Nigeria Petroleum Industry Reforms

PIB 2020

September 2020
PIB 2020
Outline

1. State of the industry

2. The Journey so far
3. Rationale for proposed bill

4. What is new
- Governance
- Administration
- Fiscal
- Host Communities

5. Specific Incentives
6. Industry Engagement Summary

PIB 2020
 Petroleum industry faces five major challenges
Ever cheaper renewables.
Solar Costs as low as 2 - 6
COVID 19 cents/kWh are now common.
strongest recession since 1929

Ever cheaper energy storage

It will take several years to
recover

“Green” hydrogen

Climate change

Low cost green hydrogen can replace

fossils fuel in the next decades

Carbon neutral by 2050-2070 PIB 2020

Uncertain Future of Oil Demand/Supply
Peak Demand
projections (Yrs)

10 – 20
flat demand after

20yrs
demand will keep growing

Natural gas demand is generally believed to keep growing during the next 20 – 30 years, to replace
coal and to play an optimal role in conjunction with the introduction of renewable energy
PIB 2020
Large number of countries are now putting new acreage on the market

The increased level of uncertainty about oil demand, becomes an important element in
making decisions on the optimal exploitation of petroleum resources.

Countries with abundant petroleum resources are well advised to accelerate the exploration
and development before possible international oil demand patterns may make oil production
less attractive.

6
Countri
Licensing rounds in
es
progress in
25 Countries

9 other
Countries

PIB 2020
Proliferation of Licensing Rounds in the World

❑ Large number of
countries are now
putting new acreage on
the market due to
looming threats.

❑ Oil demand uncertainty

changing investment
decisions and dynamics.

❑ Covid-19 heightens
competition for
investing capital.

❑ Accelerating fiscal and

regulatory reforms
necessary to attract
investments
PIB 2020
 Nigeria’s Peculiar Challenges
Proliferation of undeveloped acreage & abysmally large size of concessions
Nigeria is unable to increase oil and gas production
A serious limitation on having a
significantly through the licencing of open acreage. licencing round for open
acreage is that there is very little
4° 8° 12° 16°

OPL601
OPL602

Sokoto
OPL603 OPL604
OPL605 OPL606
OPL607
OPL608

OPL703
OPL704 OPL705 OPL706
OPL707 OPL708 OPL709
OPL701
OPL702

OPL710 OPL711
open acreage.
OPL614

OPL609 OPL610 OPL611 OPL612 OPL613

Chad
OPL712 OPL714 OPL716 OPL717 OPL718 OPL719 OPL720 OPL721 OPL722 OPL723
OPL715
OPL713

OPL615 OPL616 OPL617 OPL618 OPL619

Under the current legislation,

OPL729 OPL730 OPL731 OPL732 OPL733 OPL734 OPL735
OPL724 OPL725 OPL726 OPL727 OPL728

OPL623
OPL620 OPL621 OPL622

OPL736

companies are required to

OPL737
OPL738 OPL739 OPL740 OPL741 OPL742

OPL624 OPL625

OPL746

relinquish 50% of their acreage

OPL743 OPL744 OPL745
OPL801 OPL802
OPL626
OPL627

upon the termination of the 10

OPL628 OPL803 OPL804 OPL805

Benue

year exploration period.

trough
OPL806 OPL807 OPL808

OPL501
OPL502

10°
Thereafter, companies were
OPL809 OPL810 OPL811
OPL503

OPL505 OPL506
OPL504
Bida
again required to relinquish 50%
OPL812 OPL813 OPL814 OPL815 OPL816
OPL817
OPL818
OPL507 OPL508 OPL509
OPL510 OPL819 OPL820

of the remainder after the first 10

OPL822 OPL823
OPL514
OPL511 OPL821 OPL824
OPL512 OPL513

OPL826 OPL827 OPL828 OPL829 OPL830

years of the 20-year OML. This

OPL515 OPL516
OPL825

Benin FEDERAL REP UBLIC OF NIGERIA

OPL517 OPL832 OPL833 OPL834 OPL835 OPL836 OPL837
OPL831
MINISTRY OF PETROLEUM RESOURCES

OPL838 OPL839 OPL840 OPL841 OPL842 OPL843

DEPARTMENT OF PETROLEUM RESOURCES
BLOCKS FOR 2 0 0 5 LICENSING ROUND means companies would retain
OPL901
OPL902
OPL903 OPL904
after 20 years only 25% of their
original block.
OPL301
OPL201 Natio nal Bou nda ry
OPL307 OPL914
OPL308 OPL906
OPL303 OPL304 OPL305 OPL306 OPL203 OPL915

OPL302
OPL202 OPL905 State Bo und ary
OPL474
OPL916
OPL205 OPL908 OPL909
OPL454 OPL204
OML96 OPL206 OPL917 Blo ck s on O ffe r
OML113 OPL310 OPL311 OPL274 OPL907
OPL241
OML103 OML98
OPL332 OML111 OPL275

