NAPIMS, in the Exploration & Production (E & P) Directorate is the Upstream arm of NNPC that oversees the Federation investments in the Joint Venture Companies (JVCs), Production Sharing Companies (PSCs) and Service Contract Companies (Scs).

NAPIMS is, therefore, set up to earn margin arising from investments in the JVCs, PSCs and SCs with the multinationals and also protect the nation's strategic interests in the JVCs. In addition, NAPIMS engages in frontier exploration services in basins where the multinationals hesitate to venture, like the Chad Basin

Major Strategic Roles of NAPIMS

To maximize Petroleum Profit Tax (PPT) and guarantee a higher Margin (Rate of Return) on Investment, through efficient cost of monitoring reduction mechanisms;

To ensure that a reserve base is maintained and reserve addition targets are attained. These are: 30 billion barrels by year 2002 and 40 billion barrels by year 2010;

To ensure increased production capacity from the current 2.5 million barrels of oil per day (bopd) to 3 million bopd in year 2003 and 4 million bopd by year 2010;

To encourage gas utilization and commercialization;

To promote local content input in engineering and construction, supplies and materials utilization through in-country technological capability;

To enhance Nigerianization in the industry and facilitate technology transfer;

To promote maximum co-operation in communities of oil and gas producing areas as well as ensure that environmental protection standards are strictly maintained.

Other Major Tasks

Diversification of the nation's revenue base in the hydrocarbon sector by actively commercializing natural gas and thereby ensuring gas flare-out by the year 2008.

Stimulating the (exploration) interest of indigenous and foreign companies in frontier areas.

Conducting operations in compliance with set environmental and safety standards in all JV/PSC/SC upstream Operations.

Managing Federation hydrocarbon resources efficiently and effectively as well as ensuring that JV operating arrangements (Joint Operating Agreement (JOA), Production Sharing Contract (PSC) and Service Contract (SC).

Gas Utilisation

Nigeria is endowed with abundant natural gas resource, which in energy terms, is in excess of the Nation's proven crude oil reserve and even this is the gas discovered whilst searching for oil, as no conscious effort has been made so far to search for gas. The current reserves estimate is over 120 trillion cubic feet with about 50/50 distribution between Associated Gas (AG) and Non Associated gas (NAG). Only a small fraction of this quantity is currently being utilised.

A large fraction (about 63%) of the AG produced during the production of crude oil is currently being flared. Even then this is an improvement over what it used to be three years ago when it was about 80 to 70%. In order to diversify its revenue base and reduce the huge wastage of valuable resource and degradation of the environment as a result of flaring, the Nigerian Government, through the NNPC, is vigorously pursuing a number of natural gas utilisation projects with its joint venture partners whereby associated gas would be harnessed to achieve these objectives.

Of great concern to the Government is the issue of environmental degradation such that a deadline of year 2010 has been set as the year when all flares must be extinguished. In line with this target therefore, all the joint venture partners have also set their own targets in order to meet this deadline. These targets range from year 2005 to 2010. This means that the gas sector in Nigeria is going to be a beehive of activities henceforth, and a lot of room exists for investment in this area. Some of these are: LNG (liquefied natural gas), IPP (Independent Power Plant), GTL (Gas to liquid conversion), NGL (natural gas liquids), Methanol, gas supply to local industries, etc.

This indeed is an industry with great potential and future in the 21st Century. While a number of gas utilization projects have already been completed, commissioned and in operation, several are at various stages of execution. In addition, local industries have started converting from the use of fuel oil to gas due to increase in awareness.

Domestic Gas Market

On the domestic front, NNPC through its subsidiary, Nigerian Gas Company (NGC), currently supplies gas for power generation, as source of fuel or as feed stock to cement and fertiliser plants, glass manufacturing, food and beverages manufacturing Industries and so on. More local industries are becoming aware of the advantages of using gas and the demand is increasing. Therefore a large market exists for investors in this area.

Export-Oriented Gas Utilisation Projects

For the international market NNPC and its joint venture partners are currently embarking on several gas utilisation projects, which include the following:

Escravos Gas Project

This project was executed by NNPC/ Chevron IV. The plant is located in the South Western part of the country and it produces mainly LPG for export from its first phase. Detailed engineering for the second phase has reached advanced stage, while a third phase is being proposed.

Oso NGL Project

The NNPC/Mobil IV recently commissioned an NGL plant located at its 050 field in the South Eastern part of Nigeria. It started production for export during the third quarter of 1998.

LNG Projects

Nigeria, through NLNG (Nigeria Liquefied Natural Gas) Ltd., is currently embarking on the construction of its first LNG plant in collaboration with three partners, namely, ELF, AGIP, and SHELL. The LNG plant site is located at Finnima in the Eastern region of Nigeria and, these three companies, in joint venture with NNPC, will also supply up to 1 billion standards cubic feet natural gas for feed stock/fuel to the plant from their Obite, Obiafu and Soku fields respectively. It is expected that flaring will be substantially reduced by the time these projects come on stream by third quarter of this year, in addition to the expected huge revenue.

Others Ekpe Gas Compression Project

The NNPC/MOBIL IV executed this project in order to gather the gas that was being flared in this field for enhancement of oil production by gas lifting and gas Rein injection.

Oso 2Y2 Project

This project is also being executed by the NNPC/MOBIL JV. The objective is to provide additional gas make-up for the Oso NGL as well as maintain condensate production at the expected plateau.

