The aim of this paper is to examine the ownership, the legal framework as well as the basic components of the petroleum profits which components are revenue, adjusted profits, assessable profit, chargeable profit, assessable tax and chargeable tax.In Nigeria, the petroleum industry is the bedrock of the economy and is responsible for about 90 percent of her total revenue. Her other sources of revenue include, inter alia, agriculture, solid minerals, goods and services and most importantly taxes collected from various sources including the petroleum industry. Companies and corporations in Nigeria are taxed principally under the Companies Income Tax Act. Cap 60, Laws of the Federation of Nigeria, 1990.. While companies engaged in petroleum operations are taxed specially under the Petroleum Profit Tax Act, as amended (PPTA Cap.354, LFN, 1990). Because of the peculiar and complicated nature of the oil industry, the Federal Board of Inland Revenue (FBIR) is saddled with the onerous task of collecting taxes from the various companies including those engaged in the oil business.This project will examine the petroleum profit taxation system established under the PPTA, with a view to assessing whether or not it is effective in dealing with the myriad of problems associated with the financial areas of the oil industry particularly the problem of tax evasion on the part of some companies and deliberate fraudulent and incorrect assessment of the tax due and payable on petroleum profits by others.This paper also focuses on the assessment of the petroleum profit tax under the Petroleum Profit Tax Act. Cap P13, Laws of Federation of Nigeria 2004, as well as judicial authorities‟ regarding same. Nigeria‟s economy is totally dependent on oil.It is no doubt that proceeds from the sale of crude oil holds the mainstay of the Nigerian economy since 1970s.equally not in contention is the fact that oil explorations and exploitation requires enormous amount of money and technological know-how to execute.This paper also concludes that petroleum profit tax is one of the most important components direct taxes in Nigeria that affects the economic growth, therefore should be properly managed to reduce the level of evasion by petroleum exploration companies in Nigeria. The paper recommends among others that companies involved in petroleum operations should be properly supervised by the relevant tax authority (FIRS) to reduce the level of tax evasion, government should show more accountability in the management of tax revenue and finally, the level of corruption in Nigeria and that of government officials should be drastically reduced to win the confidence of tax payers for voluntary tax compliance. More so, government policy should create a conducive-business environment that will attract foreign investors to the country.