(2) Where an assessment has become final and conclusive, any tax overpaid

shall be repaid.

(3)  Nothing in section 330 of this Act or in this Part shall prevent the Service from

making any assessment or additional assessment to tax for any accounting

period which does not involve re-opening any issue on the same facts which

has been determined for that accounting period, under subsection (5) or (6) of

section 330 of this Act by agreement or otherwise or on appeal. 175

334.    Procedure in cases where objection or appeal is pending

Collection of tax in cases where notice of an objection or an appeal has been given

shall not be enforced and any pending proceedings for any instalment of the tax shall

be stayed until the objection or appeal is determined and the Service may in any

such case enforce payment of any portion of the tax which is not in dispute.

335.    Time limit for making payment

(1) Subject to the provisions of section 336 of this Act, tax for any accounting

period shall be payable in equal monthly instalment together with a final

instalment as provided in subsection (4) of this section.

(2) The first monthly payment shall be due and payable not later than the third

month of the accounting period and shall be in an amount equal to one-twelfth

or, where the accounting period is less than a year, in an amount equal to

monthly proportion of the amount of tax estimated to be chargeable for such

accounting period in accordance with the provision of section 325(1) of this

Act

(3) Each of the remainder of monthly payments to be made subsequent to the

payment under subsection (2) of this section shall be due and payable not

later than the last day of the month in question and shall be in an amount

equal to the amount of tax estimated to be chargeable for such period by

reference to the latest returns submitted by the company in accordance with

the provision of section 325(2)  of this Act less  the amount already paid for

such accounting period divided by the number of the monthly payments

remaining to be made in respect of the applicable accounting period.

(4) A final instalment of tax shall be due and payable within twenty-one days after

filing of the self-assessment for such accounting period, and shall be the

amount of the tax assessed for that accounting period less the amount paid

under subsections (2) and (3) of this section or is the subject of  any

proceedings.

(5) Any instalments on account of tax estimated to be chargeable shall be treated

as tax charged and assessed for the purposes of section 338 of this Act.

336.    Penalty for non-payment of tax and enforcement of payment

(1)  If any instalment of tax due and payable pursuant to section 337 of this Act is

not paid within the appropriate time limit prescribed. –

(a)  a sum equal to ten per cent of the amount of the instalment of tax due

and payable shall be added to the tax, and the provisions of this Act

relating to the collection and recovery of tax shall apply to the collection

and recovery of such sum; 176

(b)   in the case of Naira remittances, the tax due shall attract interest at the

prevailing minimum rediscount rate of the Central Bank of Nigeria plus

a spread to be determined by the Minister from the date when the tax

becomes payable until it is paid, and the provisions of this Act relating

to the collection and recovery of tax shall apply to the collection and

recovery of the interest;

(c)   in the case of foreign currency remittance, the tax due shall attract

interest at the prevailing London Inter Bank Offered Rate, plus a spread

to be determined by the Minister from the date when the tax becomes

payable until it is paid, and the provisions of this Act relating to the

collection and recovery of tax shall apply to the collection and recovery

of the interest.

(2)   Any company or person in whose name the company is assessed, who,

without lawful justification or excuse, the proof of which shall lie on the

company or the person assessed, fails to pay the tax within the period of one

month prescribed in subsection (1)(b) of this section, commits an offence

(3)  The Service may, for good cause shown, remit the whole or any part of the

penalty due under subsection (1) of this section.

337.    Collection of tax after determination of objection or appeal

Where payment of tax in whole or in part has been held over pending the result of a

notice of objection or appeal, the tax outstanding under the assessment as

determined on such objection or appeal, as the case may be, shall be payable

immediately and the balance of the tax shall be paid as to any part of the tax in the

proceedings stayed within one month from the date of service on the company

assessed, or on the person in whose name the company is assessed, and if such

balance is not paid within such period the provisions of section  338 of this Act shall

apply.

338.    Suit for tax by the  Service

(1)  The Service may sue and recover tax in any court of competent jurisdiction at

the place where the tax is due against a company or the person in whose

name the company is assessed and the cost of the proceedings shall be

borne by the company or the person in whose name the company is

assessed.

(2)  In any suit under subsection (1) of this section the production of a certificate

signed by any person duly authorised by the Service giving the name and

address of the defendant and the amount of tax due by the defendant shall be

sufficient evidence of the amount due and sufficient authority for the court to

give judgment for this  amount.177

339.    Relief in respect of error or mistake

(1)  Where any person who has paid tax for any accounting period alleges that

any assessment made upon him or in his name for that period was excessive

by reason of some error or mistake in the accounts, particulars or other written

information supplied by him to the  Service for the purpose of the assessment,

such person may at any time, not later than six years after the end of the

accounting period in respect of which the assessment was made, make an

application in writing to the  Service for relief.

(2)  Upon receipt of the application, referred to in subsection (1) of this section  the

Service shall inquire into the matter and subject to the provisions of this

section shall by way of repayment of tax give such relief in respect of the error

or mistake as appears to the Service to be reasonable and just.

(3)  No relief shall be given under this section in respect of an error or mistake as

to the basis on which the liability of the applicant ought to have been

computed where such accounts, particulars or information was in fact made or

given on the basis or in accordance with the practice of the Service generally

prevailing at the time when such accounts, particular or information was made

or given.

(4)  In determining any application under this section, the Service shall have

regard to all the relevant circumstances of the case, and in particular, shall

consider whether the granting of relief would result in the exclusion from

charge to tax of any part of the chargeable profits of the applicant, and for this

purpose the Service may take into consideration the liability of the applicant

and assessments made upon him in respect of other years.

(5)  No appeal shall lie from a determination of the Service under this section,

which determination shall be final and conclusive.

340. Repayment of Tax

(1)  Save as is otherwise in this Act expressly provided, no claim for the

repayment of any tax overpaid shall be allowed unless it is made in writing

within six years next after the end of the accounting period to which it relates

and if the Service disputes any such claim it shall give to the claimant notice

of refusal to admit the claim and the provisions of sections 328 and 329 of this

Part shall apply.

(2)  The Service shall give a certificate of the amount of any tax to be repaid under

any of the provisions of this Act or under any order of a court of competent

jurisdiction and upon the receipt of the certificate, the Accountant-General of

the Federation shall cause repayment to be made in conformity with provision

of the certificate. 178

341.    Penalty for Offences

(1)  Any person  who fails to comply with the provisions of this Act or any rule

made under this Act for which no other penalty is specifically provided, shall

be liable to a fine of N1,500,000

(2)  A person who commits an offence under subsection (1) of section 323 of this

Act, or where such offence is a failure to submit a return under section 324 of

this Act or is a failure, arising from the provisions of this Part, to deliver

accounts, particulars or information or to keep records required, a further sum

of N300,000.00 for each and every day during which such offence or failure

continues, and in default of payment to imprisonment for six months, the

liability for  the additional sum to commence from the day following the

conviction, or from  such day thereafter as the court may order.

(3) A person who-

(a)  fails to comply with the requirements of a notice served on him under

this Part; or

(b)  having a duty so to do, fails to comply with the provisions of section

322 of this Act; or

(c)  without sufficient cause fails to attend in answer to a notice or

summons served on him under this Part or having attended fails to

answer any question lawfully put to him; or

(d)  fails to submit any return required to be submitted by section 323   of

this Act in accordance with the requirement of that section or in

accordance with section 325 of this Act, commits an offence.

342.    Penalty for making incorrect accounts

(1)  Every person who without reasonable excuse:

(a)  makes up or causes to be made up any incorrect accounts by omitting

or understating any profits or overstating any losses in the accounts; or

(b)  prepares or causes to be prepared any incorrect schedule required to

be prepared by section 322 of this Act by overstating any expenditure

or any incorrect statement or overstating any royalties or other sums or

by omitting or understating any amounts repaid, refunded, waived or

released; or

(c)  gives or causes to be given any incorrect information in relation to any

matter or thing affecting his liability to tax, commits an offence and

liable to a fine of N150,000.00 and to double the amount of tax which

has been undercharged in consequence of such incorrect accounts, 179

schedule, statement or information, or would have been so

undercharged if the accounts, schedule, statement or information had

been accepted as correct.

(2)  No person shall be liable to any penalty under this section unless the

complaint concerning such offence was made at any time within six years

after the end of the accounting period in respect of which the offence was

committed.

(3)  The Service may compound any offence under this section, and may before

judgment stay or compound any proceedings under this Act.

343.    False statements and returns.

(1)  Any person who:

(a) for the purpose of obtaining any deduction, rebate, reduction or

repayment in respect of tax for himself or for any other person, or who

in any return, account, particulars or statement made or furnished with

reference to tax, knowingly makes any false statement or false

representation, or forges or fraudulently alters or used, or fraudulently

lends, or allows to be used by any other person any receipt or token

evidencing payment of the tax under this Act; or

(b) aids, abets, assists, counsels, incites or induces any other person to:

(i)  make or deliver any false return or statement under this Act;

(ii)  keep or prepare any false accounts or particulars affecting tax;

or

(iii)  unlawfully refuse or neglect to pay tax;

commits an offence and liable to a fine of N150,000.00 and three times

the amount of tax for which the person assessable is liable under this

Act for the accounting period in respect of or during which the offence

was committed, or to imprisonment for six months, or to both fine and

imprisonment.

(2)  The Service may compound any offence under this section and with the leave

of the court may before judgment stay or compound any proceedings arising

from the implementation of this section.

344.    Penalty for failure to pay tax

(1)  Any person who being obliged to deduct any tax under this Act, but fails to

deduct, or having deducted, fails to pay to the Service within thirty days from

the date the amount was deducted or the time the duty to deduct arose, shall 180

upon determination by the Service, be liable to pay the tax withheld or not

remitted in addition to a penalty of  ten per cent of the tax withheld or not

remitted per annum and interest at the prevailing Central Bank of Nigeria

minimum re-discount rate.

(2)  Any person who continues to commit the breach referred to in subsection (1)

of this section beyond thirty days and after the determination by the Service

commits an offence and is liable on conviction  to imprisonment for a period of

not more than six months.

345.    Penalties for offences by authorised and unauthorised persons

(1) Any person who –

(a)  being a member of the Service charged with the due administration of

this Act or any consultant engaged in connection with the assessment

and collection of the tax who –

(i)  demands from any person an amount in excess of the

authorised assessment of the tax payable;

(ii)  withholds for his own use or otherwise any portion of the amount

of tax collected;

(iii)  renders a false return, whether verbal or in writing, of the

amount of tax collected or received by him;

(iv)  defrauds any person, embezzles any money, or otherwise uses

his position to deal wrongfully either with the Service or any

other individual; or

(b)  not being authorised under this Act to do so, collects or attempts to

collect the tax under this Act;

commits an offence and liable to a fine of N1,000,000.00  or to imprisonment

for three years or to both.

