).

5
Mr Svalheim goes further to state that the common challenges which emerge for
marginal field development and production are:

• Oil and gas prices, especially the predictions for the productive phase of the
project.
• The field’s characteristics (i.e. water depth, reservoir pressure, reservoir
temperature, sulphur content, oil viscosity, reservoir permeability, etc).
• The volume of the recoverable reserves and their rate of extraction.
• The degree of collaborative efforts between license holders.
• The field’s location relative to existing infrastructure.
• The hurdle rates utilised by operators.
• Legislative provisions, especially the applicable fiscal regime.

In summary, these attributes declare the marginal status of a field as being dependent
upon a combination of “technical, commercial and regulatory issues, but …is also
often related to the size of an individual company portfolio” which, due to “the
internal competition for budget funds leaves profitable opportunities on the shelf –
victims of Corporate Metrics” 14 .

In the author’s opinion, with the exception of regulatory issues, marginal field
attributes are controlled by the interplay of market forces and reservoir geology.
Irrespective of nature’s challenges, provided that there is a desire to surmount those
challenges, human ingenuity reflected in technological strides and sustained by the
rewards of the market place, always rises to the task.

15
Legislation concerning petroleum production, often enacted without a thorough
appreciation of technological and commercial constraints, is a significant and decisive
factor affecting investment. Acting solitarily, legislation may render moot all benefits
sustained following analysis of reservoir size, flow rates, capital and operational costs.

Via fiscal regimes, legislation can provide a wide range of incentives which would
result in commercially marginal fields becoming commercially attractive. In practice

14
ibid.
15
In this case, the fiscal tools applied to petroleum extraction.

6
however, this is rarely evoked as fiscal regimes are routinely augmented to proffer
exploration incentives. In this regard, countries have traditionally viewed the
adaptation of fiscal structures, corresponding to sustainable production levels,
negatively because they result in revenue losses 16 . In doing so however, they
disregard the opportunity to bring about additional production which otherwise would
not materialise.

An amendment to this trend began in the twilight of the 1990s. Marginal field
development emerged as a significant issue for producing countries as they
experienced significant reductions to their national budgets. These countries were
compelled to increase production in the face of declining oil prices and petroleum
extraction investment, which occurred alongside the natural production decline in
existing fields 17 .

In recent years the oil price appreciation has negated the revenue shortfalls. However,
the unpredictable nature of price trends leaves oil producing nations vulnerable to
revenue declines. While promoting further exploration will, of course, foster long
term security, in the interim, improving the fiscal structure remains the only
alternative.

The following section outlines the properties of a fiscal regime that attract investment
necessary for marginal field development. These properties form the basis for
subsequent evaluation.

2.3 REQUISITE FISCAL ATTRIBUTES

Involvements in marginal field developments compel operators to hold expectations,

when compared to conventional prospects, of:

i. A relatively lower ROR due to higher per barrel capital and operational
expenditure. The protracted payback delays the period from which the project
earns a profit, from which debts are to be fully repaid.

16
Aldrich, J., Supra, note 11.
17
ibid

7
ii. A lower per barrel mineral rent and thus a relatively lower project net present
value (NPV) on a per barrel basis. This occurs despite a greater degree of
commitment per barrel.
iii. A greater vulnerability to oil price fluctuations resulting in an increased risk
profile.

The disposition of an investor to confront and endure these prospects will depend
predominantly upon the fiscal regime’s neutrality, stability and government take, in
addition to the measures that have been taken to share the project’s risks.

The neutrality of a fiscal system indicates the limitation of taxation of the profits
derived from an enterprise’s project revenue. Non-neutral fiscal tools act as
disincentives to investment as they negatively distort the relatively unfavourable
project revenue profile of marginal field development projects. The most significant
effect of their influence is the delay to the relevant project’s payback.

The fiscal regime’s stability comprises two components, and is also significant for
marginal projects:

(a) The first component, the stability of the government policy, relates to the
security of the project from arbitrary changes to its tax obligations. The
precarious nature of marginal field projects demands a greater degree of
certainty for its anticipated cash flow. As distortions to this may more easily 18
render the project uneconomic, assurances against negative fiscal distortions
form a significant incentive to investment.
(b) The second component of stability, the flexibility of the fiscal regime, relates
to the degree to which the regime is responsive to transient economic
conditions. With the pronounced risk exposure due to oil price variation, this
feature may also be important as it can render also the project uneconomic.

