A revision in the windfall tax announced on Tuesday has has completely removed the tax on indigenous crude oil. From Rs 3,500 a tonne about a fortnight ago, the tax has been reduced to nil currently. This follows a sharp fall in global crude oil prices by about 20 per cent since the beginning of 2023.
The move should help exploration majors – ONGC and Oil India – improve their margins. We expect the stock prices of ONGC and Oil India to react positively to this move.
ONGC, which is the country’s largest crude producer, produced about 4.62 million metric tonnes of crude oil during the October-December 2022 period. In January and February of this year, it produced a total of 2.93 million metric tonnes. With a monthly average production of about 1.5 million tonnes, the removal of windfall tax should result in a saving of Rs 263 crore for ONGC. The company reported an operating profit of Rs 21,871 crore in the October-December period.
Oil India produced 0.8 million tonnes of crude during the 3QFY23 period and 0.52 million tonnes in January and February 2023. With an average monthly production of 0.26 million tonnes, the saving for the company should be about Rs 46 crore. During the October-December 2022 quarter, the company reported operating profit of Rs 3,908 crore.
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The calculation assumes the nil windfall tax benefit only for a fortnight as it is reviewed every fortnight. Further, crude prices have been on the boil over the last few days, thanks to the OPEC decision to cut production, with Brent having increased by 18 per cent in just about a week. Given the sharp rally in crude, one cannot rule out an increase in the windfall tax when the Government meets two weeks from now to review the tax rate.