346.    Deduction of tax at source

(1) Income tax assessable on any company, partnership or person (whether or

not resident in Nigeria) who provides petroleum operation services and related

activities to a company carrying on upstream petroleum operations in Nigeria,

whether or not an assessment has been made, shall be recoverable from any

payment (whether or not made in Nigeria) made by any person to such

company, partnership or person.

(2) For the purpose of this section, the rate at which tax is to be deducted and the

nature of the activities and services for which a company making payment is 181

to deduct tax at the date when the payment is made or credited, whichever

first occurs, shall be as specified in any extant Government Notice .

(3) A company which has deducted tax under this section shall forward to the

Service the amount of tax deducted and a statement showing the name and

address of the person who suffered the tax deduction and the nature of

activities or services in respect of which any payment was made.

(4) Income tax recovered under the provisions of this section by deduction from

payments made to a company, partnership or person shall be set-off for the

purposes of collection against tax charged on such company, partnership or

persons by an assessment, provided that the total of such deductions shall

not exceed the  amount of the assessment.

347.    Tax to be payable notwithstanding any proceedings for penalties

The institution of proceedings for or the imposition of a penalty, fine or term of

imprisonment under this Act shall not relieve any person from liability to payment of

any tax for which the person is or may become liable.

348.    Prosecution to be with the sanction of the  Service

Subject to the provisions of the Constitution no prosecution in respect of an offence

under section 302, 343, 344, 345 or 346 of this Act may be commenced, except at

the instance of or with the sanction of the Service.

349.    Savings for criminal proceedings

The provisions of this Act shall not affect any criminal proceedings under any other

Act or law.

350. Restriction on effects of Personal Income Tax and other Acts

Tax shall not be charged under the provisions of the Personal Income Tax Act or any

other Act in respect of dividends paid out of any profits which are taken into account,

under the provisions of this Act, in the calculation of the amount of any chargeable

profits upon which tax is charged, assessed and paid under the provisions of this

Act.

351.    Double taxation arrangements with other territories

(1)  Where the Minister by order declares that arrangements specified in the order

have been made with the Government of  a  territory outside Nigeria with a 182

view to affording relief from double taxation in relation to tax imposed under

the provisions of this Act and any tax of a similar character imposed by the

laws of that territory, and that it is expedient that those arrangements should

have effect, the arrangements shall have effect notwithstanding anything in

any enactment.

(2)  The Minister may make rules for carrying out the provisions of any

arrangements having effect under this section.

(3)  An order made under the provisions of subsection (1) of this section may

include provisions for relief from tax for accounting periods commencing or

terminating before the making of the order and provisions as to income (which

expression includes profits) which is not itself liable to double taxation.

(4)  Any regulation, Order or rule made or deemed to have been by the Minister in

respect of any double taxation arrangement with the Government of any

territory outside Nigeria prior to the Effective Date shall continue to have effect

as if made pursuant to the provisions of this Part.

352.    Method of calculating relief to be allowed for double taxation

(1) The provisions of this section shall have effect where, under arrangements

having effect under section 353 of this Act, foreign tax payable in respect of

any income in the territory with the Government of which the arrangements

are made is to be allowed as a credit against tax payable in respect of that

income in Nigeria.

(2) In this section, the expression-  –

(a) “foreign tax” means any tax payable in that territory which, under the

double taxation arrangements, is to be allowed; and

(b) “income” means that part of the profits of any accounting period which

is liable to both tax and foreign tax, before the deduction of any tax,

foreign tax, credit therefore or relief granted under subsection (6) of this

section.

(3)  The amount of the credit admissible to any company under the terms of any

double taxation arrangement shall be set off against the tax chargeable upon

that company in respect of the income, and where that tax has been paid the

amount of the credit may be repaid to that company or carried forward against

the tax chargeable upon that company of any subsequent accounting period.

(4)  The credit for an accounting period shall not exceed whichever is the less of

the following amounts,  –

(a)  the amount of the foreign tax payable on the income; or183

(b)  the amount of the difference between the tax chargeable under this

Part (before allowance of credit under, any arrangements having effect

under section 353 of this Act) and the tax which would be so

chargeable if the income were excluded in computing profits.

(5)  Without prejudice to the provisions of subsection (4) of this section, the total

credit to be allowed to a company for any accounting period for foreign tax

under all arrangements having effect under section  Error! Reference source not

found. of this Act shall not exceed the total tax which would be ultimately borne

by that company, for that accounting period, if no such credit had been

allowed.

(6)  Where the income includes a dividend and under the arrangements foreign

tax not chargeable directly or by deduction in respect of the dividend is to be

taken into account in considering  the credit is to be given against tax in

respect of the dividend, the amount of the income shall be increased by the

amount of the foreign tax not so chargeable which falls to be taken  into

account in computing the amount of the credit.

(7) Where the amount of the foreign tax attributable to the income exceeds the

credit computed under subsection (4) of this section, then the amount of that

income, to be included in computing profits for any purposes of this Act other

than that of subsection (4) of this section, shall be taken to be the amount of

that income increased by the amount of the credit after deduction of the

foreign tax.

(8) Where –

(a) the arrangements provide, in relation to dividends of some classes, but

not in relation to dividends of other classes, that foreign tax not

chargeable directly or by deduction in respect of dividends is to be

taken into account in considering the credit  to be given against tax in

respect of the dividends; and

(b) a dividend is paid which is not of a class in relation to which the

arrangements provide, then, if dividend is paid to a company which

controls, directly or indirectly, not less than half of the voting power in

the company paying the dividends, credit shall be allowed as if the

dividend were a dividend of a class in relation to which the

arrangements provide.

(9)  Any claim for an allowance by way of credit shall be made not later than three

years after the end of the accounting period, and in the event of any dispute

as to the amount allowable, the Service shall give to the claimant notice of

refusal to admit the claim which shall be subject to appeal in like manner as

an assessment. 184

(10) Where the amount of any credit given under the arrangements is rendered

excessive or insufficient by reason of any adjustment of the amount of any tax

payable either in Nigeria or elsewhere, nothing in this Act limiting the time for

the making of assessments or claims for repayment of tax shall apply to any

assessment or claim to which the adjustment gives rise, being an assessment

or claim made not later than three years from the time when all such

assessments, adjustments and other determination have been made whether

in Nigeria or elsewhere, as are material in determining whether any, and if so,

the credit to be given.

(11)  Where a company is not resident in Nigeria throughout an accounting period

no credit shall be admitted in respect of any income included in the profits of

that company of that period.

353.    Procedure for amendment of Schedules

As from the effective date, the Minister may by order delete any of the powers or

duties specified in the Third Schedule or include therein additional powers or duties

and may do so by amendment of such Schedule or by substituting a new Schedule

therefore.

B.  COMPANIES INCOME TAX APPLICABLE TO UPSTREAM

PETROLEUM OPERATIONS

(1)  All companies, concessionaires, licensees, lessees, contractors and

subcontractors involved in upstream petroleum operations under this Act

shall be subject to tax under the  Companies Income Tax Act, Cap C21,

Laws of the Federation of Nigeria 2004.

(2)   Notwithstanding section 27 of the Companies Income Tax Act, Cap  C21,

Laws of the Federation of Nigeria 2004, any company involved in   both  upstream

petroleum operations and downstream petroleum  operations shall determine the

Companies Income Tax separately for:

(a)  upstream petroleum operations under this Act;  and

(b)  downstream petroleum operations under this Act.

(3)  In determining the Company Income Tax  payable, the Nigerian

Hydrocarbon Tax under this Act shall not be deductible. 185

(4)  Section 22 of the Companies Income Tax Act shall be amended by  replacing

subsection (1) of section 22 with the following:

“Where the Service is of the opinion that any disposition is not in fact given effect to

or that any transaction which reduces or would reduce the amount of any tax payable

is artificial or fictitious, the Service may disregard any such disposition and direct that

such adjustments shall be made as respects liability to tax as the Service considers

appropriate in accordance with its transfer pricing rules, so as to counteract the

reduction of liability to tax effected, or reduction which would otherwise be effected,

by the transaction and the companies concerned shall be assessable accordingly. In

this subsection, the expression “disposition” includes any trust, grant, covenant,

agreement or arrangement.

(5)   Section 24 of the Companies Income Tax Act shall be amended by inserting a

new  paragraph (j) as follows –

“any rents and royalties payable on Upstream Petroleum Operations” and by renumbering the existing paragraph (j) as (k).

(6)  Section 29 of the Companies Income Tax Act shall be amended by  replacing

subsection (3) with the following:

“The assessable profits of any company from any trade or business for the year of

assessment in which it commenced to carry on such trade or business (or in the

case of a company other than a Nigerian company, for the year of assessment in

which it commenced to carry on such trade or business in Nigeria) and for the

subsequent years shall be ascertained in accordance with the following provisions –

(a) for the first year the assessable profits shall be the profit from the   date of

commencement of  business to the end of the accounting  period in the preceding

year;

(b) for the second year the assessable profits shall be the profits for   the

accounting year following the  first year;

(c) for the third year and thereafter the assessable profits shall be  computed

in accordance with subsection (1) of this section for  the accounting year;

(7)  Section 31 of the Companies Income Tax Act shall be amended by  replacing

subparagraph (ii) of paragraph (a) of subsection (2) of section 31 with the following:

“a deduction under this section for any particular year of assessment shall not

exceed the amount, if any, of assessable profits, included in the total profits for that

year of assessment, from the trade or business in which the loss was incurred and

shall be made as far as possible from the amount of such assessable profits of the

first year of assessment after that in which the loss was incurred and, so far as it

cannot be so made, then from such amount of such assessable profits of the next

year of assessment, and so on;” 186

(8)   The incentives provided under Section 39 of the Companies Income Tax  Act

shall be available to:

(a)  companies engaged in export gas operations with respect to LNG;

(a) companies engaged in downstream gas distribution;

(b) companies operating  gas extraction facilities; and

(c) companies operating downstream crude oil processing facilities such as

refineries.

(9)  Under Section 39 of Companies Income Tax Act, companies engaged in

upstream gas operations shall be entitled to only the tax holiday  under,

provided the gas supply destination is  solely to the domestic market.

(10)  For purposes of computation, assessment and payment of Companies

Income Tax, companies engaged in upstream petroleum operations shall

apply the Nigerian Hydrocarbon Tax accounting periods on an actual year

basis and the procedures for paying tax estimates on a monthly  basis  in

anticipation of  paying  the balance of the full tax due  at the end of the

accounting period.

(11)   The Second Schedule of the Companies Income Tax Act Cap C21,  Laws of

the Federation of Nigeria 2004 shall be amended by adding   the definition of

Qualifying Upstream Petroleum Expenditure as follows:

“Qualifying Upstream Petroleum Expenditure” means  Qualifying

Expenditure as defined in Part VIII A of this Act.