Government take is a measure of the proportion of the project’s profits which is

captured by the host government. Two aspects of government take rouse concerns of

18
The comparison is made with respect to conventional petroleum developments.

8
potential investors, namely: the timing of the government take and the perception of
equity regarding the government–investor sharing arrangement.

The timing of government take can either be front-end or back-end loaded.

Respectively, these classifications indicate whether the taxation is skewed to
predominate from either the onset of petroleum production or from the onset of a
project’s profitability. These factors influence the project’s returns and the likelihood
of its success or failure.

Front-end loaded regimes may reduce the project’s NPV and tilt the burden of the
project risks towards the investor. Back-end loaded taxation, on account of neutrality,
targets the project’s profits and is consequently mindful of the project’s NPV.

At an extreme, the use of back-end loaded form of taxation places the project risks
with the host government. Investors, given the degree of risk inherent in marginal
field developments, would seek timings which are mindful of the project’s NPV and
promote a mutual commitment to the risks.

In marginal development projects, equity considerations with respect to government

take are a more subjective concern. The controversial issue in this regard is the
division of the profits. Investors are expected to demand a greater fraction of the
mineral rent in marginal developments in contrast to that derived from more
conventional production investments. The rationale for such a sense of entitlement is
the investors’ greater commitment to petroleum extraction via the acceptance of
higher unit costs and an enhanced level of risk.

The following analysis of the United Kingdom and Nigerian marginal field fiscal
systems is conducted utilising these concerns as tenets against which their relative
attractiveness is evaluated.

9
3. THE UKCS FISCAL REGIME

3.1 EVOLUTION OF THE UKCS FISCAL REGIME

The key enactment establishing the UKCS fiscal regime is the Oil Taxation Act 1975.
The regime was formulated with the government objective of: “securing a fairer
share of profits for the nation and ensuring a suitable return for oil companies on
their capital investment” 19 . From its inception it consisted of three main instruments,
making it a royalty/tax system, namely: Royalty, Petroleum Revenue Tax (PRT) and
Corporation Tax (CT).

Royalty is production based, and is therefore a gross revenue focused, fiscal tool. It
provides the host government with one of its earliest income from the fields. In the
UK it was employed with an allowance for delivery and treatment costs associated
with transporting the crude to the shore.

The PRT, assessed on profits and on a field specific basis 20 , focuses on a tax base of
revenue receipts which exclude the costs of field development and operation. In the
UK, several mechanisms: uplifts21 , oil allowances 22 , and a safeguard provision 23 ,
were provided to restrict the impact of its application to marginally profitable
projects. The oil allowances provide relief for marginal concessions at the beginning
of their productive life, while the safeguard applies until payback is reached, with an
extension by half of this period.

The CT is assessed on company profits and applies to all companies operating in the
United Kingdom. To restrict the offset of losses arising from non-petroleum company
activities, a ring fence is applied for the consideration of profits originating from the
UKCS.

19
Nakhle, C., Opinions on the UK North Sea Petroleum Fiscal Regime: Preferences Revealed, 5
I.E.L.T.R., 101, (2005) p 101
20
This tax was assessed on fields in isolation to others held by the operators. The concept of ‘Ring
fencing’ is applied.
21
An allowance of 75% of capital expenditures.
22
An allowance which permits one million tonnes of oil per annum be exempt from the tax for up to a
period of ten years.
23
Following the expiration of the oil allowance, the safeguard curtails the PRT liability, thus permitting
a minimal level of profitability.

10
 The UKCS fiscal system has endured frequent revisions and amendments coinciding
with variations in the global petroleum industry. This evolution, summarised in table
2, is expected to undergo further revisions to coincide with the transition of the UKCS
fields into the latter stages of their lives. Thus far, the revisions have accompanied a
decline in government take from about 87 per cent 24 in the 1980s to 33 25 per cent in
1996, and then to 31 26 per cent in 1999.

