**KPMG Backs Nigeria’s Efforts to Incentivize Oil Sector, Cautions on $20 Oil Price Benchmark**
KPMG has endorsed Nigeria’s push to incentivize the oil and gas sector, emphasizing the need for a competitive $20 benchmark price for oil production. The global consulting firm expressed support for the federal government’s initiatives aimed at reducing technical costs in oil production, such as the recent executive orders and tax incentives introduced to stimulate growth.
While KPMG praised the government’s efforts to cut unit costs and encourage investment, it warned that the $20 per barrel benchmark must remain competitive given Nigeria’s unique challenges, including security concerns, regulatory hurdles, and infrastructure issues. These factors significantly impact operational costs in the country.
KPMG also highlighted the government’s decision to cap the liquid content of gas fields at 100 barrels per million standard cubic feet (mmscf), which it believes will help make less profitable fields more viable and promote the development of gas reserves. The firm noted that although higher liquid content is typically desirable for field value, focusing solely on liquids could undermine Nigeria’s broader energy strategy.
Furthermore, KPMG welcomed the reintroduction of tax credits, replacing the production allowances under the Petroleum Industry Act (PIA). Tax credits provide a more significant benefit for operators, allowing them to claim a 100% deduction on tax liabilities, compared to the limited impact of production allowances.
Despite these positive steps, KPMG cautioned that the success of the incentive package will depend on its ability to attract investment. Investors will need to see high returns for the incentives to have the desired effect, and the government will need to monitor investor responses to ensure the competitiveness of the sector.
With International Oil Companies (IOCs) increasingly focusing on deepwater operations and divesting from onshore assets, KPMG emphasized the importance of incentivizing deep offshore projects to attract much-needed investments and drive the sector’s revitalization.
