Question 2
ICAN
•
2024
•
ADVANCED TAXATION
•
mixed
Case Stimulus
New Rain Petroleum Company Limited has been operating in the onshore and shallow water areas of the Niger Delta region for over fifteen years. The company was granted a petroleum mining lease licence in January 2021. In its bid to improve profitability, the company’s management intends to apply for licence to operate in the deep sea area as from 2025. The decision of the management is expected to be laid before the members of the company at the 2023 annual general meeting, which comes up in the second half of 2024.
The following was extracted from the book of accounts of the company for the year ended December 31, 2023:
Income: N’ million N’ million Fiscal value of crude oil sold (note 1) 191,100 Value of condensate from associated gas sold (note 1) 84,474 Value of natural gas liquid from associated gas sold (note 1) 55,328 Other incidental income 151 Realised exchange gain 38 Gross total income 331,091
Expenses/deductions: Royalty incurred and paid 86,200 First exploration wells cost 6,800 First two appraisal wells costs 18,700 Joint cost- terminalling 12,000 Gas reinjection wells cost 3,420 Salaries and wages 9,300 Power cost 1,650 NDDC charge 125 Concessional rentals 60,430 Depreciation of assets 13,860 Allowance for doubtful debts (note 3) 2,400 Host community trust fund contribution 4,800 Stamp duty 16 Staff welfare 350 Travelling 180 Donations and subscription (note 4) 6 Decommissioning and abandonment 1,300 Environment remediation fund contribution 1,250 General expenses (note 5) 500 Finance costs 1,750 225,037 Net profit 106,054
Additional Information
{
"title": "Additional Information",
"content": "(i) Data on crude oil; condensate from associated gas sold; and natural gas liquid from associated gas sold; Category Quantity (million barrels) Actual price USD Fiscal price USD Crude oil 5.25 70 72 Condensate from associated gas 3.61 45 44 Natural gas liquid from associated gas 2.80 38 40\n(ii) Omitted from the records was a balancing charge of N1, 500,000 made from disposal of an old oil equipment platform;\n(iii) Allowance for doubtful debts: N’ million Specific provisions 900 General provisions 1,500 2,400\n(iv) Donations and subscription: N’ million Recognised orphanage homes 3.0 Host community’s cultural group 2.0 Subscription to oil and gas association 1.0 6.0\n(v) General expenses: N’ million Penalty for gas flare 250 Printing of stationery items 140 State government levy 110 500\n(vi) Agreed capital allowances: N’ million Brought forward 167 For the year 2,105 2,272\n(vii) Production allowance: N’ million Onshore operations 900 Shallow water operation 1,700 2,600\n(viii) The exchange rate averaged N520 to 1 USD during the year; and (ix) Assume the tax liabilities are to be paid in domestic (Naira) currency."
}
Requirements
(
a
)
Hydrocarbon tax payable in the relevant assessment year
(
b
)
The tax implications, if the company decides to involve or invest in deep offshore areas
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About This Question
This is
Ican
2024
Advanced Taxation
Question 2.
It is one of the
mixed
questions from the
2024
Ican
Advanced Taxation
examination.