Table 2: Evolution of the UKCS Fiscal Regime

Oil Oil Oil 1996 Oil
Oil Tax Price Price Price 1986 1993 Price Price Jan Jan
Act Rise Rise Crash Rise Rise 2003 2004
1975 1970s 1980 1983 1998 2002
0 or 12.5% 27 Abolished
Royalty 12.5%
45% 60% 70% 75% 0 or 50% on all fields. 0 or
PRT 50% 28 50% 29
Uplift 75% 35%
OA 1 Mt/yr 0.5 Mt/yr 1 Mt/yr
S PRT limited to 80% of assessable value 30 .
CFA - 10% 31
CT 52% 35% 35 – 40%
SCT - 10% 10% 10%
SPD - 20% Abolished
APRT - 20% Abolished
APRT - 1 Mt/yr Abolished
allowance

3.2 ANALYSIS OF THE UKCS FISCAL REGIME

Utilising the criteria established in Section 2.3 above, the UKCS regime is analysed
below, such analysis portraying what amounts to a considerably attractive fiscal
regime.

24
Nakhle, C., Supra, note 19.
25
Johnston, D., International Petroleum Fiscal System Analysis (Tulsa, Oklahoma, USA: Penn Well
Publishing Company, 2001), p 121-a.
26
ibid.
27
0% for fields with consent post April 1982.
28
0% for fields with consent post March 1993.
29
0% for fields with consent post Jan 2004.
30
Assessed on profits exceeding cumulative expenditure by 15%.
31
10% of development costs from new fields may be offset against existing producing fields.

11
Neutrality: From January 2003, with the abolition of royalty payments, the regime
achieved complete neutrality. This is due to its existing fiscal tools,
PRT and CT, being solely focused on profit for their assessment.

Stability: The regime displays stability. A review of its evolution thus far
indicates that the regime has only been adapted in response to
economic influences, and not arbitrarily. The government policy
promises to continue this trend, anticipating a need for future
adaptation to include field maturity concerns.

Risk sharing: The regime addresses all concerns relating to the risks associated with
marginal concessions. The generous 75 per cent uplift and allowance
for accelerated depreciation of capital expenditure result in a reduction
in the period prior to payback and hastening profitability. This measure
reduces a project’s exposure to oil market variations.

The oil allowance (OA) helps to maximise the project revenue and
therefore the project’s NPV by shrinking the PRT tax base.
Additionally, it acts to delay the government take thus shifting a
portion of risk to the government.

The cross-field allowance (CFA), which allows for a relaxation of the

ring fence, allows new project development costs to be offset against
existing production. This shifts an additional portion of the risks to the
government.

By guaranteeing a minimum level of profitability, the safeguard also

transfers project risks to the government.

Profit share: As mentioned above, the magnitude of the government take has
declined considerably from 87 per cent to 31 per cent. This, in contrast
to a global average of about 70 – 80 per cent, represents one of the
most generous profit sharing regimes in the petroleum industry.

12
3.3 INVESTMENT TREND FOR THE UKCS

The investment trend observed for the UKCS displays a relatively stable profile, as
illustrated in Figure 1. Particularly, the consistent volume of exploration and appraisal
funds implies the ability of the fiscal regime to promote and retain interest in this
region. Sustaining this interest despite the region’s evident maturity, reflected by
increasing operating costs as shown in Figure 2, strongly supports a favourable
assessment of the UKCS fiscal regime.

Figure 1: UKCS Investment 2001 - 2006 32

Figure 2: UKCS Unit Production Costs 33

32
UK Offshore Operators’ Association Limited 2004 Activity Survey,
http://www.ukooa.co.uk/issues/economic/activitysurvey.pdf, (last visited on 18 April, 2006).
33
ibid.

13
4. THE NIGERIAN FISCAL REGIMES

Nigeria’s fiscal regimes, consisting of Joint Ventures (JV), Production Sharing

Agreements (PSA) and Service Contracts, are derived from the Petroleum Profits Tax
Act of 1959, its several amendments and contracts between the Nigerian National
Petroleum Corporation (NNPC) and operating companies. Of the regimes, Production
Sharing Agreements, and the consequent Production Sharing Contracts (PSC) are
applicable to marginal concessions.

4.1 MARGINAL CONCESSIONS AND PRODUCTION SHARING

CONTRACTS
The PSCs are composed of instruments such as; bonuses, rentals, royalty and PPT,
with the application of ring fencing and cost recovery, in addition to investment
allowances and obligations imposed on operators. In comparison to conventional
prospects, the only distinction applicable to marginal prospects is a reduction in the
application.