(12)  The Second Schedule to the Companies Income Tax Act shall be   amended

by inserting below the word “Mining Expenditure” in Table I  (Initial Allowance)  and

Table II (Annual Allowances) with respect to Initial  and Annual Allowance, the

word “Qualifying Upstream Petroleum  Expenditure”, with an initial allowance of

“Nil” and annual allowances of   20%, with a retention of 1% in the last year until

the asset  is disposed.

(13)  The Second Schedule of the Companies Income Tax Act shall be   amended

by inserting a paragraph 7(3) stating the following:

“Where a licensee or lessee has entered into a contract pursuant to section

173 of the Petroleum Industry Act, and such contract provides for the transfer

of assets to such licensee or lessee by the contractor, such transfer shall be

valued as equal to the value of cost oil, cost gas or cost condensates paid for

such assets (“the deemed income”) and capital cost allowances shall  be

claimed against such deemed income in the hands of the licensee or lessee.

The contractor parties shall be entitled to deduct the expenditures for the 187

creation of assets to be owned by a licensee of a petroleum prospecting

licence or lessee of a petroleum mining lease.”

 

 

 

PART IX

 

REPEALS, TRANSITIONAL AND SAVINGS PROVISIONS

354. Repeals

(1)  From the Effective Date, the following enactments are repealed –

(a)  Associated Gas Re-injection Act, CAP  A25 Laws of the Federation of

Nigeria, 2004;

(b)  Motor Spirits (Returns) Act, CAP M20 Laws of the Federation of

Nigeria, 2004;

(c)  Petroleum Act, CAP P 10, Laws of the Federation of Nigeria, 2004;

(d)  Petroleum Products Pricing Regulatory Agency (Establishment) Act,

2003;

(e)  Petroleum Equalisation Fund (Management Board, etc.) Act, CAP P11

Laws of the Federation of Nigeria, 2004;

(f)  Petroleum (Special) Trust Fund Act, CAP P14 Laws of the Federation

of Nigerian, 2004; and

(g)  Petroleum Technology Development Fund Act, CAP P15 Laws of the

Federation of Nigeria, 2004.

(h) Deep Offshore and Inland Basin Production Sharing Act, CAP D3 Laws

of the Federation of Nigeria, 2004, except for sections 16 subsection

(1) and (2). 188

(i) Petroleum Profits Tax Act, CAP P13 Laws of the Federation of Nigeria,

2004.

(3) Any subsidiary legislation made pursuant to any of the  enactments repealed  in

subsection (1) of this section shall, where it is not inconsistent with the provisions

of this Act, remain in operation until it is revoked or replaced by  subsidiary

legislation made under this Act, and shall be deemed for all purposes to have

been made under this Act.

(4)   The NNPC Act, NNPC (Projects) Act and NNPC Amendment Act shall be deem

to be repeal on the date that the Minister signifies by legal notice in the Gazette

that the assets and liabilities of NNPC are fully vested in successor entities.

355.    Saving provisions

(1)  Any licence or  lease granted under the Oil Minerals Act, 1958 and the

Petroleum Act 1969 shall remain effective, subject to the provisions of this Act

except that oil prospecting licences from  the  Effective Date, shall not be

subject to the provisions of sections 172 and 178 and for such licences, the

terms with respect to the oil prospecting licences regarding duration of the

licence, work program, commitments and relinquishments shall continue

unaltered for a period up to the tenth anniversary of the granting of such

licence;

(2)  Any company granted a licence, permit or other right in respect of activities in

the downstream petroleum, sector   downstream, petroleum sector including

refineries, pipelines, storage, transportation, distribution and retail, under any

law in force at the time in Nigeria, shall within three months from the Effective

Date apply to the Agency for the issuance of the appropriate licence under

this Act, and pending the issuance of the  appropriate licence, the prior

licence, permit, or right shall continue in force as if it had been issued under

the provisions of this Act.

(3)  Any other licence, permit or other right in respect of any sector of the

petroleum industry in Nigeria to which subsections (1) and (2) of this section

do not apply, which were granted by the Department of Petroleum Resources

or the Petroleum Products Pricing and Regulatory Authority, as the case may

be, and which is still valid on the Effective Date, shall continue in force for the

remainder of its duration as if it had been issued under this Act.

(4)  Any tariff, price, levy, or surcharge which was payable to the Department of

Petroleum Resources or the Petroleum Products Pricing and Regulatory

Authority prior to the Effective Date shall continue in force until the expiration

of the term of the said tariff, price, levy, or surcharge, or until alternative

provisions are made pursuant to the provisions of this Act or any regulations

made under it, whichever is earlier. 189

(5)   Within three months from the Effective Date, the Minister on the advice of the

Inspectorate,  or the Agency,  or NNPC as the case may be, may make any

further transitional and savings provisions as are consistent with the

transitional and savings provisions in this Act

356.    Transfer of staff, etc

(1) All staff performing duties relating to upstream petroleum operations of the

Department of Petroleum Resources in the Ministry of Petroleum Resources on

the Effective Date shall be deemed to have transferred their services  to the

Inspectorate with effect from that date on terms and conditions no less favourable

than those obtained immediately before the Effective Date, unless they indicate

otherwise before the expiration of three months after the Effective Date.

(2) From the Effective Date, the staff of the former Petroleum Products Pricing

Regulatory Authority shall be regarded as having transferred their services to the

Agency with effect from that date on terms and conditions no less favourable than

those obtaining immediately before the Effective Date.

(3) From the date of vesting of the assets and liabilities of NNPC in the National Oil

Company, staff performing functions relating to those assets and liabilities shall

be regarded as having transferred their services to the National Oil Company.

(4) From the date of vesting of the assets and liabilities of NNPC in the National Gas

Company, the staff of the Nigerian Gas Company performing functions relating to

such assets being vested in the National Gas Company shall be regarded as

having transferred their services to the National Gas Company Plc.

(5) From the date of vesting of the assets and liabilities of NNPC in the Management

Company, the staff of the NNPC performing functions relating to such assets and

liabilities vested in the Management Company Limited shall be regarded as

having transferred their service to the Management Company.

(6) Any transfer of services by virtue of the provision of subsections (1) and (2) of this

section shall be regarded as continuous for the purpose of pension and gratuity.

357.    Cessation of employment

Every person whose service has been transferred to the Inspectorate or the Agency

by virtue of the provision of section 357 of this Act shall be deemed to be employed

by the Inspectorate or the Agency as the case may be with effect from the Effective

Date and shall cease to be in the employment of the  former Petroleum Pricing

Regulatory Authority and the Department of Petroleum Resources.   190

358.    Application of subsisting contracts

(1) The provisions of this section shall apply to –

(a) all contracts or other instruments subsisting before the Effective Date

entered into by the former Department of Petroleum Resources in

relation to its downstream petroleum operations;

(b) all contracts or other instruments subsisting before the Effective Date

entered into by the Petroleum Products Pricing Regulatory Agency.

(2)  By virtue of this Act there is vested in the Agency as from the Effective Date

and without further assurance all assets, funds, resources and other

moveable or immovable property relating to the downstream petroleum

operations functions which immediately before the Effective Date were vested

in the Department of Petroleum Resources.

(3)  Any proceeding or cause of action pending or existing or which could have

been taken by or against the Department of Petroleum Resources of the

Ministry of Petroleum Resources immediately before the effective date in

respect of any such right, interest, obligation or liability of the Petroleum

Agency or the Department of Petroleum Resources may be commenced,

continued or enforced or taken by or against the Agency as if this Act had not

been made.

(4)   By virtue of this Act there is vested in the Agency as from the Effective Date

and without further assurance all assets, funds, resources and other

moveable or immovable property which immediately before the effective date

were vested and held by the Petroleum Products Pricing and Regulatory

Authority.

(6)  As from the Effective Date:

(a)  the rights, interest, obligations and liabilities of the Petroleum Products

Pricing and Regulatory Authority existing immediately before the

Effective Date under any contract or instrument at law or in equity

which shall have been held on behalf of or have accrued to or have

been incurred for its own benefit or use, shall by virtue of this Act be

assigned to and vested in the Downstream Petroleum Regulatory

Agency;

(b)  any such contract or instrument as is mentioned in sub-paragraph (a)

of the subsection, shall be of the same force and effect against or in

favour of the Downstream Petroleum Regulatory Agency and shall be

enforceable as fully and effectively as if instead of the Petroleum

Products Pricing and Regulatory Authority, the Inspectorate had been

named therein or had been a party thereto; and 191

(c) Any proceeding or cause of action pending or existing or which could

have been taken by or against the Department of Petroleum Resources

of the Ministry of Petroleum Resources immediately before the effective

date in respect of any such right, interest, obligation or liability of the

Petroleum Agency or the Department of Petroleum Resources may be

commenced, continued or enforced or taken by or against the Agency

as if this Act had not been made.

(c)  any proceeding or cause of action pending or existing or which could

have been taken by or against the Petroleum Products Pricing and

Regulatory Authority immediately before the effective date in respect of

any such rights, interest, obligation or liability of the Petroleum

Products Pricing and Regulatory Authority, may be commenced,

continued or enforced or taken by or against the Inspectorate as if this

Act had not been made.

(7) As from the Effective Date:

(a)  the rights, interest, obligations and liabilities relating to upstream

functions of the Department of Petroleum Resources existing

immediately before the Effective Date under any contract or instrument

at law or in equity which shall have been held on behalf of or have

accrued to or have been incurred for its own benefit or use, shall by

virtue of this Act be assigned to and vested in the Upstream Petroleum

Inspectorate;

(b)  any such contract or instrument as is mentioned in sub-paragraph (a)

of this subsection, shall be of the same force and effect against or in

favour of the Upstream Petroleum Inspectorate and shall be

enforceable as fully and effectively as if instead of the Department of

Petroleum Resources, the Inspectorate had been named therein or had

been a party thereto; and

(c) Any proceeding or cause of action pending or existing or which could

have been taken by or against the Department of Petroleum Resources

of the Ministry in relation to its upstream petroleum functions

immediately before the Effective Date in respect of any such right,

interest, obligation or liability of the Department of Petroleum

Resources may be commenced, continued or enforced or taken by or

against the Inspectorate as if this Act had not been made.

360. Delisting of Subsidiaries192

The subsidiaries of NNPC listed under the relevant Schedule to the Public

Enterprises  (Privatisation and Commercialisation) Act 2004 shall be delisted

from the schedule and as from the effective date the Power of Attorney  earlier

donated to  the Bureau of Public Enterprises in respect of the  subsidiaries   of

NNPC shall be  vacated and shall have no force or effect.

361.   Other Institutions

(1) The Petroleum Training Institute, established by the Petroleum

Training Institute Act, CAP. 16 of the Laws of the Federation of

Nigeria 2004 shall remain as a parastatal supervised by the Minister

and shall have the objective of delivering quality education and

providing efficient technological manpower for the needs of Nigerian

and African Petroleum Industries in accordance with its enabling

legislation.

(2) The Nigerian Content Development and Monitoring Board, established by the

Nigerian Oil and Gas Industry Content Development Act, 2010 shall remain as a

parastatal under the Minister and shall have the objective of developing Nigerian

content in the upstream petroleum sector in accordance with its enabling

legislation.

