To encourage new investments in the country’s oil and gas upstream sector and boost domestic hydrocarbon output, the government has revised royalty rates for crude oil and natural gas production.
The Ministry of Petroleum and Natural Gas on May 8 notified the new framework, which offers lower royalty burdens across categories of oil and gas fields, particularly in deepwater and ultra-deepwater regions.
This policy shift is likely to improve the viability of technically challenging and capital-intensive exploration projects, where the country has faced challenges to receive sustained private investment in spite of rising energy demand and heavy dependence on imports.
As per the revised structure, while offshore crude production will now attract an 8 percent royalty, effective royalty on onshore crude oil production has been reduced to 10 percent. The effective royalty rate for natural gas producers has been brought down to 8 percent through a revised formula for calculating the well head price.
Replacing the earlier system that relied on actual production-related costs, the government has introduced a fixed deduction mechanism towards post well-head expenses.