Bonuses applicable to PSCs are typically of the values expressed in Table 3, with
rental fees 34 of 3 Naira/km2 during exploration, and 750 Naira/km2 during production
phases. A US$10,000 fee is payable to the concession holder of the acreage, within

34
Johnston, D., Supra, note 25.

14
which the marginal field is located, in addition to fees payable to the Federal
Government as premiums and application fees.

Table 3: Bonus Rates 35

Onshore Offshore (< 200m Water Depth)

Signature Bonus $1 million $1 million

Production Bonus 10,000 b/d $1 million $2 million

50, 000 b/d $2 million $4 million

The PSC allows for profit oil to be shared between the government and contractor
subsequent to the deduction of royalty and provisions for cost recovery, respectively.
Cost recovery is unlimited to production less royalty, and PPT is then applicable to
the contractor’s profitable income from cost recovery and share of profit oil at a rate
of 50%. Royalty rates are established on the basis of the concession’s location and
water depth, see Table 4, and profit oil sharing occurs as a function of production
rates.

Table 4: Royalty Rates 36

35
Joint United Nations Development Programme / World Bank Energy Sector Management Assistance
Programme (ESMAP) Supra, note 3.
36
ibid.

15
 Table 5: Profit Oil Division 37

Ring fencing is applicable to the contract areas for purposes of cost recovery, profit
sharing and PPT assessment. Investment allowances take the form of an uplift of 50
per cent for capital depreciation38 and the absence of withholding tax.

Contractual obligations are included in the fiscal regime by way of:

(i) a 2 per cent education tax levied on assessable profits;
(ii) a contribution of 5 per cent of employee wages 39 to the Nigeria Social Insurance
Trust Fund (NSITF); and
(iii)a payment of 1 per cent of the company payroll to the Industrial Training Fund
(ITF).

4.2 ANALYSIS OF THE MARGINAL CONCESSION FISCAL REGIME

Utilising the criteria established in Section 2.3 above, the Nigerian regime can be
contrasted against the UKCS fiscal system as follows:

Neutrality: As the Nigerian PSC retains the use of the royalty instrument, the
system unlike that of the UKCS, displays non-neutrality. As stated in
Section 2.3, this distorts the project revenue profile by introducing a
delay to the project’s payback.

37
ibid.
38
This occurs over five years on a straight line basis.
39
This applies to wages limited to 48 thousand Naira per annum.

16
Stability: Stabilisation clauses are absent from the Nigerian marginal PSC just as
is the case for the UKCS regime. The marginal field development
programme has been pursued at a time of high oil prices. Accordingly,
any declaration regarding the government’s propensity to promote
stability for their development is speculative at best.

Risk sharing: The Nigerian PSC, like the UKSC regime, offers a capital cost uplift
allowance in conjunction with accelerated depreciation. In isolation,
these factors delay taxation, but the inclusion of royalty payments and
bonuses may eclipse their impact. As the UKSC regime’s uplift is
greater than that of the Nigerian PSC in addition to its exclusion of
bonuses, it is certainly more generous as regards risk sharing.
Additionally the narrow ring fence applied in the Nigerian regime
constrains any opportunity to offset costs, hindering an opportunity for
risk sharing.

Profit share: The choice here of the more equitable fiscal regime is a subjective one.
In relative terms, as is evident in Figure 3. the Nigerian government
exacts a greater fraction of the mineral rent in comparison to that of the
UK. However, due to the significantly lower costs associated with
Nigerian crude, its government take may be more equitable in absolute
terms. Figure 4 indicates a four fold increase in UKCS costs in
comparison, supporting arguments of larger rents from the Nigerian
concession.

Figure 3: Government Share of Rent 40

40
Joint United Nations Development Programme / World Bank Energy Sector Management Assistance
Programme (ESMAP), Supra, note 3.

17
 Figure 4: Cost per Barrel 41

5.0 CONCLUSION
An evaluation of Nigeria’s marginal field fiscal regime, in comparison to that of the
UKCS, leads to the conclusion that it is less attractive on the basis of neutrality,
stability and its propensity for risk sharing. The Nigerian regime’s use of revenue
focused fiscal tools, the absence of provisions indicating concerns for stability and
less generous incentives also support this view. However, the addition of the equity
criterion alters the outcome of this comparison.