362.    Interpretation

In this Act unless the context otherwise requires –

“accounting date” means the date to which a company usually prepares its

accounting statement;

“accounting period”, in relation to a company engaged in petroleum operations;

means –

(a)  a period of one year commencing on 1st January and ending on 31st

December of the same year; or

(b)  any shorter period commencing on the day the company first makes a sale or

bulk disposal of chargeable oil or chargeable natural gas, or chargeable

condensate or bitumen domestic  or export or both, and ending on 31st

December of the same year; or

(c)  any period of less than a year being a period commencing on 1st  January of

any year and ending on the date in the same year when the company ceases

to be engaged in upstream petroleum operations, and  193

(d)  in the event of any dispute with respect to the date of the first sale of

chargeable oil, chargeable natural gas, chargeable condensate or bitumen

with respect to the date on which the company ceases to be engaged in

upstream petroleum operations, the Minister shall determine the same and no

appeal shall lie therefrom;

“Act” means the Petroleum Industry Act, 2012;

“adjusted profit” means adjusted profit as stated in Part VIII of this Act;

“aggregate gas price” means the calculated volume-based weighted average price

for gas in a particular month by the three consuming sectors of power generation,

gas based industries and local distribution companies;

“assessable profit” means assessable profit as stated in Part VIII of this Act;

“assessable tax” means assessable tax as stated in Part VIII of this Act;

“associated gas” means

(a)  natural gas, commonly known as gas-cap gas, which overlies and is  in

contact with crude oil in a reservoir; and

(b)  solution gas dissolved in crude oil in a reservoir and emerging from the fluid

as pressure drops;

“barrel” means a barrel of 42 United States gallons;

“barrel of oil equivalent” means a unit of energy that is equal to 5.8 × million BTU;

“benchmark prices” means:

(a)  a price  based on globally benchmarked indices set by the Inspectorate  as a

basis for comparison; or

(b)  a price based on globally benchmarked indices set by the Agency  to be used

as a reference point for petroleum products;

“Board” means the governing board of any of the institutions or entities that is the

subject matter of the Part within which the word has been used, unless it is

specifically stated otherwise;

“British Thermal Unit” or “BTU” means the calculation of the amount of energy

needed to heat 1 pound of water by 1 degree Fahrenheit and 1 BTU = 1.06

Kilojoules;

“chargeable bitumen” in relation to a company engaged in upstream petroleum

operation means bitumen won or obtained by the company from such operations; 194

“chargeable condensates” in relation to a company engaged in upstream petroleum

operation means condensate won or obtained by the company from such operations;

“chargeable natural gas”  in relation to a company engaged in upstream petroleum

operations means natural gas actually disposed by such company to a customer,

based on arm’s length gas sales purchase contract (GSPA) in respect of which

revenue is earned.;

“chargeable oil”  in relation to a company engaged in upstream Petroleum

operations, means  crude oil won or obtained by the company from such operations;

“chargeable profit” means chargeable profit as stated in Part VIII of this Act;

“chargeable tax” means chargeable tax as stated in Part VIII of this Act;

“commercial discovery” means a discovery of a petroleum accumulation within a

petroleum prospecting licence or petroleum mining lease which, in the sole opinion of

the licensee, can be economically developed and operated, taking into account all

relevant economic, funding, fiscal and risk considerations normally applied for the

evaluation;

“commercial opportunity” means a petroleum discovery which can be economically

developed and operated, taking into account all relevant economic, funding, fiscal

and risk considerations normally applied for the evaluation and is expected to

provide a reasonable rate of return to the investor;

“commercial production” means the production of petroleum in such quantities which

make the exploitation of the field economical for the licensee;

“company” means any  entity incorporated under any law in force in Nigeria or

elsewhere;

“Compressed Natural Gas” or “CNG” means natural gas pressurized to 200 – 248

bar to reduce its volume and comprises mainly methane;

“condensate” refers to a portion of natural gas of such composition that are in the

gaseous phase at temperature and pressure of the reservoirs, when produced and in

the liquid phase at surface pressure and temperature;

“continuous production flaring” means the long-term flaring of natural gas that is

associated with the process of crude oil production and that is not utilized for on-site

or off-site energy needs, recovered for local or international gas markets, or reinjected;

“contract area” refers to the area of – 195

(i)  a PPL and any PML derived therefrom; or

(ii)  an OPL and any PPL derived therefrom; or

(iii)  an OML and any PML derived therefrom plus any contractual consolidated

areas as defined in the respective production sharing contracts;

“crude oil” means any oil (other than oil extracted by destructive distillation from coal,

bituminous shales or other stratified deposits) won in Nigeria either in its natural state

or after the extraction of water, sand or other foreign substance therefrom but before

the crude oil has been refined or otherwise treated;

“decommissioning” or “abandonment” refers to the approved process of cessation of

operations of oil and gas wells, installations and structures, including shutting down

an installation’s operation and production, total or partial removal of installations and

structures where applicable, chemicals, radioactive and all such other materials

handling, removal and disposal of debris and removed items, environmental

monitoring of the area after removal of installations and structures;

“deep water”  means areas offshore Nigeria with a water depth in excess of 200

meters;

“Domestic Gas Aggregator” has the meaning as specified in Part V of this Act;

“Domestic Gas Supply Obligation” has the meaning as specified in Part V of this Act;

“downstream gas distribution and operations” comprises the activities of processing,

distribution and supply of gas to customers, construction and operation of city-gate

reception terminals for natural gas and gas or ethane distribution pipelines, and the

sale, marketing and delivery to final consumers of gas and compressed natural gas;

“downstream gas sector” comprises the sector of the Nigerian economy that consist

of downstream gas distribution and operations within Nigeria;

“downstream petroleum industry ” means the aggregation of companies duly

licensed to conduct downstream petroleum product operations and downstream gas

distributions  and operations in Nigeria;

“downstream petroleum operations” means activities downstream of the

measurement points of petroleum mining leases or unrelated to petroleum mining

leases including the construction and operation of natural gas transport or

transmission pipelines, including the related compressor stations; construction and

operations of facilities to compress, transport and deliver compressed natural gas

(“CNG”), construction and operations of gas processing facilities and central

processing facilities, producing ethane, propane, butane and natural gas liquids and

marketable natural gas; construction and operation of underground or above ground

facilities for the storage of natural gas; ethane extraction plants; construction and

operation of gas to liquids (“GTL”) plants; construction and operation of liquified 196

natural gas (“LNG”) plants, and related LNG terminals; acquisition, operation or

chartering of LNG tankers for coastal and marine transportation; other construction

and activities incidental thereto and related administration and overhead ; purchase

and sale, trading, bartering, aggregating and marketing of natural gas transported by

pipelines, compressed natural gas, liquified natural gas, methane, ethane, propane,

butane, natural gas liquids and liquids from GTL plants with respect to wholesale

customers; purchase, distribution and supply of marketable gas to small customers,

construction and operation of city-gate reception terminals for natural gas and gas or

ethane distribution pipelines, and the sale, marketing and delivery of gas to small

customers; construction and operation in Nigeria of facilities, product pipelines, tank

farms and stations for the distribution, marketing and retailing of petroleum products,

and other construction and activities incidental thereto and related administration and

overhead, purchase of petroleum products and sale of petroleum products on a retail

basis;

“downstream petroleum product sector” comprises the sector of the Nigerian

economy that consist of the sale and distribution of petroleum products, as well as

product pipelines and storage within Nigeria;

“downstream product operations” means construction and operation in Nigeria of

facilities, product pipelines, tank farms and stations for the distribution, marketing

and retailing of petroleum products,  and other construction and activities incidental

thereto and related administration and overhead;

“dry gas” means gas containing less than  five barrels of condensate per million

standard cubic feet;

“disposal” and “disposed of”, in relation to chargeable oil owned by a company

engaged in upstream petroleum operations, mean or connote respectively:

(a)  delivery, without sale, of chargeable oil  to; and

(b)  chargeable oil  delivered, without sale, to,

a refinery or to an adjacent storage tank for refining by the company

“disposal” and “disposed of”, in relation to chargeable natural gas  owned by a

company engaged in petroleum operations, mean or connote respectively:

(a)  delivery, without sale, of chargeable natural gas  to; and

(b)  chargeable natural gas delivered, without sale, to,

a gas processing plant or an LNG plant.

“Effective Date” means the date on which this Act comes into force; 197

“energy efficiency” means a change to energy use that results in an increase in net

benefits per unit of energy;

“enforcement order” means an order issued by the Inspectorate , or the Agency

under this Act;

“Exclusive Economic Zone” shall have the same meaning as defined in the Exclusive

Economic Zone Act Cap. 350, Laws of the Federation of Nigeria, 2004;

“explore” means to make a preliminary search by surface geological and geophysical

methods, including aerial surveys but excluding drilling below 91.44 metres;

“field” includes an area consisting of a single reservoir or multiple reservoirs all

grouped on, or related to, the same individual geological structural feature or

stratigraphic condition, the surface area, it may refer to both the surface and the

underground productive formations;

“field development plan” means a plan, as amended from time to time, for a field to

develop the discovered petroleum which plan, shall be submitted to the Inspectorate

for approval;

“fiscalised crude” means the net quantity of crude oil or condensate produced at the

measurement point  excluding solid and liquid impurities of the crude, or the total

quantum of crude oil at standard temperature and pressure that is produced and

metered at the measurement point  or at the delivery point to the refinery in Nigeria;

“fiscalised natural gas” means the net quantity of gas delivered at the fiscal sales

point;

“fiscal rent” means the aggregation of royalty, Nigerian Hydrocarbon Tax and

Companies Income Tax obligations arising from upstream petroleum operations;

“fiscal sales point” means for oil and condensate, the fiscal metering point where title

transfers or is deemed to have transferred at an export terminal, Floating Production

Storage and Offtake (‘FPSO’) or a refinery inNigeriaand for gas, it means the fiscal

metering point where title transfers or is deemed to have transferred at the point of

sale;

“Force Majeure” includes-

(a) acts of war (whether declared or not), invasion, armed conflict, act of foreign

enemy or blockade in each case occurring within or involving Nigeria;

(b) acts of rebellion, riot, civil commotion, strikes of a political nature, act or

campaign of terrorism, or sabotage of a political nature in each case occurring

within Nigeria;

(c) a change in law; 198

(d) interruption resulting from force majeure of utilities or infrastructure necessary

to operate the oil assets;

(e)  action or failure to act by a Governmental entity (which includes any

governmental authorization ceasing to remain in full force and effect; or is not

issued or renewed upon application having been properly made); and

(f)  boycott, sanction or embargo imposed by countries where equipment is

sourced during the period up to and including but not after the start up of

operations in Nigeria or on equipment specified in  construction contracts;

“frontier acreages”  means any or all licences or leases located in an area defined as

frontier in a regulation issued by the Minister in charge of petroleum matters

pursuant to this Act ;

“gas” or “natural gas” means all gaseous hydrocarbons, and all substances

contained therein, as exists  in  their natural state in strata, associated or not with

crude oil, and are in a gaseous state upon production from a reservoir and excludes

condensates;

“gas flaring” means any flaring of natural gas associated with the process of oil

production, and includes continuous production flaring but excludes safety flaring

and non-continuous production flaring  and analogous expressions, such as “gas

flare”, ”flaring of gas”, “flare gas” shall have the same meaning as “gas flaring”;

“Gazette” means the Official Gazette of the Federal Government of Nigeria;

“good oilfield practice” means generally the reasonable and prudent diligent use of

policies, procedures, methods, equipment and materials that result in effective and

efficient exploration, appraisal and development of petroleum including optimum

recovery of petroleum from a discovery area with minimal impact on the environment

as permitted and use of efficient and effective practices for transforming produced

petroleum into marketable form and delivering it to the market, having due regard for

safety and other factors and means in particular, knowledge of and compliance with

the latest standards developed by relevant professional institutions including but not

limited to:

(a)  the American Gas Association (AGA);

(b)  the American Petroleum Institute (API);

(c)  the American Society of Mechanical Engineers (ASME);

(d)  the American Society for Testing of Materials (ASTM);

(e)  the British Standard Institute (BSI);

(f)  the International Organisation for Standardisation (ISO); and199

(g)  any other organisation deemed acceptable by the Inspectorate .