6°
OML4
20

OPL135 Allo ca ted Blocks

0

OML40 OPL912
OPL312 OPL313 OPL314 OML110 OML95 OML38 OPL910 OPL911
OPL315 OPL228
OML49 OML41
OPL280

OPL317 OPL319 OPL321 OPL323

OML125
OPL240
OML57 OPL283
OML60
OML124
Ope n Blocks

However, as a result of the NNPC

OPL239 OPL207
OML42 OML34 OML20
OML91 OML90 OML43 OML26 OPL277
OPL913
OML64
1000

OPL325 OML30 OML53

OML108
OPL318 OML120 OML89
OML109
OML45
OPL281 OML65
OML61 OML21 OPL208
Jo int D eve lopm e nt Zone
OPL209 OML16
OML27
OPL327
OML121

very little acreage has been

OPL287 OML62 OML58 OPL234
OPL279
OML46

Limited open
200 0

OPL328 OPL227 OML22 OPL231

OPL320 OPL211 OML79 OML35 OML28
OML17 OPL235 0 - 2 00m
OPL452
OPL329 OPL282 OPL236
OPL458 OML32 OML54
OPL248 OML63
OML36 OML23 OML11 200 - 10 00m

relinquished in the zones with

OML114
OML88 OML13
OPL330 OPL331 OPL322 OML118
OML24 OML18 OPL276

acreages a
OML122 OML59 OML51
OML55
100 0 - 2 000 m
3 00

OPL263 OML33 OML29

OPL233 OML52 OML69
OML112
0

OML66 OML25 OPL278 OML117 OML68 OML123

OPL334 OPL213 OPL290
OPL471 OML86 OPL229 OML67
OPL333 OPL324 OPL249 OML99
OML70 200 0 - 3 000 m

considerable petroleum
OPL289 OPL467 OML72
OPL286
OPL285

major growth
400 0

OML85 OPL284 OML115

OPL214 OPL215 N
OPL335 OPL336 OPL326 OPL250 OPL288 OML83
OML116 OPL225 OPL90 OML119 OML104 OML100 OML102 300 0 - 4 000 m
OPL238
OPL226
OPL223

potential
400 0m ab ov e

impediment
OPL220 OPL221 OPL222
OPL337 OPL252
OPL338 OPL339 OPL340 OPL251 OPL242 OPL216 OPL217
OPL218 OPL219

OPL341 OPL342 OPL343 OPL344 OPL253 OPL254 OPL255 OPL260 OPL244

100 0 100 200 Kilo m et er s
OPL245 OPL247
OPL246
OPL258
OPL257 60 0 60 12 0 Mi le s
OPL345 OPL346 OPL261 OPL262 OPL264 OPL265 OPL266 OPL267 OPL256

OPL259
OPL268 OPL269 OPL270 OPL271 OPL272 OPL273 Joint Dev elopm ent Zone Projec tion: G eographic , Minna D atum

4° 8° 12° Daimler G eographics , (234) 08033228622 16°

With the repeal of the NNPC Act this obligation will be re-
created and could be implemented on the renewal of leases
PIB 2020
Nigeria’s Peculiar Challenges
Government Income Take@0% - World Rating Nigeria -Onshore 50 million barrel field, $ 60/bbl price,
$20/bbl costs
100.0%
Existing
90.0%

80.0% 748 - Current PPT terms

Government Income Take @0% (%) (real)

70.0%

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%
23
36
49
62
75
88
6

283

555
101
114
127
140
153
166
178
192
205
216
231
243
256
270

296
309
322
335
348
361
374
387
400
413
426
439
452
465
478
491
504
517
529
542

568
581
594
607
620
633
646
659
672
685
697
710
723
736
749
757
Ranking Numbers

Nigeria among the toughest in the world, ranking 748 out of 757 PIB 2020
Nigeria’s Peculiar Challenges

Cost Savings Ratio for 500 MM bbls field Deep Offshore

90.00%

80.00%

70.00%
Cost Savings Ratio (%) (real)

60.00%

50.00%
New
40.00%
1993 PSC
30.00%

20.00%

10.00%

0.00%
$30 $28 $26 $24 $22 $20 $18 $16 $14 $12 $10
-10.00%

Poor cost savings ratio supportive of prohibitive cost manipulations

PIB 2020
Nigeria’s Peculiar Challenges

Impact on the industry

• Deferment of core
investments
• Lack of focus on
Midstream
• Inadequate funding for
JV operations
• Lack of funding for
decommissioning and
abandonment
• Environmental
remediation
• Insignificant direct social
& economic benefits to
host communities
• Divestments by majors

PIB 2020
Nigeria’s Peculiar Challenges
Lack of focus on Midstream
UPSTREAM MIDSTREAM DOWNSTREAM

LNG/LPG FERTILIZER PLANTS

Nigeria predominantly
an extractive focus for FOREIGN MARKET
decades

Cooking Gas
GAS

GAS LINES CPFs LPG GAS

OIL

PIPELINES REFINERIES PETROCHEMICALS

PRODUCTION
PLATFORMS

CRUDE TANKERS PRODUCTS TANKERS FILLING STATIONS

Significant focus on midstream & downstream required to maximize value

PIB 2020
Journey to Petroleum Industry Reform: Past Efforts
PIB 2000 PIB 2009 PIB 2012 PIB 2018

OGIC developed Draft submitted to PIFB, PIAB & PHCB:

2000 & Policy National Assembly in Draft submitted to 2nd reading
documented by 2008, Govt memo FEC PIGB: Passed;
2007 by 2009 No ascent

Issues and Inter Agency misalignments that characterized the journey due to complex and onerous
packaging of the PIB as single document

- Lack of ownership

- Inability of National assembly to conclude Within the 2 decades so far,

- National assembly/ Executive misalignment we witnessed global new
discoveries and competitive
- Considered steep within the investor community fiscal terms passed in other
- Institutions subject to excessive political meddling jurisdictions
- Omnibus commission

- Ministerial powers

- Erosion of presidential powers PIB 2020

 Primary Goal: Accelerating the Economic Growth

PIB will contribute in two important ways to the acceleration of economic growth in Nigeria:

1
Conversion Offered on a voluntary basis a conversion contract exchanging a significant
relinquishment of acreage for somewhat improved fiscal terms.
Contract

The growth of the Nigerian economy is hampered by the lack of electricity. Nigeria has two very large
sources for relatively low-cost power:

203tcf
Natural gas reserves of which much can be produced for less than
$3.50/MMBtu

Near limitless low-cost solar energy in Northern Nigeria

• Investors are likely willing to produce based on power purchase agreements for 3 to 8
cents per kWh.
• This is current price level obtained in countries with a similar solar radiation, such as
Dubai, Mexico, Peru, Chile Abu Dhabi and Saudi Arabia.
PIB 2020
Changes to Support Growth and Sustainability in the Industry
…Core principles & Considerations

Establish
• Good governance
• Competitiveness
Remove • Global best practices
• Ease of doing business
Uncertainty due to protracted non
overhaul of legal framework on
Governance and Fiscal
environment

While paying attention to the following

Our Guiding
as our GuidingPrinciples:
Principles:
• Early revenues for Govt • Predictability
• Simplicity of administration • Responsiveness
• Equity and fairness • Best practice
• Competitiveness • Sustainability
• Transparency • Role clarity

PIB 2020
Governance Structure… Policy & Regulation

ADMINISTRATION GOVERNANCE
• Acreage management • Redefined Ministerial powers

• Competitive bid process • Two strong regulators

- Upstream – The Commission
• Decommissioning and environmental
remediation funds - Midstream & Downstream – The
Authority
• Deep rights • Creation of NNPC limited
• Relinquishment and drill or drop concept • Voluntary migration to IJVs

• Redefined Government participation HOST COMMUNITY DEVELOPMENT

• Concept of significant gas discovery • Establishment of a trust and new
governance structure
• Domestic crude oil and gas delivery • Needs assessment and community
obligations development plan requirement
• 3rd party access to facilities and pipelines • Funded through 2.5% of annual OPEX
of preceding year
• Redefined & incentivized frontier
exploration • Project selection by host community
PIB 2020
Governance Structure… Rationale for Dual Regulator

• No jurisdiction is having a single regulator for the entire oil & gas value chain globally

• Skills and regulatory capacity constraints in mid and downstream

• Regulatory creep – super regulator

• Span of control

• Extractive mentality

• Focus on value addition in the midstream

• Harnessing gas for domestic market

• Focus on linkage with Nigerian economy

PIB 2020
Governance Structure… Policy & Regulation

Minister
(Policy Setting / direction; industry co-ordination & supervision)

Upstream Regulatory Midstream & Downstream Board appointment by Mr.

Commission Regulatory Authority President
&
Confirmation by the
Senate except for the
Board: 3 Exec, 6 Non-Exec Top Mgt.: CEO & 6 Exec
appointments of ex-officio
members

Staff
composition
Commission: Appropriation, 1st
line charge, % of Revenue
collection

Authority: Appropriation, 1st line

charge, 1% of wholesale price
of petroleum products sold in
the country
Transfer of employee at terms not less favourable than current benefits
PIB 2020
Governance Structure… Policy & Regulation

Minister Regulators NNPC Limited

Owner and driver of Industry Independent supervisor and Own, operate and manage
Policies monitor assets responsibly and
• Sets general Industry • Sectoral based regulation commercially
direction • Technical & commercial
• Supervision on behalf of regulation • Profit-oriented management
Govt. • Rule based organization of Government investments
• Industry diplomatic roles • Transparent and tight • Self funding mechanism
• In charge of award of all governance control • Transparency, accountability
Upstream licenses – upon • Focus on midstream and tight corporate
recommendation by the development governance
commission • Free from public burden
• Promote and optimize National
resources and revenues
• Economic growth through
proactive resources
management

PIB 2020
Governance Structure… Commercial

Within
Months Months

Register NNPC Determine assets,

Limited interests &
liabilities

Toxic assets &

• Board as per liabilities remains • All assets with
CAMA with current NNPC NNPC to be
liquidated

• Executive NNPC limited to act

appointments by as management • NNPC ceases
Mr. President agent at nominal to exit
value of $1

PIB 2020
12 Elements of Administration

Redefined Upstream Licence Regime

Transparent bidding process

Initial exploration period plus renewal

Voluntary conversion of Oil Mining Leases

Drill or Drop strategy

Crude oil & gas delivery to domestic market

Framework for third party access & midstream

infrastructure development

Deep Rights

Midstream Infrastructure Fund

Frontier Exploration Fund

Framework to redefine marginal fields

Strict rules on environmental compliance PIB 2020

12 Elements of Administration: Petroleum Arrangements

The PIB permits a wide variety of petroleum arrangements.

