…as profit from crude oil, gas sales account for 7.16%
…experts hail implementation of PIA, call for increased production to boost sales revenue
The federal government revenues from oil and gas royalties increased by 179.74 percent from N2.49 trillion in 2023 to N6.99 trillion in the 2024 fiscal year, this also far outpaced the actual gross profit from crude oil and gas sales, which stood at N1.08 trillion.
According to the Budget Implementation Report for the fourth quarter of 2024, released by the Budget Office of the Federation, the N6.99 trillion collected in 2024 places royalties as a dominant contributor to Nigeria’s overall oil and gas revenue, accounting for 46 percent of the total oil revenues.
Royalties is the payment made by oil companies to the government for the right to extract petroleum resources in Nigeria.
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The report showed that a total of N1.243 trillion was received as royalties in the first quarter, N1.379 trillion in the second quarter, N2.184 trillion and N2.184 trillion were recorded in the third and fourth quarter respectively.
Speaking with BusinessDay, Etulan Adu, Oil and Gas Analyst said that the implementation of the Petroleum Industry Act (PIA) has been instrumental to the increase recorded in the total royalties, as it has facilitated more investments into Nigeria’s upstream sector.
He highlighted the tax incentives for Deep Offshore Oil & Gas Production introduced by the President Tinubu-led administration, which provides new tax reliefs for deep offshore projects.
This initiative, according to the government is aimed at positioning Nigeria’s deep offshore basin as a premier destination for global oil and gas investments.
He said, “The implementation of the PIA has really helped a lot also in terms of the revenue generated from the royalties. So, we are looking at factors like increase in production, the fiscal policy changes, the PIA implementation and also renewed investments in offshore.
”So oil production has increased, we have seen renewed interest in investment offshore, we have seen increased investments for development of fields also. It’s a good sign that, yes, in terms of upstream oil and gas investment and development, it means that there are positives, which will have positive impact in the future.”
He however stressed while royalties are stable, it should not be the basis for revenue from oil and gas production. According to Adu, the government need to harness the value chain to increase production and sales which will in turn leads to greater revenue.
”Production should do better so that we generate more revenue than just relying on the royalties. Royalties are just like a token of the whole bargain you get. Just like a landowner, he owns the land and receiving rent from the tenant, outside that, he is supposed to be producing and selling cassava from the farm and not just relying on rent.”
The gross profit from crude oil and gas sales which stood at N1.08 trillion in 2024 fiscal year, is a 43.32 percent decline from N1.90 trillion recorded in 2023.
The 2024 gross profit also fell short of the budgeted target of N1.46 trillion, by 26.3 percent.
Also speaking to BusinessDay, Adeyemi Taiwo, Abuja based energy sector Analyst, said the decline in gross profit from crude sales at N1.08 trillion, indicates the impact of crude oil theft, pipeline vandalism, and underinvestment that continue to erode upstream margins.
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He said, “This is an indication that Nigeria is still struggling to generate needed revenue from the sale of the crude we extract and import. And this should make the government see the need for continous diversification of the economy, we should look away from over reliance on oil revenues.”
Other Oil revenue sources include:
Gas Flared Penalty and Exchange Gain which had zero budget estimate yielded N391.26 billion and N4.243 trillion in the review period. Petroleum Profit & Gas taxes at N6 trillion fell below their yearly projection of N11.978 trillion.
Revenues from incidental oil revenue from royalty recovery and marginal field settlements was to N347.75 billion while miscellaneous income, mainly from pipeline fees, stood at N35.2 billion. Also, the government generated N23.71 billion from Concessional Rentals in the period.
The report also indicated that a total of N15.066 trillion gross oil revenue was collected in the year as against N19.99 trillion projected for 2024 budget. This represents a decrease of N4.929 trillion (24.65 percent) below the 2024 budget estimate but N6.711 trillion (80.33 percent) above the actual gross oil revenue of N8.35 trillion collected in 2023.