“Government” means the government of the Federal Republic of Nigeria;

“Court” means Federal High Court in Nigeria within whose jurisdiction –

(a)  in relation to any offence under this Act, the place is situated where such

offence is, for the purposes of this Act, deemed to have occurred;

(b)  in relation to any suit for tax or appeal against an assessment of tax, the place

is situated where the return under section….. of this Act was submitted or

where the assessment of the tax was made as the case may be;

(c)  in relation to any direction under section ….  of this Act, the place is situated

from which the direction was issued; and

(d)  in relation to any claim or other matter which is subject to appeal in like

manner as an assessment, or to which the provisions of section  of this Act

apply with any modifications, the place is situated from which the claim or

other matter was refused by the  Service;

“indigenous petroleum company” means a company:

(a)  engaged in the exploration for and production of petroleum of which fifty-one

per cent or more of its shares are beneficially owned directly or indirectly by

Nigerian citizens or associations of Nigerian citizens;

(b)  which meets the requirements of any guidelines or regulations that may be

issued by the Inspectorate or the Agency; and

(c)  which is accredited as an indigenous petroleum company by the Agency

provided that a company listing on any stock of exchange in Nigeria with a

majority of Nigerian directors shall be deemed to   qualify as an indigenous

petroleum company in Nigeria ;

“industry” means the petroleum industry in Nigeria;

“Inland Basin” means any of the following basins, namely; Anambra, Benin, Benue,

Chad, Bida, Dahomey, Gongola, Sokoto and such other basins as may be

determined from time to time, by the Minister;

“intangible drilling costs” means all expenditure for labour, fuel, repairs,

maintenance, hauling, and supplies and materials (not being supplies and materials

for well cement, casing or other well fixtures) which are for or incidental to drilling,

cleaning, deepening or completing wells or the preparation thereof incurred in

respect of: 200

(a)  determination of well locations, geological studies,  topographical and

geographical surveys preparatory to drilling;

(b)  drilling, shooting, testing and cleaning wells;

(c)  cleaning, draining and leveling land, road building and the laying of

foundations;

(d)  erection of rigs and tankage assembly and installation of pipelines and other

plant and equipment required in the preparation or drilling of wells producing

petroleum;

“LIBOR” means, as of any date of determination, the per annum rate of interest,

based on a three hundred  and sixty (360) day year, rounded downwards, if

necessary, to the nearest whole multiple of one-sixteenth of one percent (l/16th%),

determined as the simple average of the offered quotations appearing on the display

referred to as the “LIBOR Page” (or any display substituted therefore) of Reuters

Monitor Money Rates Service or, if such “LIBOR Page” shall not be available, the

simple average of the offered quotations appearing on page 3750 of the AP/Dow

Jones Telerate Systems Monitor (or any page substituted therefore) for deposits in

U.S. Dollars for a three month period, at or about 11:00 a.m. (London, England time)

on the first London Banking Day of the calendar quarter in which the date of

determination occurs (or, if the first day of such calendar quarter in which the date of

determination occurs is not a London Banking Day, the immediately preceding

London Banking Day).  If neither such “LIBOR Page” nor such page 3750 or any

successor page is available, or if for any reason a rate of interest cannot be

determined as aforesaid, then the parties shall designate an alternative mechanism

consistent with Eurodollar market practices for determining such rate.  For purposes

of this definition, a “London Banking Day” is a day on which dealings in deposits in

Dollars are transacted on the London interbank market;

“Liquefied Natural Gas” or “LNG” means natural gas in its liquid state at

approximately atmospheric pressure;

“local distribution zone” means an authorized area as specified in regulations issued

under this Act, within which one distributor of downstream natural gas may operate;

“loss” means a loss ascertained in like manner as an adjusted profit;

“Marginal field” means an oil or gas field as defined in pursuant to this Act;

“measurement point” means a point at which petroleum is measured pursuant to this

Act;

“Minister” means the Minister in charge of petroleum resources and overseeing the

petroleum industry in Nigeria;

“Ministry” means the Ministry of Petroleum Resources; 201

“MMbtu” means one million BTU;

“MMscf” means one million standard cubic feet;

“National Gas Master Plan” has the meaning as specified in section …;

“National Oil Company” has the meaning as specified in section ….;

“natural gas liquids” or “NGL” means hydrocarbons liquefied at the surface in

separators, field facilities or in gas processing plants and include but are not limited

to ethane, propane, butanes, pentanes, and natural gasoline  and may or may not

include condensate;

”network code” has the meaning as specified in section 246;

“Nigeria” includes the submarine areas beneath the territorial waters of Nigeria and

the submarine areas beneath any other waters which are or at any time shall in

respect of mines and minerals become subject to the legislative competence of the

National Assembly;

“Nigerian Content” has the meaning as defined in the Nigerian Oil and Gas Industry

Content Development Act, 2010;

“Nigerian company” means a company incorporated under the laws of Nigeria;

“Nigerian Hydrocarbon Tax” or “NHT” has the meaning as specified in Part VIII of this

Act;

“non-associated gas” means natural gas accumulation which does not occur with

crude oil;

“non-continuous production flaring” means the flaring of gas streams that may result

from short-term releases, including but not limited to pilot flaring, short-term well

testing, commissioning of facilities, emergencies, equipment or compressor start-ups

and shutdowns, equipment failure; 202

“non-productive rents” means and includes the amount of any rent as to which there

is provision for its deduction from the amount of any royalty under a petroleum

prospecting licence or petroleum mining lease to the extent that such rent is not so

deducted;

“official selling price” means the price at which comparable crude oil or condensate

of similar quality could be sold on similar terms at similar times by parties under no

compulsion to buy or sell and whereby none of such parties exerts or is in a position

to exert influence on the other party having regard to all relevant factors;

“Oil and Gas Policy” means the policy of the government for the time being in force

in the petroleum sector;

“Oil Mining Lease” means a lease granted to a company, under the Minerals Act or

the Petroleum Act, CAP N12, LFN 2004 for the purpose of winning petroleum or any

assignment of such lease;

“Oil Prospecting Licence” means a licence granted to a company, under the Minerals

Act or this Act, for the purpose of prospecting for petroleum, or any assignment of

such licence;

“person” means any individual, company or other juristic person;

“petroleum”  means hydrocarbons and associated substances as exist in its natural

state in strata, and includes crude oil, natural gas, condensate, bitumen and mixtures

of any of them, but does not include coal and tar sands;

“Petroleum Exploration Licence” or “PEL” means a licence granted to a company

pursuant to section 172 of this Act;

“petroleum exploration operations” means any geological, geophysical, geochemical

and other surveys and any interpretation of data relating thereto, and the drilling of

such shot holes, core holes, stratigraphic tests, exploration wells for the discovery of

petroleum, appraisal of discoveries and other related operations;

“Petroleum Industry Act” refers to this Act;

“Petroleum Mining Lease” or “PML” means a lease granted to a company pursuant

to section 172 of this Act;

“upstream petroleum operations” means the winning or obtaining and transportation

of  petroleum, chargeable oil or chargeable natural gas chargeable condensate or

bitumen in Nigeria by or on behalf of a company for its own account including

production sharing contractors, by any drilling, mining, extracting or other like

operations or process, not including refining at a refinery, in the course of a business

carried on by the company engaged in such operations, and all operations incidental

thereto and any sale of or any disposal of chargeable oil or chargeable natural gas or

chargeable condensate or bitumen by or on behalf of the company; 203

“petroleum products” include motor spirit, gas oil, black oil, diesel oil, automotive gas

oil, fuel oil, aviation oil, kerosene, liquefied natural gas, compressed natural gas,

natural gas liquids, liquefied petroleum gases and any lubrication oil or grease or

other lubricant;

“petroleum prospecting licence” or “PPL” means a licence pursuant to section 172  of

this Act;

“pilot flaring” means the continuous low volume flaring, not exceeding one million

standard cubic feet per day, which is required as part of reasonable, prudent and

good oil field practice to avoid venting of gas during any emergency discharge at the

flare tip;

“production allowance” means an allowance provided for under the Third Schedule

to this Act;

“profits” means profits for the purpose of Part VIII of this Act;

“refining company” means a body corporate having been licensed by the appropriate

authorities to either take over an existing refinery or refineries at the inception of this

Act, or to establish new refineries in Nigeria;

“regulations” mean rules or order having force of law issued  by the Minister in

accordance with the provisions of this Act;

“rent” includes any annual or other periodic charge made in respect of a licence

granted under this Act;

“resident in Nigeria”, in relation to a company, means a company the control and

management of the business of which are exercised in Nigeria;

“royalties” means and includes—

(a) the amount of any rent as to which there is provision for its deduction from the

amount of any  revenue under an Petroleum  Prospecting Licence or Petroleum

Mining Lease to the extent that such rent is so deducted; and

(b) the amount of any royalties payable under any such licence or lease less any rent

deducted from those royalties;

“safety flaring” means the flaring of natural gas that occurs because of a temporary

or permanent lack of adequate gas processing facilities to prevent gas venting and

injuries to people, equipment and the environment during process upsets, testing or

commissioning;

“Service” means the Federal Inland Revenue Service; 204

“shallow water”  means areas in the offshore of Nigeria up to and including a water

depth of 200 meters;

“significant gas discovery” means a discovery of natural gas that is substantial in

terms of reserves and is potentially commercial, but cannot be declared commercial

for one or more of the following reasons:

(a) no markets or natural gas within Nigeria;

(b) export markets need to be identified and developed;

(c) no pipeline, processing or liquefaction capacity is available in existing systems

where commercial conditions indicate the best option for development is

based on future expansion of such systems or use of such systems when

capacity will become available in the future; or

(d) where the natural gas discovery would only be commercial when jointly

developed with other existing natural gas discoveries; or potential future

natural gas discoveries.

