India – Opportunities For India In Current Downtrend Of Oil Prices.
Through this short post, we seek to examine the current downtrend in oil prices, and what it means from an Indian context. As in any downtrend, the intent ought to be to maximise opportunities and isolate effects of any threats and the author accordingly seeks to analyse how these threats may be turned into opportunities. This short piece further examines how, despite the usual market rhetoric, India could position itself to take advantage of the current downturn. Global Response In the wake of the downtrend, the immediate response of global exploration and production (E&P) companies was to hold off large capital investments in new projects and capital-intensive exploration activities. These decisions now stand vindicated as barrel prices have hovered around the US$45-50 mark. Several of the big companies made retrenchments and streamlined costs across the supply chain. Nevertheless, a fundamental observation emerging from the downtrend is that its effects are not uniform on players in the industry. Companies that diversified and integrated their base across upstream, midstream and downstream assets are in a far better position to manage the downtrend and, in some cases, even benefit from it. Companies that were dependent on the crude price for their bottom lines have been severely challenged to weather this crisis. Some also face severe devaluation or even bankruptcy, thereby creating an asset base for acquisition by companies with financial agility and capital strength. Efficient Production versus Aggressive Exploration The focus globally is maximum production with minimum costs. Service providers and suppliers are scrounging for live orders, creating a buyers’ market. In India, Government owned enterprises (PSUs) have been strategically mandated to invest in capex. The Oil and Natural Gas Corporation of India (ONGC) is rolling out mega re-development projects off the ageing western offshore fields, as well as the ambitious integrated development plans for eastern offshore deepwater fields. Implementing these high-value projects within the limited window is critical. Overseas Asset Acquisition The past year has seen some big ticket acquisitions such as the Royal Dutch Shell acquisition of BG Energy in the upstream sector, and Halliburton’s announcement of the acquisition of Baker Hughes in the midstream sector, which did not go through. M&A in oil & gas globally has been relatively quiet owing to disagreements on valuation due to price volatility, amongst other factors. Big players who could sustain low prices for a year and half will now start feeling the strain in the first quarter of the new fiscal year when last year’s numbers come in. This could create fresh opportunities. From India’s perspective, the latest acquisition of Vadinar Refinery, and connected assets by Rosneft alongwith Private Equity (PE) Investors is a notable development. It would be interesting to observe whether this gives rise to heightened PE Investor confidence in Indian oil and gas space. Technology – the Game Changer The big story is how North American shale and tight oil was like a matador to the bullish Gulf crude. Sustained and structured investments in technology for producing “tough oil” propelled US and Canadian E&P Companies to challenge the volumes and market share of Gulf crude. India can gain from these lessons, and rather invest in advanced technology for its deepwater and unconventional reserves (i.e. Coal Bed Methane, Gas Hydrates) to improve exploration efforts and production efficiencies resulting in lowering costs, and increased production. Downstream Scenario in India Oil marketing PSUs gained from lower import payouts, but absorbed inventory losses due to reduced refining margins and forex fluctuations. However, private refiners like Reliance bucked the trend by operating on a flexible input system of spot cargoes to offset any downside of long-term high-priced supply contracts. Rosneft’s investment in the downstream sector is expected to have some play on the market dynamics in this space. Upstream scenario in India New initiatives, such as the Hydrocarbon Exploration Licensing Policy (HELP), announced in March 2016, and the launch of the Discovered Small Fields Bidding Round (DSFBR) on May 25, 2016, are encouraging signs. The Ministry of Petroleum and Natural gas (MoPNG) is aggressively promoting the DSFBR through roadshows in India and abroad to attract global E&P players. The MoPNG has also announced that more blocks will be auctioned under HELP next year. Solutions – Immediate Actionables for India Refurbishing ageing infrastructure Western Offshore and other onshore fields are operating on platforms and equipment nearing commercial expiry. ONGC is currently the only serious global E&P player that has announced its intentions of going ahead with capex outlay regardless of the downturn. This could be an opportunity to revamp ageing equipment at lower costs. Overseas Acquisitions Devalued Assets v. Distressed Assets Otherwise healthy assets have been devalued purely on account of the low prices, whereas some assets are on the verge of becoming liabilities. Investors who can tell the difference stand to gain the most from this scenario. Probable Investment Destinations – “Energy Diplomacy” North American oil companies would be a natural choice. However, these may hold on to their prospected reserves till prices rise, and produce existing reserves on minimum margins while consolidating bottom lines. Therefore, actual valuation may not be as low as estimated. Recent MoPNG press and media briefings show an intent to engage in “energy diplomacy” so as to secure India’s hydrocarbon interests. This was evident in the recent Vankor acquisitions by OVL and IOCL from Russian E&P giant Rosneft. The MoPNG in the recent past has questioned the so-called “Asian Premium” and mooted a gas importers’ bloc for effective articulation of demand. These are steps in the right direction. India’s growing traction can be leveraged to negotiate favourable deals in South America, Africa, Myanmar, Vietnam, etc, which may be more amenable to diplomatic interventions as opposed to North America or Europe. Assets in politically sensitive countries like Venezuela, Nigeria, Vietnam and Myanmar need to be closely monitored for political risk assessment before actual investment. The Chinese onslaught in the APAC, and the South China Sea region is the dimension that has led many countries to align their diplomatic and geopolitical
