Cairn India: Taxing times

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Cairn India on Friday slipped 5.15 per cent to Rs 232.90 on the Bombay Stock Exchange on reports that the government might impose a special tax on oil firms’ incremental revenues beyond $75 per barrel as part of the subsidy-sharing regime of the petroleum sector.

The scrip has underperformed the market over the past month until August 8, rising only 3.3 per cent compared to the 11.8-per-cent rise in the benchmark Sensex. According to a report by Morgan Stanley, all of Cairn’s blocks (Rajasthan, Ravva and Cambay) are pre-New Exploration Licensing Policy (NELP).

Production from the Rajasthan fields, which are Cairn’s largest oil producing assets, was slated to begin in the second half of 2009. However, the output will now depend upon the amount and mechanism of cess devised by the government.

Profits from Ravva and Cambay, in which Cairn holds 40 per cent stake in each block, would be impacted. The impact on Cambay field is expected to be marginal as it is a gas field. The report estimates that for every $1 per barrel change in Cairn’s net crude oil realisation changes its earnings by 2 per cent.

Cairn India reported a net loss of Rs 46.68 crore in its second quarter June 2008 against a net loss of Rs Rs 7.57 crore in the year-ago period. Sales rose 169.4 per cent to Rs 0.97 crore in June 2008 compared with the year-ago period. Cairn India explores and produces crude oil and natural gas in India.