Oando’s N410m penalty upheld as Nigeria widens petroleum tax net

A Nigerian tax tribunal has upheld a N410m late-returns penalty against Oando Deepwater Exploration Nigeria, rejecting the company’s argument that it was not obliged to file petroleum tax returns because its offshore block has yet to produce “chargeable oil”.

In a judgment delivered in Lagos on 20 February, the Tax Appeal Tribunal said the penalty imposed by the federal tax authority was collectable under Section 30(4) of the Petroleum Profits Tax Act (PPTA). The tribunal found the sanction arose from the late filing of the company’s 2024 petroleum profits tax returns.

The ruling matters beyond the amount in dispute. It reinforces a broad reading of what counts as “petroleum operations” for tax purposes, potentially increasing compliance exposure for companies that hold interests in oil mining leases that are still in exploration or appraisal.

Oil tax – exploration or production?

Oando challenged the penalty after receiving a letter dated 26 February 2025, arguing that the tax authority had applied the wrong legal framework. The company said its returns were properly filed under the Company Income Tax Act, and that the PPTA provision relied on to levy the penalty should not apply to its position.

Although Oando holds an interest in OML 135 (formerly OML 214) under a production sharing contract (PSC), it told the tribunal that the block remains at the exploratory stage and has not reached chargeable production. It described the penalty as arbitrary and inconsistent with the relevant tax statutes, and said it reflected a misunderstanding of how PSC obligations are administered under Nigeria’s deep offshore regime.

Under the PSC model, Oando argued, petroleum profits tax returns are filed based on contract areas, with the operator – in this case, the Nigerian National Petroleum Company (NNPC), the state oil company – responsible for preparing and submitting returns, rather than non-operating partners.

It cited earlier tribunal decisions, including Statoil vs FIRS and Esso Oil vs FIRS, which it said supported the view that the operator bears primary responsibility for filing in respect of PSC contract areas.

Oando ordered to pay

The tax authority opposed the appeal, insisting the penalty was valid because Oando was engaged in petroleum operations through its interest in the lease, regardless of whether production had started. It argued that the PPTA does not condition filing obligations on the commencement of crude output, but on whether a company is engaged in petroleum operations.

The tribunal sided with the tax authority. It affirmed that the statutory definition of petroleum operations extends beyond production to activities such as “drilling” and “testing”, and said exploration is part of the operational chain the law seeks to capture.

“Exploration is an integral component of petroleum operations without which there can be no production,” the tribunal held, concluding that Oando’s failure to file within the prescribed time made it liable for the late-returns penalty.

The decision can be appealed to the Federal High Court within 30 days of delivery, according to a lawyer familiar with the case. (The Africa Report)