Domestic oil and gas companies may soon get cess and royalty relief- Details

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Published: May 27, 2020 2:00 AM

It is set to ‘adopt a balanced approach towards capital spending’, and expects the government to take favourable policy measures to boost the company’s performance.

ONGC’s per-barrel production cost is in the range of $35-40 and global crude prices have been trading at below this rate for a long time. ONGC’s per-barrel production cost is in the range of $35-40 and global crude prices have been trading at below this rate for a long time.

The government is considering to lower the cess and royalty for domestic oil and gas companies, with indigenous production becoming increasingly un-remunerative due to the huge fall in global crude prices.

“The petroleum and natural gas ministry has recommended to the finance ministry to look into the expectations of the oil and gas producing companies, about the cess and royalty issue in a sympathetic manner,” Union oil minister Dharmendra Pradhan told a business channel. “We are concerned about this issue, primarily ONGC, Oil India and other private companies,” Pradhan added.

ONGC has now come under additional pressure with the recent slide in global crude prices. It is set to ‘adopt a balanced approach towards capital spending’, and expects the government to take favourable policy measures to boost the company’s performance.

ONGC’s per-barrel production cost is in the range of $35-40 and global crude prices have been trading at below this rate for a long time. The price of domestic gas has also been slashed 26% to $2.39 per million British thermal units (mmBtu), whereas ONGC’s output cost is around $3.8-6.6/mmbtu in various fields.
The cess on crude production (value) is 16.7%, while royalty charged is 15%.

“We understand that ONGC has requested the government to consider exempting it from payment of cess, royalties, and profit petroleum until crude prices are less than $45/barrel,” S&P Global Ratings said recently. The agency estimates ONGC’s consolidated earnings before interest taxes depreciation and amortisation (Ebitda) will decline by 30%-35% during FY21.

According to sources, the industry has requested the government to defer and reduce the royalty, cess and profit petroleum it receives from domestic crude oil producers under the PSC regime.

They also want PSCs, slated to be renewed in September, to be extended till FY21-end. Other demands include the removal of ceiling on gas price for deep water, ultra-deep water and high-pressure-high-temperature (HPHT) fields and zero GST levies on exploration and development activities.

Apart from Cairn Oil and Gas, which is the key player, other private firms engaged in domestic crude production include Selan Oil, Hindustan Oil Exploration Company and Sun Petrochemicals.

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