“standard cubic feet” means, in relation to natural gas, the quantity of dry ideal gas at

a temperature of sixty degrees Fahrenheit and a pressure of fourteen decimal six

nine six (14.696) pounds per square inch absolute contained in a volume of one

cubic foot;

“standards” means limits made binding through laws, regulations or guidelines which

must be observed within the appropriate regulatory framework in all cases where

they are applicable;

“State” means the sovereign State of the Federal Republic of Nigeria, except where

the context so admits or where it is specifically stated to mean a State of the

Federation;

 

“tax” means chargeable tax;

“ultra-deep water” means areas offshore Nigeria with a water-depth in excess of

2,500 metres;

“uncommitted capacity” means capacity that is:

(a)  not contractually committed to a party;

(b)  not conditionally assigned by means of an arm’s length option agreement to a

party;

(c)  not demonstrably planned to be utilised on the basis of an approved utilisation

plan;

“upstream” refers to all activities entered into for the purpose of finding and

developing petroleum and includes all activities involved in exploration and in all 205

stages through, up to the production and transportation of petroleum from the area of

production to the fiscal sales point  or transfer to the downstream sector;

“upstream crude oil operations” means the winning or obtaining of crude oil in Nigeria

by or on behalf of a company on its own account for commercial purposes and shall

include any activity or operation related to crude oil that occurs up to fiscal sales

point or transfer to the downstream sector;

“upstream gas operations” means the winning or obtaining of natural gas in Nigeria

by or on behalf of a company on its own account for commercial purposes and shall

include any activity or operation related to natural gas, including but not limited to the

treatment of gas, that occurs up to the fiscal sales point or transfer to the

downstream sector;

“upstream petroleum operations” means upstream gas operations and upstream

crude oil operations;

“U.T.M” means Universal Transverse Mercator co-ordinate system.

363. Short title

This Act may be cited as the Petroleum Industry Act, 2012.

FIRST SCHEDULE

[Section 7 (2).]

RIGHTS OF PRE-EMPTION

1. The Minister shall have the right to require the holder of any licence or lease granted

under this Act (referred to in this Schedule  as “the licensee or lessee”) to – 206

(a) provide for the Federal Government, to the extent of any refinery or petroleum

products storage capacity he may have in Nigeria, petroleum products

complying with specification given by the Minister; or

(b) deliver to any person holding a licence to operate a refinery, such quantity and

quality of crude oil as may be specified by the Minister to the extent that the

licensee or lessee has crude oil of that quantity and quality.

2. The licensee or lessee shall use his best endeavours to increase so far as possible

with his existing facilities, the supply of petroleum or petroleum products, or both, for

the Federal Government to the extent required by the Minister.

3. The licensee or lessee shall, with all reasonable expedition and so as to avoid

demurrage on the vessels conveying the same, use his best endeavours to deliver

all petroleum or petroleum products purchases by the Minister under the right of preemption in such quantities, and at such places of shipment or storage in Nigeria, as

may be determined by the Minister.

4. If a vessel employed to carry petroleum or petroleum products pursuant to paragraph

3 of this Schedule is detained on demurrage at the port of loading, the licensee or

lessee shall pay the amount due for demurrage according to the terms of the charterparty or the rates of loading previously agreed by the licensee or lessee, unless the

delay is due to causes beyond the control of the licensee or lessee.

5. Any dispute which may arise as to whether a delay is due to causes beyond the

control of the licensee or lessee shall be settled by agreement between the Minster

and the licensee or lessee or, in default of agreement, by arbitration.

6. The price to be paid for petroleum or petroleum products taken by the Minister in

exercise of the right of pre-emption shall be –

(a) the reasonable value at the  point of delivery, less discount to be agreed by

both parties; or

(b) if no such agreement has been entered into prior to the exercise of the right of

pre-emption, a fair price at the port of delivery to be settled by agreement

between the Minister and the licensee or lessee or, in default of agreement,

by arbitration.

7. To assist in arriving at a fair price for the purposes of paragraph 6(b) of this

Schedule, the licensee or lessee shall, if the Minister so requires- 207

(a) furnish for the confidential information of the Minister particulars of quantities,

descriptions and prices of petroleum  or petroleum products sold to other

customers and of charters or contracts entered into for their carriage; and

(b) exhibit original or authenticated copies of the relevant contracts or charterparties.

8. The Minister may take control of any works, plants or premises of the licensee or

lessee and if he does so, the licensee or lessee and his servants or agents shall

conform to and obey all directions issued by the Minister or on his behalf.

9. Reasonable compensation shall be paid to the licensee or lessee for any loss or

damage caused to him by reason of the exercise by  the Minister of the powers

conferred by paragraph 8 of this Schedule.

10. Any compensation payable under paragraph 9 of this Schedule shall be settled by

agreement between the Minister and the licensee or lessee or, in default of

agreement, by arbitration.

SECOND SCHEDULE

[Sections 17, 47, 76, 101, etc ]

SUPPLEMENTARY PROVISIONS RELATING TO THE PROCEEDINGS OF

THE

BOARDS OF INSTITUTIONS UNDER THIS ACT

PROCEEDING OF THE BOARD INSTITYUTIONS

1. Subject to this Act and  the  provisions of section 27 of the Interpretation Act, the

Board (‘the Board’) shall have the power to regulate its proceedings and may make

standing orders with respect to the holding of its meetings, and those of its 208

committees, the notice to be given, the keeping of minutes of its proceedings, the

custody and production for inspection of such minutes and such other matters as the

Board may, from time to time, determine.

2. (a) There shall be at least one ordinary meeting of the Board in every quarter of the

year and subject thereto, the Board shall meet whenever it is summoned by the

Chairman and if the Chairman is requested to do so by notice given to him by not

less than three other members, the Chairman shall summon a meeting of the Board

to be held within fourteen days from the date on which the notice is given.

(b) Every meeting of the Board shall be presided over by the Chairman and if the

Chairman is unable to attend a particular meeting, the members present at the

meeting shall elect one of their numbers to preside at the meeting.

3. The quorum at the meeting of the Board shall consist of the Chairman (or in an

appropriate case, the person presiding at the meeting pursuant to paragraph 2 of this

Schedule) and the majority of the other members, as appropriate

4. The Board shall meet for the conduct of its business at such places and on such

days as the Chairman may appoint.

5. A question put before the Board at a meeting shall be decided by consensus, and

where this is not possible, by a majority of the votes of the members present and

voting.

6. The Chairman shall, in the case of an equality of votes, have the casting vote in

addition to his deliberative vote.

7. Where the Board desires to seek the advice of any person on a particular matter, the

Board may co-opt a person as a member for such period it thinks fit, but a person

who is a member by virtue of this paragraph shall not be entitled to vote at any

meeting of the Board and shall not count towards the quorum.

Committees

8. The Board may constitute one or more committees for the purpose of carrying out

any of its functions as the Board may determine and report on any matter with which

the Board is concerned.

9. A committee appointed under this Schedule shall be presided over by a member of

the Board and consist of such number of persons (not necessarily all members of the

Board) as may be determined by the Board, and a person other than a member of

the Board shall hold office on the committee in accordance with the terms of his

appointment.

10. A decision of a committee of the Board shall be of no effect until it is confirmed by

the Board.

Miscellaneous209

11. The fixing of the seal of the  entity shall be authenticated by the signature of the

Secretary or some other person authorized generally by the  Board to act for that

purpose.

12. A contract or an instrument which, if made or executed by any person not being a

body corporate, would not be required to be under seal, may be made or executed

on behalf of  the entity by the Director-General or the Executive Secretary, as the

case may be, or any person generally or specially authorized to act for that purpose

by the Board.

13. A document purporting to be a contract, an instrument or other document signed or

sealed on behalf of the entity shall be received in evidence and, unless the contrary

is proved, be presumed without further proof to have been signed and sealed.

14. The validity of any proceedings of the Board or its committees shall not be affected

by-

(a) any vacancy in the membership of the Board or its committees; or

(b) reason that a person not entitled to do so took part in the proceedings; or

(c) any defect in the appointment of a member.

15. Any member of the Board and any person holding office on a committee of the

Board, who has a personal interest in any contract or arrangement entered into or

proposed to be considered by the Board or a committee shall –

(a) forthwith disclose his interest to the Board or committee, as the case may be;

and

(b) not vote on any question relating to the contract or arrangement.

THIRD SCHEDULE

[Sections 355]

POWERS AND DUTIES OF THE SERVICES UNDER THIS ACT

1. The  Service shall have the exclusive power and responsibility to exercise the

functions required to be carried out under the following sections of this Act-

(i)   Section 323;

(ii) Section 224;

(iii)  Section……..

(iv)  Section……..  210

(v)  Section……..

(vi)  Section……..

(vii)  Section……..

(viii)  Section……..

(ix)  Section……..

(x)  Section……..

(xi)  Section……..

(xii)  Section……..

2. Nothwithstanding the provisions of paragraph 1 of this Schedule, powers or duties as

consist of a power or duty to make inquiries or other incidental or preparatory powers

or duties of a like nature which may be undertaken by any other dully authorised

person or entity.

FOURTH SCHEDULE

[SECTION 312]

CAPITAL ALLOWANCES

1. Interpretation.

(1)   For the purposes of this Schedule, unless the context otherwise requires–

“Concession” includes an oil exploration licence, an oil prospecting licence,

an oil mining lease, a petroleum exploration licence, a petroleum prospecting

licence and a petroleum mining lease, any right, title or interest in or to

petroleum oil in the ground and any option of acquiring any such right, title or

interest;

“Lease” includes an agreement for a lease where the term to be covered by

the lease has begun, any tenancy and any agreement for the  letting or hiring 211

out of an asset, but does not include a mortgage and all cognate expression

including “Leasehold Interest” shall be construed accordingly; and

(a) where, with the consent of the lessor, a lessee of any asset remains in

possession thereof after the termination of the lease without a new

lease being granted to him, that lease shall be deemed for the

purposes of this Schedule to continue so long as he remains in

possession as aforesaid; and

(b) where, on the termination  of a lease of any asset, a new lease of that

asset  is granted to the lessee, the provisions of this Schedule shall

have effect as if the second lease were a continuation of the first lease;

“Qualifying Expenditure” means, subject to the express provisions of this

schedule, expenditure incurred in an accounting period, which is –

(a) Capital expenditure (hereinafter called “qualifying plant expenditure”)

incurred on plant, machinery and fixtures;

(b) Capital expenditure (hereinafter called “qualifying pipeline and storage

expenditure”) incurred on pipelines and storage tanks;

(c) Capital expenditure (hereinafter called “qualifying building

expenditure”), other than expenditure which is included in paragraphs

(a), (b) or (d) of this paragraph, incurred on the construction of

buildings, structures or works of a permanent nature; or

(d) Capital expenditure (hereinafter called “qualifying drilling expenditure”)

other than expenditure which is included in paragraph (a) or (b) of this

paragraph, incurred in connection with, petroleum operations in view on

–

(i)  the acquisition of, or of rights in or over, petroleum deposits,

(ii)  searching for or discovering and testing petroleum deposits, or

winning access thereto; or

(iii)  the construction of any works or buildings which are likely to be

of little or no value when the petroleum operations for which they

were constructed cease to be carried on, provided that, for the

purposes of this definition qualifying expenditure shall not

include any sum which may be deducted under the provisions of

section 305  of this Act.