A PPL or PML can have a model contract attached to it to provide for a

Concession Agreement Production Sharing Contracts (“PSCs”) Profit Sharing Contracts

Risk Service Contract Any accepted international petroleum arrangement

Any contract or agreement will be signed directly with the Commission. Joint Ventures with NNPC will not be
required and NNPC will no longer play the role of concessionaire under PSCs.

PIB 2020
12 Elements of Administration: Conversion Process

• The PIB will permit current holders of OPLs and The conversion to the new terms will
OMLs to voluntarily convert to the new terms of be on the basis of conversion
the PIB. contracts.

• If companies so wish they can maintain their Under these contracts companies
current terms until the renewal of their lease. agree to terminate any outstanding
court cases and arbitration cases
• The PIB provides for two types of fiscal terms: against NNPC.

• --for new acreage, and Also, as part of the conversion,

companies have to relinquish up to
• -- for acreage which is under development and 60% of the acreage of the existing
production and is being converted to the terms OPLs and OMLs. Of the 40%
of the PIB. remaining acreage, the companies
can select:
• New acreage terms apply to all PPLs and PMLs
granted after the commencement of the Act -- PMLs under the PIB to which the
and all converted PMLs. conversion fiscal terms apply, and

• Conversion terms are selected in such a -- PPLs to which the new acreage
manner that government oil revenues are not terms apply.
negatively affected in a major way.

PIB 2020
12 Elements of Administration: Conversion Process

EXAMPLE OF A VOLUNTARY SELECTION PML's

PPL Appraisal Area

PPL Commercial Discovery Area

PPL Exploration Areas

PPL Significant Gas Discovery

Areas to be relinquished

selection and relinquishment process illustrates all the PPL areas will form a single PPL consisting of various
blocks.

PIB 2020
12 Elements of Administration: Conversion Process

With respect to onshore and shallow water

the conversion terms are highly attractive.

For deep water, conversion would only be

interesting if there still are considerable
prospects that can be drilled under a new
PPL, with the cumulative sliding profit oil
Conclusion Conversion scale starting separately; providing a new
cumulative volume starting at 5% for the first
50 million barrels.

It should be noted that a number of PSCs

have been and are in the process of being
renegotiated. These terms are recognized
under the PIB as long as the acreage
relinquishment takes place.

PIB 2020
12 Elements of Administration: Drill or Drop Concept

Drill or Drop With respect to onshore and shallow

water The current work and
relinquishment requirements under OPLs
and OMLs are relatively “lax”.

Most countries have tougher

requirements.

It is common to apply a “drill or drop”

system, which means that companies
either carry out exploratory drilling and
appraisal drilling or drop (relinquish) the
acreage.

The PIB implements this more rigorous

system in order to ensure an optimal
work program on the acreage that is
being granted
PIB 2020
12 Elements of Administration: Significant Gas Discovery

A Significant Gas Discovery is a

discovery that is of a substantial
size but for which there are no
markets in Nigeria or export
markets, or for which it is not
economic to construct the
midstream infrastructure.

The retention area of such

Significant Gas Discovery can be
retained for a period of up to 10
years, in order to develop
markets or midstream
infrastructure based on this and
other discoveries. If no
Commercial Discovery is
declared within the 10 year
period the area must be
relinquished. PIB 2020
12 Elements of Administration: Relinquishment … Deep Rights

A Licensee may voluntarily relinquish

acreage provided the Licensee has
complied with all related obligations.

Ten years after the granting of the PML, the

Lessee shall relinquish:

▪ All areas not in production, and

▪ Formations deeper than the deepest

producing formation (deep rights
relinquishment)

All relinquished areas shall vest with the

Government and be managed by the
Commission.

PIB 2020
Rationale for Attractive Fiscal Terms

• In order for the Nigerian oil industry to survive facing this challenging future, the PIB has to create an
environment in which Nigerian oil companies will continue to invest and prosper.

• This means that the fiscal terms for oil have to be based on a conservative framework of the future. This
framework is based on a long-term oil price of $ 50/bbl in real terms.

• Fiscal terms for new development investments based on a 45% cost/price ratio, which means costing $
22.50/bbl, need to be marginally economic, while lower cost projects should be economically attractive.
This will ensure that under low prices at least relatively low-cost projects will continue to be attractive.

• If future prices turn out to be higher, the benefits should be shared between the investors and the Federal
Government.