Of the evaluation criteria the fiscal regime’s attractiveness will ultimately be decided
upon the return on investment, subject to government take, offered over the project’s
lifespan. Although the UKCS regime displays a lower relative portion of government
take, this seems inaccurate when considered in absolute terms.

41
ibid.

18
One must remember that the two regions differ in the magnitude of their mineral rents
due to differing costs incurred in delivering their commodity from the reservoir to the
market. Consequentially, the comparisons of government take are incompatible as
they neither reflect similar equity considerations, nor the expected returns on
investment.

Were it the case that identical deposits were under review, the Nigerian regime would
certainly appear less attractive. As this is not the case however, the regime’s
attractiveness as compared to that of the UKCS by reference to the criteria discussed
above is inconclusive. Accordingly, its usefulness in attracting investment to satisfy
the government’s 2010 objective cannot be established.

19
 BIBLIOGRAPHY

1 PRIMARY SOURCES:
1.1 Legislations
Petroleum Profit Tax Act, 1959, Laws of the Federation of Nigeria
Oil Tax Act, 1975 (UK)

2 SECONDARY SOURCES:
2.1 Books
Johnston, D., International Petroleum Fiscal System Analysis, (Tulsa, Oklahoma
USA: Penn Well Publishing Company, 2001).

Johnston, D., International Petroleum Fiscal Systems and Production Sharing

Contracts (Tulsa, Oklahoma USA: Penn Well Publishing Company, 1994).

Otto, J., The Taxation of Mineral Enterprises, (London, United Kingdom: Graham
and Trotman, 1995).

Van Meurs and Associates Limited, World Fiscal Systems for Oil, (New York, USA:
Barrows, 1997).

2.2 Articles
Aldrich, J. in Shirley, K., Rolling the Dice on Marginal Fields. AAPG Explorer, 24 –
25, (November 2000).

Hughes, I.W.G., The DTI’s Efficiency, Scrutiny and Unitisation, 8 Oil and Gas
Finance and Accounting 209, (1993).

Nakhle, C., Opinions on the UK North Sea Petroleum Fiscal Regime: Preferences
Revealed, 5 I.E.L.T.R. 101, (2005).

Oguine, I., Marginal Field Development in Nigeria – Some Legal and Policy Issues, 3
Oil and Gas Law and Taxation Review 80, (1999).

20
Scolten, P., Oil and Gas Policy in the Netherlands, 6 Oil and Gas Finance and
Accounting 221, (1991).

Segun, K., Nigeria: Oil, Profits and Post-Tax Returns, 5 Oil and Gas Law and
Taxation Review 125, (1999).

2.3 Other Sources

2.3.1 Conference Proceedings
Omorogbe, Y., Fiscal Regimes, Paper presented at the Nigerian Extractive
Industries Initiative (NEITI) Civil Society Capacity Building Workshop (27-28
July 2005) Port Harcourt, Rivers State, Nigeria.

2.3.2 Internet sources

Alexander’s Oil and Gas Connections, Nigeria Awards Oil Fields to Local
Companies, http://www.gasandoil.com/goc/company/cna31220.htm, (last viewed
on 1 May 2006).

Alexander’s Oil and Gas Connections, Nigeria Pre-qualifies Indigenous Firms

for Marginal Field Blocks,
http://www.gasandoil.com/goc/company/cna22854.htm, (last viewed on 1 May,
2006),

Canadian Department of Commerce Website, Marginal Oil Fields Hold '300m

Barrels Reserve', http://strategis.ic.gc.ca/epic/internet/inimr-
ri.nsf/en/gr123903e.html, (last visited on 23 March, 2006).

Deloitte Touche Tohmatsu, Perspectives on UK Oil and Gas Taxation,

http://www.deloitte.com/dtt/cda/doc/content/Perspectives%20on%20UK%20Oil
%20%26%20Gas%20Taxation.pdf, (last visited on 1 May 2006).

Energy Information Administration, Country Analysis Brief: Nigeria,

http://www.eia.doe.gov/emeu/cabs/Nigeria/Oil.html, (last visited on 1 May
2006).

21
Joint United Nations Development Programme / World Bank Energy Sector
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