(2)  For the purposes of the interpretation of qualifying expenditure above,

where expenditure is incurred by a company before its first accounting

period and such expenditure would have fallen to be treated as

qualifying expenditure (ascertained without the qualification contained 212

in the foregoing proviso) if it had been incurred by the company on the

first day of its first accounting period, and

(a)  that expenditure is incurred in respect of an asset owned by the

company then such expenditure shall be deemed to be

qualifying expenditure incurred by it on that day; or

(b) that expenditure is incurred in respect of an asset which has

been disposed of by the company before the beginning of its first

accounting period then any loss suffered by the company on the

disposal of such asset shall be deemed to be qualifying

petroleum expenditure incurred by the company on that day and

be deemed to have brought into existence an asset owned by

the company in use for the purposes of petroleum operations

carried on by the company, and any profit realised by the

company on such disposal shall be treated as income of the

company of its first accounting period for the purposes of

subsection (3) of section 304

2. Provisions Relating to Qualifying Petroleum Expenditure

(1) For the purposes of this Schedule where-

(a) expenditure has been incurred before its first accounting period and

such expenditure would have been treated as such qualifying

petroleum expenditure (ascertained without the qualification contained

in the proviso in the interpretation of qualifying expenditure) if it had

been incurred in that first accounting period; and

(b) such expenditure (ascertained in the case of sub-paragraph (1)(a) of

this paragraph without such qualification) shall be deemed to have

brought into existence an asset owned by the company incurring the

expenditure and in use for the purposes of such petroleum operations.

(2)  For the purposes of this Schedule, an asset in respect of which qualifying

drilling expenditure has been incurred by any company for the purposes of

petroleum operations carried on by it during any accounting period of the

company, and which has not been disposed of, shall be deemed not to cease

to be  used for the purposes of such operations so long as such company

continues to carry on such operations.

(3)  So much of any qualifying petroleum expenditure incurred on the acquisition

of rights in or over petroleum deposits and on the purchase of information

relating to the existence and extent of such deposits as exceeds the total of

the original cost of acquisition of such rights and of the cost of searching for,

discovering and testing such deposits prior to the purchase of such

information shall be left out of account for the purposes of this Schedule

provided that where the company which originally incurred such costs was a 213

company which carried on a trade or business consisting, as to the whole or

part thereof, in the acquisition of such rights or information with a view to the

assignment or sale, the price paid on such assignment or sale shall be

substituted for the aforementioned costs.

3. Owner and meaning of relevant interest

(1) For the purposes of this Schedule, where an asset consists of a building,

structure or works, the owner shall be taken to be the owner of the relevant

interest in such building, structure or works.

(2) Subject to the provisions of this paragraph, in this Schedule, the expressions

“the relevant interest” means, in relation to any expenditure incurred on the

construction of a building, structure or works to which the company which

incurred such expenditure was entitled when it incurred the expenditure.

(3) Where, when a company incurs qualifying building expenditure or qualifying

drilling expenditure on the construction of a building, structure or works, the

company is entitled to two or more interests therein, and one of those

interests is an interest which is reversionary on all the others, that interest

shall be the relevant interest for the purposes of this Schedule.

4. Sale of Buildings, Etc.

Where capital expenditure has been incurred on the construction of a building,

structure or works and thereafter the relevant interest therein is sold, the company

which buys that interest shall be deemed, for all the purposes of this Schedule

except the granting of petroleum investment allowance, to have incurred, on the date

when the purchase price became payable, capital expenditure on the construction

thereof equal to the price paid by it for such interest or to the original cost of

construction, whichever is the less, provided that where such relevant interest is sold

before the building, structure or works has been used, the foregoing provisions of

this paragraph shall have effect with respect to such sale with the omission of the

words “except the granting of investment tax credit” and the original cost of

construction shall be taken to be the amount of the purchase price on such sale;

5. Owner under production sharing contract

Where the production sharing contract between the national oil company and a

contractor provides for the contractor to finance the cost of equipment and for such

equipment to become the property of the national oil company, the contractor shall

be deemed to be the owner of the qualifying expenditure thereon, for the purpose of

the claim of capital allowances.

6. Annual Allowance214

(1)  Subject to the provisions of this Schedule, where in any accounting period, a

company owning any asset has incurred in respect thereof qualifying

expenditure wholly, necessarily and exclusively for the purposes of petroleum

operations carried on by it, there shall be due to that company as from the

accounting period in which such expenditure was incurred, an allowance (in

this Act referred to as “an annual allowance”) at the appropriate rate

percentum specified in Table II of this Schedule.

(2)  Notwithstanding the provisions of sub-paragraph (1) of this paragraph, there

shall be retained in the books, in respect of each asset, one percent of the

initial cost of the asset which may only be written off in accordance with subparagraph (3) of this paragraph.

(3)  Any asset or part thereof in respect of which capital allowances have been

granted may only be disposed of on the authority of a Certificate of’ Disposal

issued by the Minister of Finance or any person authorised by him.

 

7. Asset to be in use at end of accounting period

An annual allowance in respect of qualifying expenditure incurred in respect of any

asset shall only be due to a company for any accounting period if at the end of such

accounting period it was the owner of that asset and the asset was in use for the

purposes of the petroleum operations carried on by it.

8. Balancing Allowances

Subject to the provisions of this Schedule, where in any accounting period of a

company, the company owning any asset in respect of which it has incurred

qualifying expenditure wholly and exclusively for the purposes of petroleum

operations carried on by it, disposes of that asset, an allowance (hereinafter called “a

balancing allowance”) shall be due to that company for that accounting period of the

excess of the residue of that expenditure, at the date; such asset is disposed of, over

the value of that asset at that date provided that a balancing allowance shall only be

due in respect of such asset if immediately prior to its disposal it was in use by such

company for the purposes of the petroleum operations for which such qualifying

expenditure was incurred.

9. Balancing Charges.

Subject to the provisions of this Schedule, where in any accounting period of a

company, the company owning any asset in respect of which it has incurred

qualifying expenditure wholly and exclusively for the purposes of petroleum

operations carried on by it, disposes of that asset, the excess (hereinafter called “a

balancing charge”) of the value of that asset, at the date of its disposal, over the

residue of that expenditure at that date shall, for the purposes of this Act, be treated

as income of the company of that  accounting period, provided that a balancing

charge in respect of such asset shall only be so treated if immediately prior to the 215

disposal of that asset it was in use by such company for the purposes of the

petroleum operations for which such qualifying expenditure was incurred and shall

not exceed the total of any allowances due under the provisions of this Schedule, in

respect of such asset.

10. Residue

The residue of qualifying expenditure, in respect of any asset, at any date, shall be

taken to be the total qualifying expenditure incurred on or before that date, by the

owner thereof at that date, in respect of that asset, less the total of any annual

allowances due to such owner, in respect of that asset, before that date.

11. Meaning of “disposed of”

Subject to any express provision to the contrary  and for the purposes of this

Schedule-

(a)  a building, structure or works of a permanent nature is disposed of if any of

the following events occur-

(i)  the relevant interest is sold, or

(ii)  that interest, being an interest depending on the duration of a

concession, comes to an end on the coming to an end of that

concession, or

(iii)  that interest, being a leasehold interest, comes to an end otherwise

than on the company entitled thereto acquiring the interest which is

reversionary thereon, or

(iv)  the building, structure or works of a permanent nature are demolished

or destroyed or, without being demolished or destroyed, cease

altogether to be used for the purposes of petroleum operations carried

on by the owner.

(b)  plant, machinery or fixtures are disposed of if they are sold, discarded or

cease altogether to be used for the purposes of petroleum operations carried

on by the owner thereof;

(c)  assets in respect of which qualifying drilling expenditure is incurred are

disposed of if they are sold or if they cease to be used for the purposes of the

petroleum operations of the company incurring the expenditure either on such

company ceasing to carry on all such operations or on such company

receiving insurance or compensation monies therefor.

12. Value of an Asset216

(1) The value of an asset at the date of its disposal shall be the net proceeds of

the sale of the asset or of the relevant interest therein, or, if it was disposed of

without being sold, the amount which, in the opinion of the  Service, such

asset or the relevant interest therein, as the case may be, would have fetched

if sold in the open market at that date, less the amount of any expenses which

the owner might reasonably be expected to incur if the asset were so sold.

(2) For the purpose of this paragraph, if an asset is disposed of in such

circumstances that insurance or compensation monies are received by the

owner thereof, the asset or the relevant interest in the asset, as the case may

be, shall be treated as having been sold and as though the net proceeds of

the insurance or compensation monies were the net proceeds of the sale

thereof.

13. Apportionment

(1)   Any reference in this Schedule to the disposal, sale or purchase of any asset

includes a reference to the disposal, sale or purchase of that asset, as the

case may be, together with any other asset, whether or not qualifying

expenditure has been incurred on such last-mentioned asset, and, where an

asset is disposed of, sold, or purchased together with another asset, so much

of the value of the assets as, on a just apportionment, is properly attributable

to the first mentioned asset shall, for the purposes of this Schedule, be

deemed to be the value of, or the price paid for, that asset, as the case may

be.

(2) For the purposes of this paragraph, all the assets which are purchased or

disposed of in pursuance of one bargain shall be deemed to be purchased or

disposed of together, notwithstanding that separate prices are or purport to be

agreed for each of those assets or that there are or purport to be separate

purchases or disposals of those assets.

(3)  The provisions of sub-paragraph (1) of this paragraph shall apply, with any

necessary modifications, to the sale or purchase of the relevant interest in any

asset together with any other asset or relevant interest in any other asset.

14. Part of an asset

Any reference in this Schedule to any asset shall be construed whenever necessary

as including a reference to a part of any asset (including an undivided part of that

asset in the case of joint interests therein) and when so construed any necessary

apportionment shall be made as may, in the opinion of the  Service, be just and

reasonable.

15. Extension of meaning of “in use”

For the purposes of this Schedule, an asset shall he deemed to be in use during a

period of temporary disuse. 217

16. Exclusion of certain expenditure

(1)  Subject to the express provisions of this Schedule, where any company has

incurred expenditure which is allowed to be deducted under any provision

(other than a provision of this Schedule) to this Act, such expenditure shall not

be or be treated as qualifying expenditure.

