Nigeria has offered Shell and its partners a much larger tax credit for the Bonga Southwest Aparo project because the government faces a simple choice: improve the economics of the long-delayed project or risk leaving one of the country’s biggest undeveloped oil fields untouched.
The Federal Government approved a production-linked tax credit of $11.50 for every barrel produced from the deepwater field. The incentive more than doubles the standard credit available under Nigeria’s existing fiscal framework.
The government expects the concession to push Shell closer to a final investment decision on the project, which could attract about $20 billion in foreign investment and produce roughly 150,000 barrels of crude oil daily when completed.
At first glance, the decision looks like Nigeria has handed Shell an unusually generous tax break at a time when the government needs more revenue. But the commercial reasoning runs deeper.
Nigeria is not simply reducing Shell’s tax bill. It is trying to make a highly expensive offshore project competitive enough to attract capital in a global market where oil companies can choose between opportunities in Brazil, Guyana, Angola and other producing countries.
Why the government reduced the tax burden
Deepwater oil projects cost billions of dollars to develop. Companies must pay for seismic studies, drilling, subsea equipment, production facilities and offshore infrastructure long before they sell the first barrel.
The projects also take years to complete and expose investors to changing oil prices, financing costs, regulatory uncertainty and construction risks.
Bonga Southwest Aparo has remained stalled for almost two decades as Shell and its partners assessed whether the expected returns justified the cost and risk. Nigeria also had to resolve a dispute settlement agreement dating back to 2021 before the project could move forward.
The new tax credit directly addresses that commercial problem.
By allowing Shell to reduce its tax liability by $11.50 for every barrel produced, the government lowers the project’s effective cost and improves the return that investors could earn after production begins.
KPMG Nigeria has previously explained that fiscal incentives for deepwater projects aim to produce a competitive internal rate of return and attract investment into capital-intensive developments. The firm has also noted that Nigeria needs such incentives as international oil companies increasingly move away from onshore assets and focus on deepwater operations.
In practical terms, Shell needed stronger financial reasons to commit billions of dollars. Nigeria provided one.
Why this is not an immediate cash giveaway
The structure of the incentive matters.
The government tied the tax credit to actual production. Shell does not receive the full benefit simply because it announces an investment or begins negotiations. The company must develop the field and produce oil before it can claim the credit on each barrel.
That arrangement reduces some of the risk to Nigeria.
The government will earn less tax per barrel than it would under the standard framework, but it will only surrender that revenue when the project starts producing.
Without the incentive, Bonga Southwest Aparo could remain undeveloped, leaving Nigeria with no new production and no additional tax, royalty or export revenue from the field.
The government appears to have concluded that collecting a smaller share from a working $20 billion project offers more value than demanding a larger share from a project that never leaves the planning stage.
What Shell gains from the deal
Shell gains a clearer path to making Bonga Southwest commercially viable.
The tax credit reduces the company’s effective production costs, improves its expected return and provides some protection against the financial risks attached to a long-term deepwater investment.
It also gives Shell greater confidence that Nigeria wants to compete for global energy capital.
The company has continued to strengthen its position in Nigeria’s offshore sector while reducing its exposure to onshore operations. Shell approved the Bonga North project in December 2024 and later increased its interest in the wider Bonga field after acquiring part of TotalEnergies’ stake.
Bonga Southwest Aparo would deepen that offshore strategy.
The incentive also improves Shell’s ability to defend the project internally. Large international oil companies compare projects across several countries before allocating capital. A Nigerian project must compete with other opportunities for funding, technical staff and equipment.
The $11.50-per-barrel credit could help Bonga Southwest rank more favourably when Shell makes that comparison.
What Nigeria stands to gain
Nigeria’s biggest expected benefit is new crude oil production.
The country has struggled to maintain output because of ageing fields, low investment, operational disruptions, theft and years of uncertainty over petroleum regulations.
Bonga Southwest could add about 150,000 barrels per day when fully operational. That would increase export volumes and strengthen the flow of foreign currency into the economy.
Nigeria would also continue to earn money from the project through the government’s share of production, royalties, taxes that remain payable and returns from NNPC’s participation.
The development could create more than 5,000 direct and indirect jobs, according to NNPC, while generating contracts for engineering companies, marine-service providers, fabricators, logistics businesses and other local suppliers.
Deepwater production also carries a security advantage. Offshore assets generally face less exposure to the pipeline theft and vandalism that have disrupted several onshore operations.
For the government, the project could therefore provide a more reliable source of production and export earnings.
The deal could revive other stalled projects
The tax credit may extend beyond Shell.
People familiar with the arrangement said the government plans to offer similar production-linked incentives to other companies developing new deepwater projects. The framework could remain available until at least 2029.
That could encourage other international oil companies to reconsider projects they had delayed because of weak returns or uncertain fiscal terms.
Nigeria attracted about $5.3 billion in upstream investment in 2025, matching the amount received over the previous eight years combined, according to a Financial Times assessment of the sector’s recent recovery.
A final investment decision on Bonga Southwest would strengthen the argument that Nigeria’s reforms have started producing results.
It could also signal that the government is willing to negotiate project-specific terms when standard fiscal conditions cannot attract sufficient capital.
Experts View
Tax incentives alone cannot guarantee investment.
Industry experts have repeatedly argued that Nigeria must combine fiscal relief with regulatory certainty, faster approvals, efficient contracting and consistent implementation.
Analysts cited by Reuters in an assessment of Nigeria’s cost-efficiency tax reforms said the success of such incentives depends on coordination among government agencies. Incentives may attract initial interest, but delays, policy reversals and administrative disputes can still stop projects from moving forward.
Nigeria must therefore publish the final terms clearly and protect the agreement from sudden changes.
Shell has reportedly requested that the government gazette the incentive. Formal publication would strengthen its legal standing and give investors more confidence that future administrations will respect the approved framework.
The government must also set clear deadlines and performance conditions. It should link the incentive to new capital spending, production targets and local-content commitments.
President Bola Tinubu previously said the incentives would not serve as blanket concessions. He said the government would ring-fence them around new investment, additional production and strong local participation.
That distinction matters. Nigeria should reward companies for delivering projects, not merely for holding licences or announcing investment plans.
A calculated trade-off for both sides
The agreement gives Shell lower taxes and a better chance of earning an acceptable return from one of the world’s most expensive types of oil development.
Both sides benefit, but only if the project moves beyond negotiations.
Shell must reach a final investment decision, commit the capital and deliver production. Nigeria must provide regulatory stability, enforce local-content obligations and ensure the public receives more value than the tax revenue it gives up.
The tax credit should not be judged by how generous it looks today. It should be judged by whether Bonga Southwest finally begins producing after nearly two decades of delay.
For Nigeria, the logic is clear: a smaller tax claim on a producing field may be worth far more than a larger claim on oil that remains permanently beneath the seabed.
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