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The Centre and State should collect revenue from hydrocarbon production at the sale point of crude, to allow domestic producers leg room to deploy more resources.
“Instead of taxing crude oil production, there should be a tax on the final profit that is earned. Effectively, the government has to have much of the profit from petroleum, which has to be shared. The government share also comprises royalty and cess. If you take all this into account, then the cost of exploration is merely $8 a barrel,” Ajay Kumar Dixit, CEO at Cairn Oil & Gas, said.
“To make the business viable, you can take out the royalty and cess at the sale point. At present, effectively, 70 per cent of the revenue is going to the government in one shape or the other,” he told BusinessLine . Even though the cost of production is much lower than the sale price of crude oil, domestic producers hardly have leg-room as they end up shelling the cess and royalty payouts before the sale of the products. Dixit hoped that the coming Union Budget lowers the cess payout incurred by the domestic crude oil producers.
He said a relaxed fiscal regime can help boost production and allow deployment of newer, more expensive technologies. “One can speed up production in the blocks which have been auctioned under the Open Acreage License Policy (OALP) regime. Production can be increased in earlier awarded blocks too, wherever there are operating basins. The ease of doing business provided under the OALP should get transferred to existing blocks. This can be done whenever extensions become due for existing blocks,” he said.
Rajasthan block
Dixit also said that the final extension to Cairn Oil & Gas for the company’s prolific Rajasthan block is undergoing some more negotiation with the government.
He said, “We have got an extension for the Rajasthan block, but we have been asked to fulfil some conditions, for which discussions are ongoing. The Ministry of Petroleum and Natural Gas and the Directorate General of Hydrocarbons have put some conditions of overall audit accounts and others. which are under resolution. We feel that these are some conditions of day-to-day operation. It has nothing to do with the terms of extension.”
“This is because under the terms of extension, it is required that we are able to produce and show the productivity of the basin for an additional 10 years. That is something we have shown,” he added.
On how Cairn Oil & Gas will be balancing different political regimes in the Centre and State, Dixit said that there should be an over-arching guideline to make exploration and production of oil easier, by streamlining land acquisition and road access in the State.
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