Petrol pumps may observe nationwide strike on Nov 15
Country’s petroleum dealers, who are on a two-day no-purchase strike since yesterday, have threatened to go on a full-fledged strike on November 15 to press for their demand to increase commission. Besides, petrol pumps will be selling fuel for limited hours from tomorrow and will not operate on Sundays or any other government holidays, the Consortium of Indian Petroleum Dealers (CIPD) said. According to CIPD joint secretary Rajiv Amaram, all the 54,000 petrol pumps across the country will observe one-day strike on November 15 if the oil companies do not heed to their demand. He said that in Telangana alone, over 1,400 truckloads of petrol and diesel was not lifted yesterday and today by petroleum dealers in the state. “We have stopped purchasing petroleum products yesterday and today. From tomorrow, we will sell petrol or diesel or any other product according to government office timings like 9 AM to 6 PM. We will also not sell on Sundays or any other government holidays. If the government does not listen to us then we will call for a strike on November 15,” Amaram told PTI.Petrol pumps may observe nationwide strike on Nov 15 Hyderabad, Nov 4 (PTI) Country’s petroleum dealers, who are on a two-day no-purchase strike since yesterday, have threatened to go on a full-fledged strike on November 15 to press for their demand to increase commission. Besides, petrol pumps will be selling fuel for limited hours from tomorrow and will not operate on Sundays or any other government holidays, the Consortium of Indian Petroleum Dealers (CIPD) said. According to CIPD joint secretary Rajiv Amaram, all the 54,000 petrol pumps across the country will observe one-day strike on November 15 if the oil companies do not heed to their demand. He said that in Telangana alone, over 1,400 truckloads of petrol and diesel was not lifted yesterday and today by petroleum dealers in the state. “We have stopped purchasing petroleum products yesterday and today. From tomorrow, we will sell petrol or diesel or any other product according to government office timings like 9 AM to 6 PM. We will also not sell on Sundays or any other government holidays. If the government does not listen to us then we will call for a strike on November 15,” Amaram told PTI. He said petrol pumps will save considerable amounts on electricity bills if they stick to limited hours selling. The CIPD has demanded implementation of the recommendations made by the Apoorva Chandra Committee in 2011. The committee recommended commissions of over Rs 4 for petrol and about Rs 3 for diesel per litre. The then UPA government hiked the commission on petrol to Rs 2.15 and diesel to Rs 1.28 from Rs 1 and Rs 0.70, respectively. Amaram said the dealers are supposed to get the arrears also from 2011. Evan Gattis Jersey
BPCL gets green nod for Rs 3,313-crore BS-VI MS block project
State-owned BPCL has received green nod to set up additional facilities at its Kochi refinery to meet the BS-VI quality auto fuel norms and establish new MS block, which will entail an investment of Rs 3,313 crore. As per Auto Fuel Policy 2025, the government has laid down a roadmap for complete transition to Bharat Stage (BS)-VI auto fuel by April 2020 in the country. The Kochi refinery of Bharat Petroleum Corporation Ltd(BPCL) is currently implementing the Integrated Refinery Expansion Project (IREP), which will enhance refinery capacity from 9.5 million metric tonne per annum (MMTPA) to 15.5 MMTPA and upgrade auto fuel quality as per BS-IV and part BS-V norms. “Based on the recommendations of the Expert Advisory Committee (EAC), the environment ministry has accorded the environment clearance to the BPCL’s auto fuel BS-VI upgradation and new MS block project,” a senior government official said. The clearance to the project is subject to certain conditions. About seven acres of land is required for the proposed BS-VI project and the total cost is estimated at Rs 3,313 crore, the official added. Among conditions specified, BPCL has been directed that its water requirement from river Periyar after implementation of IREP and BS-VI project should not exceed 1,372.2 cubic meter per hour and it should obtain prior permission from the competent authority. The company has been asked to adhere strictly to the stipulations made by the Kerala State Pollution Control Board (KSPCB) and any other statutory authority. It has also been asked to decide locations of ambient air quality monitoring stations in consultation with KSPCB and ensure at least one station is installed in the upwind and downwind direction. That apart, BPCL has been directed to set up a separate environment management cell with full-fledged laboratory facilities to carry out the environment management and monitoring functions. Post IREP, BPCL said its Kochi refinery will be able produce BS-IV quality MS and diesel along with partial production of BS-V products, and it will require additional facilities to achieve BS-VI quality specifications for MS. BS-VI quality specification for HSD can be achieved post IREP through blending. BPCL intends to maximize and upgrade MS and diesel processing capabilities to meet BS-VI fuel specifications by April 1, 2020, it said in its EIA report. Dwayne Harris Womens Jersey
