News Oil & Gas

Small and marginal oil & gas cos seek exemption from windfall tax


Small and marginal oil and gas field operators have urged the government to withdraw the levy of windfall tax on crude produced by them this year.

In a letter to the oil ministry, the Association for Discovered Small Filed Operators (ADSFO) has said that small and marginal field operators should be exempt from petroleum cess (levied by way of special additional excise duty or SAED) or the windfall tax on their entire production for FY23 as it would be the first year of production for almost all the field operators.

The Centre had imposed cess on crude and petroleum products by way of SAED on 1 July, 2022 to capture abnormal profits being made by oil companies in the wake of a sharp rise in global oil prices, but this was not applicable on crude oil produced from DSF (discovered small field).

Subsequent, notifications clarified that windfall tax would not be levied on operators whose crude oil production was less than 2 million barrels in FY22. Further, the notification also explained that windfall tax will not be levied on incremental production over the production reported in FY22.

ADFSO in its letter has said that though the intention of notification seems not to overtax small and marginal field operators, the conditions in the notifications make it difficult for DSF operators to get exemption from windfall tax. They said, as most of the DSF operators were yet to produce oil and gas from their fields and first production may start in FY23 itself, clarification should be issued by the finance ministry that all production should be exempt from cess this year.

The letter mentions that there is no way that DSF operators could claim exemption from cess on incremental production during the previous year as there was no production during that period. So, all production in FY23 should be taken as incremental as this granted complete exemption from windfall tax.

The association has further requested the Centre to notify clarification on exemption of crude petroleum from contract areas on revenue sharing contracts (RSC). 

It is worthwhile to submit that since huge capital investment has been made to bring these projects on development mode and production, it would be desirable that the government issues clarification to lessen the burden of windfall taxes on small players, the association said in its letter.

According to the Directorate General of Hydrocarbons (DGH), in the third round of DSF auctions earlier this year, it offered 32 contract areas with a total resource potential of around 230 million tonnes of oil equivalent (MMtoe)/1.7 billion barrels (oil and oil equivalent of gas (OEG)). The government introduced DSF in October 2015 to monetise unmonetised discoveries of state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL). Under the DSF policy, two bid rounds in 2016 and 2018 were conducted wherein 54 contract areas with 101 fields were offered. The third round of DSF was conducted in April this year.

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