• Current revenues preserved for 18 months for stability • Grandfathering AGFA & other fiscal incentives,
and planning section 39 of CITA
• Three fiscal system for flexibility: Existing, Conversion • Voluntary Conversion provision with fiscal
and New incentives
• Dual tax structure: NHT & CITA • The story of future of oil : Current socio-economic
• Dual royalty structure – Volume & Price and technological issues facing the industry

• Amended Deep offshore and inland basin preserved • Less fiscal burden on frontier and inland basin
with redefinition acreages

• Non-Associated and Associated Gas enjoys CITA • Reduced fiscal burden on marginal and small field
producers
28 PIB 2020
PIFB… Royalty by Production & Price

Royalty
Rates by
Production

Note: DW with<15kbp 7.5%, OS&SW first 5kbp @ 5%, next 5kbp @7.5%

Price Range OS,SW & DW

Royalty From US$0 and up to US$50/barrel 0 per cent
Rates by
Above US$150/barrel 10 per cent
Price
• Between $ 50/bbl and $ 150/bbl there is linear interpolation. For instance if
the price is $ 75/bbl the royalty rate is 2.5%.
• The price benchmarks are adjusted yearly for inflation by adding 2% per year
to the benchmark price.
Note: Derived royalty by price shall be for the credit of Nigerian Sovereign Investment Authority

Royalties based on price do not apply to gas nor to frontier acreages.

PIB 2020
PIFB… Tax Regime

Dual Tax

• The current Petroleum Profits Tax

(“PPT”) will be split in a
Hydrocarbon Tax
hydrocarbon tax and the
companies income tax.

• The companies income tax will

be the regular companies
income tax, at the current rate of
30%. This tax can be determined
on a consolidated basis for all of
the upstream operations, but for
midstream and downstream
separate companies have to be
created.

• Under non-PIB legislation

companies will furthermore be
subject to withholding tax on
dividends (usually 10%) and
tertiary education tax of 2% of
the assessable profits

30 PIB 2020
 Tax Regime

1 National Hydrocarbon
Tax (NHT)
• The hydrocarbon tax applies only to
oil and where applicable
condensates and natural gas liquids
produced from associated gas in an
oil field Onshore Shallow Deep offshore
• Not applicable to associated gas or
non-associated gas & Frontier
New
• NHT not deductible for CITA Acreages 22.5% 20% 10.0%
• Drilling costs, facilities and other
assets will be deducted as capital
Converted
allowances at 20% per year straight
line from the year the costs are Acreages 42.5% 37% 5%
incurred, except for the exploration
well and first two appraisal wells per
field, which can be deducted 100%.
Frontier Basins: hydrocarbon tax is not applicable until renewal of
• Hydrocarbon Tax can be the lease; after renewal onshore new acreage terms apply.
consolidated for each of the 6
classes of hydrocarbon tax rates

2 Companies Income Tax (CIT): To be retained at 30% across board

• Applicable to all oil and gas operations
• Consolidated at corporate level
• The current tax rate is 30%. No fiscal stability will be provided for companies income tax as long as no discriminatory
rates are applied against the oil industry
PIB 2020
Cost Control

Cost Recovery to Explanatory Note on Cost Control :

Price Ratio
Hydrocarbon tax is subject to a
cost-price limit of 65% of the gross

100%
revenues.

Costs carried Capital allowances and operating

forward to be costs can be claimed up to this
capped at limit.
Price 65% limit
In case costs exceed this limit in
any month, such costs can be
carried forward until fully
recovered.

65% Any costs exceeding the Cost

Price Ratio limit upon the
termination of Upstream Crude Oil
Operations shall not be
Maximum Cost deductible.
recovery limit

PIB 2020
Production Incentives

Current Investment Tax Credits and Investment Tax

Allowances will not apply to hydrocarbon tax

Instead, Production Incentives Per field crude oil

production. Excludes production from primary recovery
with or without initial injection wells

Conversion for all conversion acreage the lower of 20% of the fiscal oil price and $ 2.50
acreage : per barrel for any volume

Lower of 20% of oil (fiscal) price/bbl or US$8/bbl for up to cumulative production:

New
Projects:
- Onshore: 50million barrels
- Shallow: 100million barrels
- Deepwater: 500million barrels

20% of oil (fiscal) price/bbl or US $4.00 per Barrel thereafter

PIB 2020
Production Sharing Contract

Production sharing only applies to oil.

In case of a production sharing contract, the

PIB specifies that the cost limit shall be 70%.

• The sequencing of the production sharing The minimum profit oil share to Government
is adjusted to an international concept. is based on cumulative production and is as
follows:
• Under the current PSCs the production
sharing is calculated after deducting from -- up to 50 million barrels 5%
the gross revenues, the royalties, the tax
oil and costs. -- up to 100 million barrels 10%

• Under the PSCs for new acreage the -- up to 350 million barrels 15%
production sharing is calculated after the
deduction of royalties and cost oil. The -- up to 700 million barrels 25%
hydrocarbon tax and companies' income
tax are determined on the integrated -- up to 1500 million barrels 35%
revenues of the contractor being the cost
oil and the contractor share of profit oil. -- over 1500 million barrels 45%

• This permits consolidation of hydrocarbon

tax and companies' income tax and
therefore encourages re-investment in
Nigeria.
34 PIB 2020
Cost Price Benchmarking
With respect to already discovered fields, the new acreage terms are generally attractive even at $ 50/bbl for
field development provided costs are $ 24/bbl - $ 26/bbl or less. This is very important for the conversion process
since it will permit companies to economically develop some of the discoveries
Onshore Shallow Water Deep Water

