Ican 2023 Advanced Taxation Question 4

Jaga Petroleum Limited was granted an oil mining lease (OML) in January 2001 for exploration of oil and gas in onshore and shallow water operations for twenty years and a further renewal of twenty years, if application is made. At the expiration of the initial license in December 31, 2020, the company decided not to apply for extension of its current license under the Petroleum Profit Tax regime and opted for automatic conversion on January 1, 2021, to the petroleum mining lease (PML) as enshrined in the Petroleum Industry Act 2021. The following details were extracted from the financial statements of the company for the year ended December 31, 2021: Revenue: Category Type Quantity (million barrels) Actual Price $ Fiscal Price $ Crude oil sold Bonny light 7.5 75 77 Forcados medium 5.2 69 70 Condensate from associated gas sold ABC condensate 4 55 54 Gas liquid from associated gas sold XYZ liquid 3.8 48 50 Expenses/expenditure: Item N’million Royalty incurred and paid for 118,900 Production cost 112,660 Concession rentals 25,200 Repairs of plant, machinery and fixtures 2,680 First exploration well costs 2,770 Repairs of production implement utensils 1,850 Cost of gas reinjection wells 1,250 NDDC charge 200 Purchase of information on existence of petroleum deposits 305 Customs duties 106 First two appraisal wells costs 3,900 Decommissioning and abandonment 1,500 Depreciation 2,820 Environmental remediation fund 1,800 State government ground rent fee 22 Finance costs 25 Host community costs 1,400 Miscellaneous expenses 1,129 Administrative costs 1,980 The following additional information was also made available: First two appraisal wells costs consisted of 60% tangible costs and 40% intangible costs. Expenditure for the purchase of information on existence of petroleum deposits included: N’million Acquisition of geophysical information 100 Geological data and information 120 Others 85 Miscellaneous expenses were: N’million Gas flare fee 720 Donations to orphanage homes 132 Terminalling cost 169 Stamp duty 18 Signature bonus paid for the acquisition of petroleum deposits 90 Agreed capital allowances for the year was N4,500 million. Production allowances after commencement of the Act: N’million Onshore operations 800 Shallow water operations 1,100 Assume that N440 is equivalent to US $1 and tax liabilities payable will be in local currency (Naira).