Standard Post with Image

CESS Contribution to Total Oil Cost has Doubled with Decline in Oil Prices

News

The government is examining a demand by oil companies to lower cess on output by switching from a fixed amount to ad valorem as the crash in crude prices has disproportionately increased the contribution of cess to their overall cost.

Source:  ET

SNP Insights

Stiff decline in oil prices, has raised share of CESS on total cost of oil from 10% in 2012 to 20% in 2015. As the  drop of prices has reduced government subsidy burden significantly and has lowered down oil import cost substantially, reduction of CESS to ad valorum from fixed cost will not impact much to government’s revenue inflow. Yet it would boost profitability of upstream players to a large extent leading to strong balance sheet & more investment on exploration activity & hence energy security for the country.

Source: SNP Infra Research