Question Tag: Petroleum Industry Act 2021

Colamrud Petroleum (Nigeria) Limited, a subsidiary of a foreign oil and gas company, has been engaged in petroleum prospecting and exploration (upstream) operations for both local and foreign markets for over a decade. As part of corporate policy, the management reviews the quarterly performance reports in board meetings. Below is the financial summary for the first quarter (January – March) 2022, prepared by the Finance Controller:

Income (N’000):

• Value of oil sold (export): 900,380
• Value of oil sold (local): 223,300
• Value of gas sold: 430,100
• Other income: 7,200
• Gross revenue: 1,560,980

Expenses (N’000):

• Production cost: 210,730
• Tangible drilling cost (first appraisal well): 18,800
• Intangible drilling cost (first appraisal well): 17,600
• Cost of gas reinjection wells: 4,000
• Cost of drilling 3 appraisal wells: 24,000
• Rent: 13,000
• Royalties on export sales: 69,300
• Royalties on local sales: 9,800
• Salaries and wages: 170,500
• Head office shared costs: 62,000
• Repairs and maintenance: 8,930
• Customs duty on essentials: 2,900
• Depreciation: 66,000
• Interest on loans: 4,400
• Allowance for doubtful debts: 34,000
• Administrative expenses: 79,200
• Stamp duties on increase in share capital: 1,000
• Bank charges: 900
• Miscellaneous expenses: 22,500
• Income tax provision: 90,000
• Tertiary education tax provision: 6,000
• Total expenses: 915,560
• Net profit: 645,420

Additional Information:

1. Fiscal oil and gas prices were approved on an export parity basis by the Nigerian Upstream Petroleum Regulatory Commission.
2. Head office shared costs:
   • Research and development costs: 12,000
   • Indirect production costs: 50,000
3. Repairs and maintenance:
   • Repairs of oil pipelines and storage tanks: 6,000
   • Repairs of plant: 1,500
   • Improvement to building: 1,430
4. Allowance for doubtful debts:
   • Specific provision: 10,000
   • General provision: 20,000
   • Bad debt written off: 4,000
5. Administrative expenses:
   • Natural gas flare fees: 10,000
   • Transport cost: 13,200
   • Cost of obtaining information on oil existence: 7,300
   • Expenditure for acquisition of geological information: 14,900
   • Other allowable expenses: 33,800
6. Miscellaneous expenses:
   • Tenement levy paid to local government: 2,000
   • Contribution to Niger Delta Development fund: 5,500
   • Contribution to Host Community Development fund: 12,000
   • Donation to widows and orphans association: 3,000
7. Unabsorbed losses brought forward: 35,000

Required:

As the company’s Assistant Tax Manager, prepare a report for the Tax Manager that includes:

1. Adjusted Profit and Assessable Profit: Calculate the adjusted profit and assessable profit for the first quarter of 2022 in line with the Petroleum Industry Act 2021.
   (18 Marks)
2. Cost-Price Ratio Commentary: Provide comments on the cost-price ratio of the company, referencing the Sixth Schedule of the Petroleum Industry Act 2021.
   (2 Marks)

Total: 20 Marks