FG offers enhanced tax incentive for Shell’s Bonga project to attract $20bn investment

The Federal Government has approved a special tax incentive for Shell Plc’s Bonga Southwest Aparo deepwater oil project in a move aimed at unlocking an estimated $20 billion investment and boosting Nigeria’s crude oil production.

Under the new fiscal arrangement approved by President Bola Tinubu, Shell and its partners will receive a production-linked tax credit of $11.50 per barrel of crude oil produced from the project, according to a Bloomberg report citing sources familiar with the development.

The incentive is significantly higher than the standard tax credit currently available under Nigeria’s fiscal framework and is expected to improve the commercial viability of the long-delayed offshore project.

Bloomberg reported, quoting sources familiar with the arrangement, that the tax credit is designed to support a Final Investment Decision (FID) on the Bonga Southwest Aparo development, one of Nigeria’s largest untapped deepwater oil assets.

The sources further indicated that the incentive would not be limited to Shell alone, as other international oil companies pursuing new deepwater developments in Nigeria are expected to benefit from similar arrangements. The programme is expected to remain in effect until at least 2029.

The latest measure forms part of ongoing efforts by the Tinubu administration to revive investment in Nigeria’s oil and gas sector, which has witnessed years of declining capital inflows due to regulatory uncertainty, insecurity, oil theft and ageing infrastructure.

Industry stakeholders have long argued that high development costs and fiscal concerns have discouraged investment in deepwater projects despite Nigeria’s significant offshore reserves.

The Bonga Southwest Aparo project is projected to produce about 150,000 barrels of crude oil per day when operational, according to the Nigerian National Petroleum Company Limited (NNPCL), making it one of the most significant new developments in the country’s upstream sector.

Shell, while declining to comment directly on the fiscal terms, confirmed that work on the project remains ongoing.

“Shell continues to progress the Bonga Southwest Aparo project toward development and will communicate material updates through official channels,” a company spokesperson said.

Neither the NNPCL nor the Office of the President’s Special Adviser on Energy publicly commented on the reported approval.

Since assuming office in May 2023, President Tinubu has introduced a series of executive orders and regulatory reforms aimed at improving Nigeria’s attractiveness to investors and accelerating the development of stalled oil and gas projects.

Earlier reforms included provisions allowing production tax credits to offset up to 20 per cent of a licence holder’s annual tax obligations, a policy the government said aligned with international best practices.

Analysts believe the enhanced incentive could play a critical role in encouraging investment in deepwater operations, where development and production costs are considerably higher than those associated with onshore fields.

The move comes as Nigeria records gradual improvements in crude oil output. Data released by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) showed that the country produced an average of 1.56 million barrels per day in June, the highest monthly production level recorded since April 2020.

The increase has been attributed to improved security around oil facilities, renewed upstream investment and reforms aimed at restoring production capacity.

Despite the positive outlook, concerns remain over the long-term durability of executive-order-backed incentives, as such measures could be amended or challenged by future administrations.

To address investor concerns, Shell is said to have requested that the tax-credit directive be formally published in the Federal Government’s Official Gazette, a step that would strengthen its legal standing and provide greater certainty for project investors.

According to reports, government officials have already begun the process of gazetting the order.

The Federal Government hopes that advancing projects such as Bonga Southwest Aparo will help raise crude oil production, attract fresh foreign investment, create employment opportunities and increase revenue generation for the country.