Belema Gas Injection Project

This project is being executed by the NNPC/SHELL joint venture and it is aimed at reducing flares in five flow stations by re-injecting some of the gas, some for gas lifting, some for use as fuel by local industries and the excess for backing out NAG that is currently used to meet various existing contractual obligations. The contracts for the execution of the EPC and gathering pipelines are still in the early stages of execution. About 80mmscf/d of gas is expected to be utilised.

Odigbo Node Gas Project

The objective of this project is to gather about 11 3mmscf/d of AG from about six flow stations in the NNPC/Shell Eastern Nigeria fields, for supply (about 92mmscf/d) to ALSCON (Aluminium Smelting Company of Nigeria) as feed gas and for gas lifting. The contracts for the execution of the EPC and gathering pipelines had been awarded and plant is expected and to come on stream later this year. Odidi AGG Project This project is also being executed by the NNPC/Shell IV in the South Western part of Nigeria. The objective of the project is to gather gas and inject into the ELP (Escravos to Lagos Pipeline), which will eventually form part of the West African Gas Pipeline that will supply gas to some West African Countries.

Cawtharne Channel Gas Injection Project

The objective of this project is to gather the gas that is currently being flared in this field for re-injection and for supply to a third party for LPG extraction. The conceptual design is still currently on going.

The West African Gas Pipeline Project

The objective of this project is to supply gas to some ECCWAS countries, pursuant to Nigeria's commitment to Article 48 of the ECOWAS Treaty, which encourages member nations to co-operate, consult and co-ordinate their policies regarding energy and mineral resources.

Following the recommendation of one of the studies commissioned by member-states on improving cooperation on energy, the governments of Nigeria, Ghana, Benin and logo, through their ministries and departments responsible for energy matters, signed Heads Of Agreements (HOA) in 1995, to provide framework for the construction of a West African Gas Pipeline (WAGP), to transport gas from Nigeria to Ghana, Benin and logo.

The countries have also set up a Ministerial Steering Committee (MSC), and Project Implementation Committee to monitor the development the project. A commercial group has also been set up comprising of Nigerian Gas Company (NGC), Ghana National Petroleum Corporation (GNPC), SCBEGAZ (Benin) and SOTOGAZ (Toga); and two gas producers - Chevron Nigeria Ltd. (CNL) and Shell Petroleum Development Company of Nigeria. (SPDC).

In 1998, the commercial group retained a German company to conduct a feasibility study and the final report was submitted in March 1999. The report showed that the WAGP was commercially viable and technically feasible. Negotiations are currently on with a number of prospective buyers in the sub region.

Future Flare-Out Programmes

In order to achieve the flare out target of 2010, NNPC, in conjunction with its partners, has drawn up programmes of activities and strategies for the utilization of all the gas that is currently being flared and future gas production resulting from growth in oil production.

These programmes include:

- NNPC/ EIf IV has set its flare out target year at 2006, and some of their planned projects include Amenam/Kpono, Ofon (phase 2) and 4-bar integrated oil and gas projects.

- NNPC/ Shell JV's flare out target year is 2008 . Some of their planned projects include Akri/Oguta, S. Forcados, EA, Bonga, Ubie, Bomu etc, gas gathering and utilisation projects. NNPC/Chevron Jv's flare out target year is 2006 and their planned projects are EGP phases 2 and 3.

FISCAL INCENTIVES IN NIGERIAN OIL AND GAS INDUSTRY

There is a minimum guaranteed notional margin of $2.50 per barrel, after Tax and Royalty on the company's equity crude.

The minimum guaranteed notional margin increases to $2.70 per barrel if the actual capital costs exceed $2.00.

The notional fiscal cost is now $4.00 per barrel instead of $3.50 per barrel.

Tax inversion rate of 35% rewards for prudent producers whose operating cost is less than $1.70 per barrel.

No penalty for small companies producing below an average of 175,000 bbls per day, for operating cost not greater than $3.00 per barrel.

No penalty for companies producing above 175,000 bbls per day, for operating cost not greater than $2.30 per barrel.

Capital cost of ullage fees limited to 50% of total sum paid to third parties In respect of crude oil transportation, processing and terminalling is excluded from operating cost in determining high cost producers.

All levies and other impositions to Government, or state and/or local governments or their agencies including, without limitation, Central Bank of Nigeria commissions, other than Royalty and PPT, are treated as allowable costs.

Investment tax allowance of 50% for PSC arrangements

All Capital costs of upstream gas investments up to the custody transfer points, is treated as oil investments and the resulting capital allowances is deducted from PPT (at a marginal rate of 85%). This incentive also applies to some downstream investments.

The upstrea m producer is exempt from payment of royalty and PPT on any gas that is transferred to a downstream project.

The LNG projects receive a 10 year tax holiday.

The LNG project is also exempt from withholding tax on interest and dividends paid to nonresidents and from income tax on work or services provided by nonresidents.

There is an additional investment allowance of, 20% for upstream projects, 35% for NGL extraction and gas-to-liquid facilities and 15% for downstream projects.

Downstream investments receive accelerated capital allowances of 90% of cost of plant and machinery expenditures in the first year with 10% retention.

Downstream gas projects receive a 3 year tax holiday that begins on the first day of production, is renewed for a further 2 years, and accumulated capital allowances can be carried forward until the end of the holiday. Qualifying dividend distributions during the tax holiday are tax free.

Downstream projects are allowed to fully deduct interest on project financing for corporate income tax purposes.

For further enquiries please visit the NAPIMS website