A Proposed Fiscal Regime for Natural Gas Development Under Production Sharing Contracts in Deep Offshore Nigeria

Purpose: To propose an independent fiscal regime for natural gas development in deep offshore Nigeria for associated gas fields. The research output will guide investors in conducting an economic evaluation of petroleum assets with natural gas as a standalone resource for their investment decisions. Design/Methodology/Approach: The Model used for this study is Capital budgeting methodology with a discounted cash flow model for an associated gas field-deep offshore Nigeria. In addition, the research paper computed economic indicators such as the net present value (NPV), internal rate of return (IRR), payback period, government and contractor takes, were computed using secondary data from an existing deep offshore associated gas field under a production sharing contract (PSC) agreement in Nigeria. Findings: The project is profitable with a net present value of $277 million, an internal rate of return of 45%, a payback period of 4 years, and a government-take of 64%. The findings of this study suggest that an independent fiscal regime for natural gas in deep offshore Nigeria is economically viable. Practical Implications: The findings of this study imply that natural gas can be economically developed in Nigeria as a standalone commodity. Thus, Nigeria’s drive towards energy diversification and transition to cleaner fuels usage will be profitable. Social Implications: With an independent fiscal regime for natural gas development in Nigeria, attracting investors into associated and non-associated gas development will be mutually beneficial; encourage cleaner energy consumption and improve energy access especially in rural and off-grid communities battling energy poverty in Nigeria. With these, the socio-economic lives of the citizens of Nigeria will be improved which will ultimately translate into sustainable economic growth and development. Originality and Value: the literature focuses on crude oil development and its evaluation but none has treated natural gas as a commodity completely separate from crude oil. This study designs a fiscal regime for the development of natural gas as a standalone resource which will serve as an indispensable tool to the federal government of Nigeria, investors and the academia in investment decision analysis of natural gas development projects, off-shore Nigeria.