Russia-Ukraine crisis: Cairn Oil & Gas bats for parity pricing on crude

With international crude oil prices hovering around $100 a barrel owing to the Ukraine crisis, Vedanta’s Cairn Oil and Gas batted for import parity pricing on crude oil to boost domestic production. Cairn Oil and Gas is India’s largest private exploration and production company.

It also pushed for a relook of the enhanced oil recovery (EoR) policy by bringing down levies to 40 per cent from the current 70 per cent.

“Any country, which is importing 85 per cent crude oil, should increase its domestic production. Our request is to have marketing freedom or import parity pricing. Domestic producers should get the same price as importers so that there is more level-playing field,” said Prachur Sah, deputy chief executive officer (deputy CEO), heading the Cairn Oil and Gas.

Interestingly, domestic crude sales to refineries are subject to central sales tax/value-added tax while the same is not applicable on imported crude. This makes domestic crude costlier by 3 per cent. As import parity is not there, this extra cost can’t be passed on to the customers. Domestic producers are bearing this cost now, adding to the cost of sales. The Union Budget in February 2021, amended the central sales tax (CST) Act to remove the benefit of 2 per cent concessional rate of CST against the C-form. This increases the production cost. 

When asked about the sops that the company requires from the government to increase production, he sought a relook at the EoR and IoR (improved oil recovery) policy.  This is because the majority of the incremental production in the short term is expected to come from pre-NELP (New Exploration Licensing Policy) blocks. The company also suggested changes in the shale policy to make it more viable for the industry. “We are quite bullish about shale. The cost of production of shale is expected to be around $55 a barrel. As of now, the policy needs to be revoked for pre-NELP blocks,” Sah added. 

The company is planning to start its shale pilot project this year and is expecting a potential resource base of around 3 billion barrels. Regarding shale, the industry was demanding the removal of 10 per cent higher profit petroleum, over and above the percentage of profit petroleum shared with the government under the existing production-sharing contracts. There were also demands to cap the share of the Centre's profit petroleum to 20 per cent on unconventional blocks.