(2) Where any company has incurred expenditure upon any ocean going oiltanker plying between Nigeria and any other territory that expenditure shall

not be treated as qualifying expenditure.

17. Asset used or expenditure incurred partly for the purpose of petroleum

operations.

(1)  The following provisions of this paragraph shall apply where either or both of

the following conditions apply with respect to any asset-

(a)  the owner of the asset has incurred in respect thereof qualifying

expenditure partly for the purposes of petroleum operations carried on

by him and partly for other purposes; and

(b)  the asset in respect of which the owner has incurred qualifying

expenditure thereof is used partly for the purposes of petroleum

operations carried on by such owner and partly for other purposes.

(2)  Any allowances which would be due or any balancing charges which would be

treated as income if both such expenditure were incurred wholly and

exclusively for the purposes of such petroleum operations  and  such asset

were used wholly and exclusively for the purposes of such operations shall be

computed in accordance with the provisions of this Schedule.

(3)  So much of the allowances and charges computed in accordance with

provisions of sub-paragraph (2) of this paragraph shall be due or shall be so

treated, as the case may be, as in the opinion of the  Service is just and

reasonable having regard to all circumstances and to the provisions of this

Schedule

18. Disposal without change of ownership

Where an asset in respect of which qualifying expenditure has been incurred by the

owner  of the  asset has been disposed of in such circumstances that such owner

remains the owner, then, for the purposes of determining whether and, if so, in what

amount, any annual or balancing allowance or balancing charge shall be made to or

on such owner in respect of his use of that asset after the date of such disposal –

(a)  qualifying expenditure incurred by such owner in respect of such asset prior to

the date of such disposal shall be left out of account;  218

(b)   the owner shall be deemed to have bought  the asset immediately after  the

disposal for a price equal to the residue of the qualifying expenditure at the

date of  the disposal, increased by the amount of any balancing charge or

decreased by the amount of any balancing allowance made as a result of the

disposal –

 

TABLE I

[Paragraph]

Qualifying expenditure in respect of                Rate per centum

On-shore operations ………………………………………….  5

Operations in territorial waters and continental shelf up to

And including 100 metres of water depth ………………….   10

Operations in territorial waters and continental shelf areas

in water depth between 100 metres and 200 metres of

water depth…………………………………………………….   15

Operations in territorial waters and continental shelf areas

beyond 200 metres of water depth………………………….   20

………………………

TABLE II

[Paragraph]

Annual allowance                   Rate per centum

First year ……………………………………………………   20

2

nd

year   ……………………………………………………   20219

3

rd

year   …………………………………………………….   20

4

th

year   …………………………………………………….   20

5

th

year   …………………………………………………….   19

6

th

year and after …………………………………………..   19

………………………………..

FIFTH SCHEDULE

[SECTION 312]

Production Allowance

(1)  There shall be a production allowance for crude oil production by a company

determined as follows:

(a)  (a) for onshore – the lower of US $ 30 per barrel or 30% of the official

selling price, up to a cumulative maximum of 10 million barrels and the

lower of US $ 10 per barrel or 30% of the official selling price, for

volumes exceeding 10 million barrels up to a cumulative maximum of

75 million barrels;

(b)  (b) for shallow water areas – the lower of US $ 30 per barrel or 30%

of the official selling price, up to a cumulative maximum of 20 million

barrels and the lower of US $ 10 per barrel or 30% of the official selling

price, for volumes exceeding 20 million barrels up to a cumulative

maximum of 150 million barrels; and

(c)  for bitumen deposits, frontier acreage and deep water areas –  the

lower of US $ 15 per barrel or 30% of the official selling price, up to a

cumulative maximum volume of 250 million barrels per PML, and the

lower of US $ 5 per barrel or 10% of the official selling price, for

volumes exceeding 250 million barrels per PML.

Provided that:

i) For companies in a production sharing contract arrangement with

NNPC or Holder on the effective date of this Act not benefiting from 220

Investment Tax Credit or Investment Tax Allowance, there shall be a

general production allowance of $ 5 per barrel or 10% of the official

selling price, for all production volumes.

ii) For companies that on the effective date of this Act are in a Joint

Venture contract arrangement with the NNPC, production allowance

shall not apply.

(2) There shall be a production allowance for natural gas fields with liquid yield

greater than 5 barrels of condensate per million cubic feet of gas:

(a) for onshore – the lower of US $ 1.0 per MMBtu or 50% of the value of the

natural gas, up to a cumulative maximum of 1,000 billion cubic feet per

PML and the lower of US $ 0.50 per MMBtu or 30% of the official selling

price, for volumes 1,000 billion cubic feet per PML;

(b) for shallow offshore – the lower of US $ 1.0 per MMBtu or 50% of the

value of the natural gas, up to a cumulative maximum of 2,000 billion cubic

feet per PML and the lower of US $ 0.50 per MMBtu or 30% of the official

selling price, for volumes 2,000 billion cubic feet per PML; and

(c) for bitumen deposits, frontier acreage and deep water areas – the lower

of US $ 1.0 per MMBtu or 50% of the value of the natural gas, up to a

cumulative maximum of 3,000 billion cubic feet per PML and the lower of US $

0.50 per MMBtu or 30% of the official selling price, for volumes 3,000 billion

cubic feet per PML;

(3) There shall be a production allowance for natural gas fields with liquid yield

less than 5 barrels of condensate per million cubic feet of gas:

(a) for onshore – the lower of US $ 1.0 per MMBtu or 100% of the value of

the natural gas, up to a cumulative maximum of 1,000 billion cubic feet per

PML and the lower of US $ 0.50 per MMBtu or 50% of the official selling price,

for volumes 1,000 billion cubic feet per PML;

(b) for shallow offshore – the lower of US $ 1.0 per MMBtu or 100% of the

value of the natural gas, up to a cumulative maximum of 2,000 billion cubic

feet per PML and the lower of US $ 0.50 per MMBtu or 50% of the official

selling price, for volumes 2,000 billion cubic feet per PML; and

(c) for bitumen deposits, frontier acreage and deep water areas – the lower

of US $ 1.0 per MMBtu or 100% of the value of the natural gas, up to a

cumulative maximum of 3,000 billion cubic feet per PML and the lower of US $

0.50 per MMBtu or 50% of the official selling price, for volumes 3,000 billion

cubic feet per PML; 221

Provided that:

i) For companies in a production sharing contract arrangement with the

Corporation or Holder on the effective date of this Act not benefiting from

Investment Tax Credit or Investment Tax Allowance, there shall be a general

production allowance of $ 0.5 per MMBtu or 30% of the value of the natural

gas per PML regardless of the liquid yield, for all production volumes.

ii) For companies that on the effective date of this Act are in a Joint

Venture contract arrangement with the NNPC, there shall be a general

production allowance of $ 0.3 per MMBtu or 30% of the value of the natural

gas per PML regardless of the liquid yield, for all production volumes.

(4)  There shall be a production allowance for condensate production from gas

fields of US $ 20 per barrel or 30% of the official selling price, whichever value

is lower:

(a) for onshore – the lower of US $ 10 per barrel or 20% of the official selling

price, up to a cumulative maximum of 100 million barrels and the lower of US

$ 3 per barrel or 10% of the official selling price, for volumes exceeding 100

million barrels

(b) for shallow water areas – the lower of US $ 10 per barrel or 20% of the

official selling price, up to a cumulative maximum of 200 million barrels and

the lower of US $ 3 per barrel or 10% of the official selling price, for volumes

exceeding 200 million barrels

(c) for bitumen deposits, frontier acreage and deep water areas – the lower

of US $ 10 per barrel or 20% of the official selling price, up to a cumulative

maximum of 300 million barrels per PML and the lower of US $ 5 per barrel or

10% of the official selling price, for volumes exceeding 300 million barrels per

PML.

Provided that:

i) For companies in a production sharing contract arrangement with the

Corporation or Holder on the effective date of this Act not benefiting from

Investment Tax Credit or Investment Tax Allowance, there shall be a general

production allowance of $ 5 per barrel or 10% of the official selling price, for all

production volumes.

(5)  The allowances provided in this Schedule shall be allocated to companies on

the basis of the entitlement of the relevant barrels.

(6)  The gas allowances pursuant to sub-paragraph (2)(a) and sub-paragraph

(2)(b) of this Schedule, as applicable, shall only apply to gas production which

is subject to royalties and where such gas is not utilized for the purposes of

reinjection. 222

(7)  The total amount of the allowances computed under this Schedule shall be

deducted from the amount determined pursuant to section 312 of this Act and

where these allowances cannot be deducted under  section  312  of this Act

owing to there being an insufficiency of or no assessable profits  of the

accounting period the deductions shall be added to the aggregate amount to

be computed for the following accounting period of the company, and

thereafter shall be deemed to be an allowance due to the company, under

relevant provisions of the to this Act for that following accounting period.

(8)  Where a field development produces any combination of crude oil,

condensate and natural gas, the allowances under  paragraphs (1), (2) and

(3) of this Schedule shall be taken separately.

(10)  Notwithstanding the foregoing –

(a)  where a lessee is producing crude oil with associated gas in a field at

the  Effective Date and is flaring substantial volumes of gas, and

proposes a development program to the National Petroleum

Inspectorate  in order to eliminate routine flaring in the field in a

significant manner, and such development plan is approved by the

inspectorate, the lessee shall be entitled to claim the allowances under

paragraphs (2) and (3) of this Schedule, with respect to the natural gas

and condensate production attributable to such development plan; and

.

(c)  all existing crude oil, condensate and gas production from production

sharing contracts in existence prior to the Effective Date  shall  be

eligible for a general production allowance of US $ 5 per barrel of oil

equivalent;

(11)  Marginal field operators shall be entitled to claim the allowances under

paragraphs (1), (2), (3) and (4) of this Schedule on the incremental production

from the Effective Date up to the cumulative amounts provided for in these

paragraphs.

(12)  Where a field is covered by two or more Petroleum Mining Leases (PML), the

production allowances pursuant to this Schedule for each PML shall be

determined based on the total unitized production.

(13) All production allowance thresholds shall be fixed on the total production per

PML aggregated at company level, provided that:

(a) Claims by a contractor under a production sharing contract in  the

deepwater shall be ring-fenced per PML;

(b) A supplier of gas destined solely for the domestic market shall be

entitled to claim production allowance per PML; and 223

(c)  where a shareholder holds at least 10% directly or indirectly in

several companies, the companies shall be treated as one

company for  the purposes of computing production allowance.

EXPLANATORY MEMORANDUM

This Act provides for a legal, fiscal and regulatory framework for the Nigerian petroleum

industry and establishes institutions, regulatory and commercial entities for the proper

administration and coordination of the operation of the upstream and downstream sectors of

the petroleum industry as well as providing for the imposition, assessment and collection of

the Nigerian Hydrocarbon tax.