Tax cut for oil cos but realizations muted
1 min read 22 Aug 2022, 01:53 AM ISTFalling crude oil prices have prompted the government to cut the windfall tax
PremiumNEW DELHI : Domestic crude oil producers received some respite from the government during the third fortnightly review of the windfall gains tax last week. Producers will have to pay a lower windfall tax of ₹13,000 per tonne on the sale of oil compared to ₹17,500 a tonne during the previous fortnight.
Falling crude oil prices have prompted the government to cut the windfall tax. Brent that was trading above $100 a barrel level around a fortnight ago now stands at $93-94 a barrel. A similar pass-through has been provided to oil companies, analysts said. The companies that were paying around $30 a barrel windfall tax are now likely to pay around $22 a barrel.
Analysts said that while it’s a positive development, the overall oil realizations are now likely to remain capped for oil-producing companies at close to $70 levels.
Analysts are therefore now working on $65-70 a barrel levels of oil realisations for upstream oil companies like Oil and Natural Gas Corporation (ONGC) and Oil India Ltd. (OIL), which had reported much higher realizations during Q1 benefiting from higher oil prices.
Oil India Ltd had realized average crude price of $112.73 / barrel in Q1FY23 compared to $57.15 / barrel in the year ago quarter. ONGC had reported oil realization at $108.5/barrel, up 65% y-o-y and 14% sequentially during the first quarter benefitting from the rise in crude oil prices, before the imposition of Windfall Tax from July.
These reported realisations are not likely to be repeated.
Analysts at Nomura Research in a 16 August report said ONGC’s earnings have likely peaked in Q1FY23. “We note that Brent prices, while still elevated, have corrected sharply from the recent peaks. Moreover, with the imposition of windfall cess, ONGC’s net oil retention would get capped."
Analysts said that with the adhoc tax imposed by the government, not only the profits of oil producing companies will be capped but they will also see uncertainties around valuations that they garner.
