The price of Indian basket of crude fell 69% to $22/barrel on March 31 since the January 8 peak of $69.95/barrel it touched in 2020, dragging down the profit share of contractors.
With crude oil prices plummeting to record lows, the profit of private domestic crude oil producers from production sharing contract (PSC) fields have dwindled to as low as 20 cents per barrel, analysts said. When crude ruled at $60 per barrel in January, these producers used to make a profit of around $6/barrel.
Indigenous crude oil production caters to about only 15% of the country’s requirements, keeping the dependency on imports high. 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 production sharing contracts, slated to be renewed in September, to be extended till FY21-end.
The price of Indian basket of crude fell 69% to $22/barrel on March 31 since the January 8 peak of $69.95/barrel it touched in 2020, dragging down the profit share of contractors. Apart from Cairn Oil and Gas, other private firms engaged in domestic crude production include, Selan Oil, Hindustan Oil Exploration Company and Sun Petrochemicals.
“The government continues to take away about 98% share of revenue though cess, royalty and profit petroleum even in low crude price regime,” an industry veteran told FE on conditions of anonymity. The Union government, in February 2019, reformed the oil exploration and licensing policy to enhance exploration activities, attract domestic and foreign investment and accelerate domestic production of oil and gas from existing fields. However, domestic production has been falling with the ageing of existing fields and muted response from the industry to take up new projects, mainly due to lack of adequate incentives.