FG offers Shell $11.50 per barrel tax credit to unlock $20bn Bonga Deepwater project

The Federal Government has approved an enhanced production-linked tax credit of $11.50 per barrel for Shell Plc and its partners, aiming to unlock the long-delayed Bonga Southwest Aparo deepwater oil project. This initiative, backed by President Bola Tinubu, is expected to attract around $20 billion in foreign direct investment (FDI) into Nigeria. The approval marks a pivotal moment in the country's efforts to revive its upstream petroleum sector and address years of stagnation in deepwater exploration. The Bonga Southwest Aparo project, located approximately 120 kilometers off Nigeria’s coast, has been stalled for nearly two decades. Despite its potential to significantly boost oil production, the project faced numerous hurdles, including regulatory delays and unresolved disputes. The latest development comes after months of intense negotiations involving key stakeholders, including the Nigerian National Petroleum Company Limited (NNPC Ltd.), the Nigeria Revenue Service (NRS), the President’s Special Adviser on Energy, Olu Verheijen, and Shell Chief Executive Officer Wael Sawan. According to Bloomberg, Sawan’s recent visit to the Presidential Villa played a crucial role in accelerating discussions that led to the government’s approval. The proposed tax credit, set at $11.50 per barrel, exceeds the standard incentive outlined under the Petroleum Industry Act (PIA). This increase is intended to offset the financial risks associated with deepwater drilling and encourage Shell and its partners to proceed with the project. The approval effectively removes one of the last remaining obstacles to a Final Investment Decision (FID) on the project. The NNPC Ltd. hailed the move as a landmark breakthrough, emphasizing that it would mark the first FID on a Nigerian deepwater Production Sharing Contract (PSC) asset since 2008. The delay in new deepwater investments has hindered Nigeria’s competitiveness in the global oil market, particularly against nations like Angola, Brazil, and Guyana, which have successfully attracted substantial capital into their offshore sectors. The resolution of a longstanding dispute settlement agreement dating back to 2021 further eliminates a major barrier to investment. Once operational, the Bonga Southwest Aparo project is projected to produce up to 150,000 barrels of crude oil per day and 140 million standard cubic feet of natural gas daily, alongside generating over 5,000 direct and indirect jobs. Industry experts suggest that this decision signals a notable shift in Nigeria’s fiscal strategy, potentially opening the door for other international oil companies such as ExxonMobil, Chevron, and TotalEnergies to pursue similar incentives for their deepwater assets. If implemented widely, the policy could indicate a broader transformation in how Nigeria approaches attracting global upstream investment. As emerging markets continue to draw significant capital into offshore exploration and production, Nigeria’s willingness to offer tailored fiscal packages may position it more favorably in the race for international energy investment. For the Tinubu administration, the decision reflects a calculated trade-off between short-term fiscal gains and long-term economic benefits. By accepting reduced immediate tax revenues, the government aims to stimulate large-scale projects that can enhance production, generate employment, and bolster foreign exchange earnings. The outcome of this initiative could serve as a blueprint for future investments in Nigeria’s energy sector, reinforcing the nation’s role in the global oil industry.