IRR benchmarking of onshore fields IRR benchmarking of shallow water fields IRR benchmarking of deep offshore fields
price: $ 50/bbl, costs: $ 22.50/bbl price: $ 50/bbl, costs:$22.50/bbl price: $ 50/bbl, costs: $22.50/bbl
20.00% 20.00% 20.00%
18.00% 18.00% 18.00%
16.00% 16.00% 16.00%
14.00%

IRR (%) (real)

14.00% 14.00%
12.00%

IRR (%) (real)

IRR (%) (real)

12.00% 12.00%
10.00%
10.00% IRR 10.00% IRR IRR
8.00%
8.00% Minimum 8.00% Minimum 6.00% Minimum
6.00% 6.00% 4.00%
4.00% 4.00% 2.00%
0.00%
2.00% 2.00%
20 MM 50 MM 100 MM 200 MM 500 MM 1000 MM 2000 MM
0.00% 0.00% Field Sizes (million barrels)
5 MM 10 MM 20 MM 50 MM 100 MM 200 MM 500 MM 10 MM 20 MM 50 MM 100 MM 200 MM 500 MM 1000 MM

IRR is adequate for every field IRR is adequate for every field IRR is adequate except a 2
size based on new acreage size based on new acreage billion barrel field which has to
terms terms cost <$21/bbl to be economic.

35 PIB 2020
 International Benchmarking for Oil

International
benchmarking was
800 Fiscal systems
done of the various
fiscal terms under
the PIB.
160 Countries

Assumptions

• Based on international benchmarking of onshore, shallow water and deep offshore terms assuming a
100 million barrel field, an oil price of $ 50/bbl and costs of $ 20/bbl.

• For benchmarking purposes, the onshore terms do not include the terms for continental North America,
which are typically well based rather than field based, nor for Onshore Russia, which are entirely based
on a Ruble economy and therefore not comparable.

36 PIB 2020
Comparative Government Income Take - Onshore
World Onshore Rating for 264 systems: 100 million barrel field, $ 50/bbl price, $20/bbl costs

100.0% Existing
Proposed for
90.0%
Conversion
80.0% Proposed for Acreage
Nigeria onshore rating New Acreage
70.0%
190 New Acreage Terms 70.20%
60.0% 238 Conversion Terms 83.90%
GIT0 (%)(real)

254 Pre-2019 Terms 93.00%

50.0%
255 End 2019 Terms 94.00%
40.0%

Nigeria new acreage terms

rate 190 out of 264, with a GIT0
30.0%

20.0%
of 70.2%. Comparison with
other countries indicates that
10.0% the terms are competitively
placed
0.0%

196

236
101
106
111
116
121
126
131
136
141
146
151
156
161
166
171
176
181
186
191

201
206
211
216
221
226
231

241
246
251
256
261
31
1
6
11
16
21
26

36
41
46
51
56
61
66
71
76
81
86
91
96

Ranking Numbers

PIB 2020
Comparative Government Income Take – Shallow water
World Shallow Water Rating for 249 systems: 100 million barrel field, $ 50/bbl price, $20/bbl costs

100.0%

Existing
90.0% Proposed for
Proposed for Conversion
Nigeria Shallow Water Rating
80.0% 176 New Acreage 67.50% New Acreage Acreage
220 Conversion Terms 80.90%
70.0% 239 Pre-2019 Terms 90.60%
240 End 2019 Terms 91.20%
60.0%
GIT0 (%) (real)

50.0%
Nigeria new acreage terms
40.0% rate 176 out of 249, with a GIT0
of 67.5%. Comparison with
30.0% other countries indicates that
the terms are competitively
20.0%
placed
10.0%

0.0%
96
11
16
21
26
30
35
40
46
51
56
61
66
71
76
81
86
91

206
1
6

101
106
111
113
121
126
131
136
141
144
151
156
161
166
171
176
181
186
191
196
201

211
216
221
226
231
236
241
246
Ranking Numbers

PIB 2020
Comparative Government Income Take – Deepwater (2019 terms)
100.0%
World DW Rating for 170 systems: 100 million barrel field, $ 50/bbl price, $20/bbl costs
90.0%

2019 term reflecting

80.0%
Proposed for DOA amendment
Conversion
70.0%
Acreage
Proposed for
60.0% New Acreage
GIT0 (%) (real)

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%
37

61

85

109
1
4
7
10
13
16
18
22
25
28
31
34

40
43
46
49
52
55
58

64
67
70
72
76
79
82

88
91
94
97
100
103
106

112
115
118
121
124
127
130
133
136
139
142
145
148
151
154
157
160
163
166
169
Ranking Numbers

Conversion Terms are more favorable than the current terms by lowering the total tax to 35% and New
Acreage Terms are even more attractive. This is to encourage conversion and investment in new acreage.
PIB 2020
Comparative Government Income Take – Frontier
World Frontier Rating for 170 systems: 100 million barrel field, $ 50/bbl price, $20/bbl costs

100.0%

90.0%

80.0%

2019 term reflecting

70.0%
DOA amendment
Proposed for
60.0%
New Acreage
GIT0 (%)(real)

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%
21

121

221

236
1
6
11
16

26
31
36
41
46
51
56
61
66
71
76
81
86
91
96
101
106
111
116

126
131
136
141
146
151
156
161
166
171
176
181
186
191
196
201
206
211
216

226
231

241
246
251
256
261
Ranking Numbers

PIB 2020
Specific Incentives for Gas Utilization

Proposed terms enables the development of gas for power generation

- The total fiscal package is designed to encourage investors to develop and

produce natural gas.

