Ican 2026 Advanced Taxation Question 4

Opobo Petroleum Producing Company Limited had been in oil exploration business for more than thirty years. The company operates in both onshore and shallow water in the Nigerian Western Delta region. Upon expiration of its oil mining licence (OML) on December 31, 2022, the company automatically converted its OML to petroleum mining lease (PML) on January 1, 2023. This was in line with the provisions of the Petroleum Industry Act (PIA), 2021. The company has provided the following results in respect of its operations for the year ended December 31, 2024: (i) Crude oil sold: Type Quantity (million barrels) Actual price US $ Fiscal price US $ Bonny light 10.8 73 75 Forcados medium 7.5 66 66 (ii) Condensate from associated gas sold: Type Quantity (MMBTU) Actual price US $ Fiscal price US $ OSO condensate 3 million 32 33 Escravos condensate 2.3 million 30 29.5 (iii) Natural gas liquid from associated gas sold: Type Quantity (MMBTU) Actual price US $ Fiscal price US $ Penington 2.5 million 33.5 34 (iv) Other income: N’million Ocean going tanker business 775,000 Dividends received (net)(from shares in Nigerian listed company) 67,500 842,500 (v) Expenses: N’million Royalty cost paid 357,500 Production cost 834,800 Drilling costs for first 3 appraisal wells 48,900 Terminalling cost 1,200 Repairs of plant, machinery, and fixtures 1,020 Repairs of alteration of production implement utensils 440 Customs duty on essentials 200 Environmental remediation fund 1,750 NDDC charge 300 Stamp duty 150 Host community costs 42,600 Donations to government recognised orphanage home 125 Finance and other bank charges 290 Cost of gas reinjection wells 1,800 Depreciation of plant, machinery and fixtures 1,950 Concession rentals 2,200 Others expenses 1,580 The following additional information was provided: (vi) The drilling costs for the first 3 appraisal wells consisted of 80% tangible costs and 20% intangible costs. (vii) Other expenses comprised: N’million Acquisition of geophysical and geological data and information expenses 310 Gas flaring penalty 250 State Government ground rent 300 Signature bonus -acquisition of petroleum deposit 500 Head office shared cost 220 1,580 (viii) Schedule of qualifying capital expenditure: Year of acquisition Type Amount (N’million) 2019 Pipeline expenditure 1,800 2020 Drilling expenditure 1,900 2021 Building expenditure 1,700 2022 Plant expenditure 980 2023 Pipeline expenditure 1,200 2024 Drilling expenditure 1,750 (ix) Unrecouped losses and capital allowances from previous assessment years as agreed with the Federal Inland Revenue Service, were N 1,215million and N480million, respectively. (x) In the immediate preceding assessment year, the excess cost not utilised as a result of cost price ratio (CPR) limit amounted to N170million. (xi) Production allowances after commencement of the PIA 2021, consisted of: N’million Onshore operations 1,200 Shallow water operations 1,100 2,300 (xii) Assume that N1,530 is equivalent to US $1 and tax dues are to be paid in the local currency (Naira). The company’s management meeting has been scheduled for the next three weeks.