Tax Burden Squeezes Upstream Operators

Nigeria's leading independent oil and gas producers, Aradel Holdings and Seplat Energy, generated a combined pre-tax profit of N1.54 trillion in the first half of 2026. However, a massive N1.13 trillion, representing 73% of their combined earnings, was absorbed by total income tax expenses.

Aradel Holdings recorded a current tax charge of N748.1 billion, which was just N4.6 billion below its N752.7 billion pre-tax profit for the six-month period. This current tax charge was equivalent to 99.4% of the profit it generated before tax, though deferred tax adjustments ultimately reduced the total tax expense recognized in its income statement.

Seplat Energy faced a similar situation, with a current tax charge of $475.6 million representing 82.7% of its $574.9 million pre-tax profit. At an exchange rate of N1,377/$, this translates to a current tax charge of approximately N654.8 billion against N790.4 billion in pre-tax profit, leaving its total tax expense at N564.9 billion after deferred tax adjustments.

Consolidation and Policy Shifts Drive Tax Bills

For Aradel, the sharp increase in tax liabilities reflects the expansion of its operating and tax base at the end of 2025. On December 31, 2025, the company completed the acquisition of an additional 40% stake in ND Western Limited, increasing its ownership from 41.67% to 81.67% and making ND Western a subsidiary.

This transaction also increased Aradel's effective interest in Renaissance Africa Energy Company Limited from 33.3% to 53.3%. Consequently, H1 2026 was the first full reporting period reflecting Aradel's expanded exposure to these entities, causing its current tax charge to jump from N39.7 billion in H1 2025 to N748.1 billion in H1 2026.

Seplat's tax details show that its onshore assets, excluding Elcrest, have transitioned from the old Petroleum Profits Tax regime of 85% to the Petroleum Industry Act regime, which carries a combined tax rate of 60%. Despite this, its current tax charge remained high at 82.7% of pre-tax profit due to differences between accounting profit and taxable profit.

Oando Relies on Tax Credits for Profitability

Oando presented a contrasting picture, reporting a profit after tax of N68.56 billion that was made possible only by a N101.40 billion income-tax credit. This credit largely arose from the reversal of Companies Income Tax provisions previously recognized for the 2023 to 2025 financial years.

The tax credit was heavily concentrated in the first quarter, where Oando recognized N114.8 billion, while the second quarter recorded a tax expense of about N13.4 billion. This mirrors H1 2025, when a Q1 tax credit of N165.6 billion accounted for most of the N209.05 billion credit reported for that half-year.

Although Oando recorded a significant operating recovery during the period, its financing costs were still large enough to push the company into a pre-tax loss. The tax credit ultimately made the difference between a net loss and a profit after tax.

Investors Pile into Oil Stocks Despite Tax Drag

Despite the heavy tax burden, investors have continued to buy into the sector. The NGX Oil and Gas Index emerged as the best-performing sector index on the Exchange, rising 96.32% year-to-date as of July 2026, outperforming the NGX All-Share Index's 57.62%, the NGX Industrial's 85.42%, and the NGX Banking's 66.74%.

This rally was driven almost entirely by Aradel and Seplat. Aradel's share price rose 127.88% year-to-date, boosting its market capitalization to N6.63 trillion and adding N3.72 trillion in value, while Seplat's market cap rose 99.45% to N6.82 trillion, adding N3.40 trillion. Together, they added close to N7.12 trillion in combined market value.

In contrast, Oando's stock fell 8.96% over the same period, trading at just 53% of its 52-week high. This divergence occurred despite Seplat realizing an average of $94.13 per barrel in the period, which was a premium to Brent, and both companies posting sharp increases in pre-tax profits—up 293.5% at Aradel and 74.06% at Seplat.

However, the tax mechanics significantly reduced what actually flowed to shareholders. Aradel's reported H1 2026 basic earnings per share (EPS) stood at N35.37, compared to a pre-tax equivalent of N173.24 per share. Similarly, Seplat's reported EPS was N365.43, against a pre-tax-per-share equivalent of N1,280.87, showing that the final earnings priced by the market are only a fraction of what the businesses generated before tax.

Oando remains a cautionary case. Although its trailing EPS grew the fastest of the three at 77.83%, its stock has fallen and sits at barely half its 52-week high, reflecting the fact that its net profit was entirely dependent on the N101.4 billion tax credit rather than pre-tax operational profitability.