- For non-associated natural gas, the terms are 5% royalty (except for onshore
gas that is exported) and companies income tax, which is currently 30%. These
terms also apply to the related condensates.

- For associated gas the royalty is also 5% (except for onshore gas that is
exported), there is hydrocarbon tax, but with a generous production allowance
for associated gas (as indicated before) and companies income tax.

- There is no production sharing for gas, while gas costs can be taken as cost oil.

- Midstream Infrastructure Fund

- Permitting producer, supplier and consumer pipelines, transporting their own

gas through such lines

- Definition of a gas network code setting out the rights to enter and exit gas
pipelines by any shipper

- Implementing strong domestic gas delivery obligations for all producers.

PIB 2020
Gas Pricing Structure

- In order to create long term stability and predictability for the prices of
marketable natural gas, the framework in included in the PIB.

- For the Power and Commercial Sector, the gas pricing is linked to the
Base Price provided for in the Third Schedule.

- For the Gas Based Industries the gas pricing is linked to the end
products produced by these industries. The PIB permits willing suppliers
and buyers of all sectors to agree voluntarily on the price for
marketable natural gas.

- Suppliers and buyers can also build their own pipelines (subject to third
party access) in order to transport their gas.

- In the near term the Government will set the gas prices for the
Strategic Sectors for those buyers that elect to be part of the
Government pricing system as implemented by the Domestic Gas
Aggregator.

PIB 2020
Gas Pricing Structure

- On January 1, 2021 the base price is $ 3.20/MMBtu

- Each year the base price will be increased by $ 0.05/MMBtu until 2037
when the price reaches $ 4.00/MMBtu. After that time the price will
remain unchanged.

- The Authority may adjust the base price under certain circumstances,
for instance, if the price creates insufficient supplies for the domestic
market

- The base gas price is determined at the marketable gas delivery

point, which is the first point where the gas has the specifications for
pipeline transportation.

- For instance, the exit of a gas processing plant would be a

marketable gas delivery point. Where gas is produced of pipeline
specifications in a field, the point is the respective delivery point in the
field.

- Lessees have the right to obtain a wholesale gas supply licence which
will permit the lessees to sell gas anywhere to wholesale customers in
Nigeria using the respective gas transportation networks or pipelines.

PIB 2020
Gas Pricing Structure – Non-Associated Gas Economics

- Based on the proposed fiscal terms and the base

gas pricing structure, the development of natural
gas in Nigeria would need to concentrate on
relatively low cost associated gas as well as non-
associated gas condensate fields with a
reasonable condensate and NGL yield.

- Developments of non-associated dry gas fields

would be relatively unattractive.

- The PIB provides for a domestic gas delivery

obligation

- lessees and wholesale gas customers of the

strategic sectors can voluntarily enter into gas
sales agreements. This permits to gauge the
supply response to the gas pricing structure.

- If higher gas prices are required to bring

adequate supplies forward on an economic
basis, the Authority can adjust the pricing
structure.

PIB 2020
Positioning Nigeria.. As Most Transparent in Africa

Contracts & Licenses Public Reporting of Data availability in

Acreages Award not confidential payments National Data
Repository
Acreages can All contracts, Summaries of all Geological,
only be awarded licenses, leases payments to geophysical,
through open and and side letters Government by geochemical and
competitive bid are not each contractor, technical data will
process confidential and licensee or lease be accessible to
must be published must be published all interested
on website of the parties and be
regulator available in the
National Data
Repository

PIB 2020
Focus on Frontier Exploration
- Frontier exploration is stimulated with a favourable fiscal
system consisting of only

- 7.5% Royalty

- CITA

- For frontier acreages, a Petroleum Exploration License

(PEL)may be converted to a Petroleum Prospecting License
(PPL) prior to the termination of the license depending on
the results of the exploration work.

- For frontier acreage in a PPL, the initial exploration period of

5 years may consist of only geophysical work.

- Special frontier exploration fund is established to assist in

exploration

PIB 2020
3 Funds Created

• Frontier Exploration Fund: 10% of accruals from Rents on PPL & PML
• Managed by the Commission

• Midstream Infrastructure Fund: 1% of wholesale price of petroleum

products sold in Nigeria and natural gas produced and sold.
• Government equity investment in conjunction with private investment

• Each lessee and licensee shall set up and maintain a “Decommissioning

and Abandonment Fund”)
• To be held by a financial institution that is not an Affiliate of the Lessee or
Licensee.
• The fund shall be available only to pay for decommissioning and
abandonment costs. PIB 2020
Host Community – Existing Interventions

13% of Derivation
Section 162 (2) CFRN 1999

MOUs, CSRs, Other

Development
Organizations

Niger Delta • 15 % of total monthly statutory

Development allocations due to member States
Commission from the Federation Account
(NDDC) Act • 3% of total annual budget of
petroleum companies
Host Communities

