Analysis of Government and Contractor Take Statistics in the Proposed Petroleum Industry Fiscal Bill

Fiscal system is the basis for the estimation of take statistics ratio between Government and Contractor. This has been the case for the different versions of Nigeria's Royalty and Tax system and Production Sharing Contracts. Modifications in the currently proposed petroleum industry fiscal bill promise to ensure oil and gas availability, accessibility and affordability. Favorable upstream petroleum operations underlie the development and expansion of the midstream and downstream sectors. Fiscal incentives available to contractors make investment a worthwhile venture for both the government and contractor. The recently proposed petroleum industry fiscal bill (PIFB) 2017 is a favorable development because it is anticipated to reduce tax burden on investors, increase government take from royalty schemes and a dual tax system imposed on oil and gas projects. This paper applies a deterministic and stochastic cash flow model, analyzes the fiscal provisions of the existing royalty and tax system, production sharing contract and the proposed petroleum industry fiscal bill, 2017. Results from the model present a friendly royalty and tax deduction strategy in the proposed bill, which provides an incentive for investors to re-invest in the midstream and downstream sectors. However, the provision in the petroleum industry fiscal bill (PIFB) 2017 for royalty deduction during windfall is rather too fair at $50/bbl, considering a benchmark profitable oil price of $35/bbl during windfall. This paper suggests $35/bbl price for windfall threshold price for the additional $0.2 per dollar increase in oil price for royalty by value determination.