Cairn asks govt to revisit oil taxation regime; says funding new exploration difficult

With taxes and government profit share eating away more than three-fourth of revenue, India's biggest private oil producer Cairn Oil and Gas has sought a review of taxation system during low oil price regime, saying funding exploration will be difficult in the present scenario.

Ajay Dixit, the chief executive of Vedanta Ltd's oil and gas arm, said the government levies 20 per cent cess on oil price realised and an equivalent amount has to be paid to the state government in royalty.

On top of this, the government is entitled to profit petroleum of 50 per cent of earnings after deducting cost.

"In the present low oil prices, there is hardly any money left after paying cess, royalty and profit petroleum. There is a need to revisit these levies," he said.

He said cess, which was brought in when oil prices were very high, should not be levied if the price realised is less than USD 45 per barrel.

Also, the rate of profit petroleum also needs to be revisited.

"There is no way we can fund exploration in the present high incidence of taxation and low oil prices continue," he said, adding exploration is a risky business and not funded by debt.

International oil prices had fallen to low-20s and have only in the past couple of days bounced to USD 27 per barrel on signs that the world's biggest producers are moving toward a deal to end their price war and cut output as the coronavirus eviscerates energy demand.

Dixit said the outbreak of COVID-19 has cost the company 50,000 barrels of oil and oil equivalent gas in production.

The company was producing 1,80,000 barrels of oil and oil equivalent gas (boepd) from its flagship Barmer oil and gas fields in Rajasthan before it took a maintenance shutdown in February. The shutdown was meant to hook up a new project that could have helped ramp up production further but it could achieve only 1,60,000 boepd.

"We would have been at 210,000 boepd but for the covid-19 outbreak. The contract labour went away (following the lockdown) and long lead equipment have got stuck in Italy and China," he said. "We dont know when the labour will return and when we will be able to source the equipment."
The company, he said, is managing operations in Rajasthan with bare-minimum workforce. "An acreage as large as 3,500 square kilometes is being manned by around 1,200 staff now instead of 7,500 in normal times."