• 50 % of monies due to member

States

• Individual State Development Agencies

PIB 2020
Rationale for the Host Community Fund

• Only attempt for direct

control of funds by
Hostcom

• Only attempt that bestows

project selection,
execution and ownership
on Hostcom

• Reciprocity on facilities
protection in exchange for
funds

PIB 2020
Host Community – Proposed Host Community Development Trust
• Incorporation of Petroleum Host Communities Development Trusts by Settlors
• Provides direct social and economic benefits to host communities
• Funded by 2.5% of the actual OPEX of the settlor for the accounting period of the preceding year
• Advisory Committee to decide projects through engagement with the communities

75% - Capital 20% - Reserve 5% -

Fund Fund Administrative

Approves and oversight

development

MANAGEMENT COMMITTEE
Project ownership and
delivery

Project initiators
ADVISORY COMMITTEE PIB 2020
Industry Engagement Summary

96 Issues
raised

77 Completely
resolved
Industry Concerns
1 Deep water Royalties @ 2.5%

2 5year royalty holiday from first production for new projects

19 Clarified
3

4
Petroleum Industry exemption from Dividend Tax as under PPTA

At the point of conversion, any tax benefits earned under PPT

are preserved and carried over to be used under the HT + CIT
regime

PIB 2020
End

PIB 2020
 INCREASE OIL AND GAS PRODUCTION
Shallow Water Terms Benchmarking
COMPARABLE FISCAL TERMS GIT0
100 million bareels, price: $50/bbl, costs:$20/bbl
158 COTE D' IVOIRE-Off(SW-Ex #1) 62.7%
159 PAKISTAN-SW (<200) 62.9%
161 LIBERIA-Block LB-10 63.3%
167 Mexico-SW-PSC Round 1.1-Minimum Bid Value 64.8%
173 THAILAND-SW (GulfofThailand) 67.2%
176 NIGERIA: SW-New Acreage-PIB 67.5%
179 THAILAND-PSC-Minimum-Terms 68.5%
184 CAMEROON (2019 Terms)(ON,SW,DW) 69.7%
186 ANGOLA-Off(SWPSC-B9BidTerms) 70.1%
189 GABON-Off(SWPSCTerms) 70.4%
194 ANGOLA-SW-2019 Minimum Terms Block 10 71.8%

The Van Meurs Energy data base has 249 fiscal systems for the
shallow water. From a low to a high GIT0, the Nigeria new
acreage terms rate 176 out of 249, with a GIT0 of 67.5%.
Comparison with other countries indicates that the terms are
competitively placed.
53
 INCREASE OIL AND GAS PRODUCTION
Benchmarking Deep Offshore Terms – End of 2019
COMPARABLE FISCAL TERMS GIT0
100 million barrels, price:$ 50/bbl, costs:$20/bbl
122 NIGERIA: DW-ConversionTerms-PIB 66.7%
123 TRINIDAD&TOBAGO-OffDW(Min PSC Bid Terms) 67.2%
129 SURINAME: Guyana Basin 2006 68.7%
133 CAMEROON (2019 Terms)(ON,SW,DW) 69.7%
136 ANGOLA-DW-2019 Minimum Terms Block 28 70.4%
138 NIGERIA-OffDW(1993-PSC)-2019Terms 72.0%
139 ANGOLA-Off(UDWPSC-B46) 72.2%
141 MYANMAR - DW > 1200 Feet 72.7%
143 BRAZIL-Santos-Uirapuru-PSC-MinTerms 73.5%
145 MALAYSIA-(WD 200 - 1000) 74.9%
147 Norway 75.7%
149 ALGERIA: ON(Zone A) - Isolated Areas 76.0%

The Van Meurs Energy data base has 170 fiscal systems for the
deep offshore. From a low to a high GIT0, the Nigeria Current
2019 deep water terms rate 138 out of 170, with a GIT0 of 72.0%.
Comparison with other countries indicates that the terms are
competitively placed.
54
 INCREASE OIL AND GAS PRODUCTION
Deep Offshore Conversion and New Axcreage Terms
COMPARABLE FISCAL TERMS GIT0
100 million barrels, price:$ 50/bbl, costs:$20/bbl
115 NIGERIA: DW-NewAcreage-PIB 62.6%
116 THA-DW (Andaman Sea) 62.8%
118 Indonesia-GrSplt-DW-POD1-Lloc-Fr 63.2%
120 CUBA: OffDW (PSC) 65.2%
122 NIGERIA: DW-ConversionTerms-PIB 66.7%
123 TRINIDAD&TOBAGO-OffDW(Min PSC Bid Terms) 67.2%
129 SURINAME: Guyana Basin 2006 68.7%
133 CAMEROON (2019 Terms)(ON,SW,DW) 69.7%
136 ANGOLA-DW-2019 Minimum Terms Block 28 70.4%
138 NIGERIA-OffDW(1993-PSC)-2019Terms 72.0%

The Conversion Terms are more favorable than the current terms
by lowering the total tax to 35% and New Acreage Terms are even
more attractive. This is to encourage conversion and investment
in new acreage.

55