Venezuelan crude sales to the United States tumbled 23 pct in Oct
Sales of Venezuelan crude to the United States fell 23 percent in October to 601,605 barrels per day (bpd) due to fewer shipments of diluted oil from the country’s main producing region, the Orinoco belt, according to Thomson Reuters trade flows data. Venezuela’s oil production has declined sharply this year due to years of underinvestment, payment delays to suppliers and lack of enough diluents to make exportable crude blends, which has affected exports of state-run oil firm PDVSA. The United States, one of PDVSA’s top destinations for exports, received 37 cargoes of Venezuelan crudes last month compared with 46 cargoes in September and 50 cargoes in October of 2015, according to the data. The export decline is attributed to a large decrease in shipments of diluted crude oil (DCO), a mix of Venezuelan extra heavy oil and imported naphtha, which fell to 85,840 bpd last month, its lowest since the second quarter of 2015. PDVSA’s refining unit Citgo Petroleum, U.S. Chevron Corp and Phillips 66 were the main receivers of Venezuelan oil in the United States in October. Refining firm Valero Energy, which has been a large importer of Venezuelan oil in recent years, continued suffering a decline in crude shipments from PDVSA. For its part, PDVSA imported several cargoes of diesel, gasoil, liquefied petroleum gas (LPG), gasoline blend stock and heavy naphtha for the Venezuelan domestic market last month, according to Thomson Reuters vessel tracking data. As of Nov. 2, about a dozen tankers with imported crude and refined products were anchored around PDVSA’s ports in the Caribbean sea, waiting to be paid before authorizing discharge. Gabriel Dumont Womens Jersey
KG basin gas row: Govt slaps $1.55 bn penalty on Reliance Industries
Private explorer Reliance Industries Ltd (RIL) has been slapped with a notice of around $1.55 billion for commercially taking out natural gas that belonged to state-run firm ONGC. The petroleum ministry has issued a notice to the Ambani firm on Friday morning, sources indicated to FE. A November 2015 study done by US-based consultant DeGolyer and MacNaughton (D&M) highlighting that as much as 11.122 billion cubic metres of natural gas had migrated from ONGC’s 98/2 area to adjoining KG-D6 block of RIL in the Bay of Bengal between April 1, 2009 and March 31, 2015, which the Ambani firm commercially exploited. Last month, the petroleum ministry’s technical arm Directorate General of Hydrocarbons (DGH) had submitted its recommendations on the penalty. The technical arm of the petroleum ministry is believed to have taken into consideration capital, operational expenditure incurred by RIL while computing the penalty. But, it has also levied an interest, sources indicated to FE. Comments from RIL are not immediately known. A P Shah, a former chief justice of Delhi High court, agreed with the findings of D&M and said in his report that the quantification of unjust enrichment can either be based on the monetary value of the migrated gas produced, and to be produced, by RIL or it can be the profits earned by RIL, after taking into account its costs and sales figures. The Shah panel said that the question of quantification of unfair enrichment is to be decided by the government, with the principle that whatever benefit RIL received in terms of the migrated gas is liable to be returned to the centre. ONGC had argued that the quantification of unfair enrichment has to be based on the monetary value of the migrated gas produced by RIL. Conversely, RIL argued that it is entitled to recover the development, drilling and facilities costs (capital expenditure) and operating costs (Opex) for the migrated gas and to take into account its sales figures. In July 2013, ONGC for the first time wrote to the DGH stating that there was evidence of lateral continuity of gas pools of the ONGC blocks with the KG-DWN-98/3 block, operated by RIL. The private explorer initially had denied ONGC’s claim of gas migration. Zach Britton Womens Jersey
GAIL approves orders for US$1.94 billion JHBDP Project
GAIL India has approved orders for the pipe laying work on a 345 km section of the Rs 129.40 billion (US$1.94 billion) Jagadishpur- Haldia and Bokaro-Dhamra Pipeline (JHBDP). JSIW Infrastructure and IL&FS Engineering & Construction commenced pipelaying work between Phulpur and Dobhi last month. The work is part of phase-IB, which is targeted for completion by December 2018. India’s Cabinet Committee on Economic Affairs recently announced it would provide 40 per cent of the total cost of the project, an estimated Rs 51.76 billion (US$774 million), to be supplied over the next five years. Indian Minister for Petroleum and Natural Gas Dharmendra Pradhan said “Our Honourable Prime Minister has taken a clear and committed stand to move towards a cleaner fuel regime. “It is a delightful moment for us as a cleaner and greener energy path has been chosen for Eastern India that shall be affordably accessible to the masses.” GAIL India Chairman and Managing Director Bhuwan Chandra Tripathi said “Pipeline and city gas projects, under JHBDPL in Eastern India, are a big step towards accomplishment of national development goals based on natural gas. “The company will expeditiously work to execute the entrusted projects in tune with the Government’s objectives as per schedule.” The 2,359 km pipeline network will connect the east of India with the national gas grid, and is expected to be completed by the end of 2020. Joonas Donskoi Jersey
GAIL scraps multi-billion dollar ships tender
In December 2011, GAIL signed a deal with Cheniere Energy Partners to buy 3.5 mtpa of LNG from the Sabine Pass Terminal in Louisiana on FoB basis. Deliveries would start between March and August 2018. GAIL (India) has cancelled tender to hire newly built ships to ferry liquefied natural gas (LNG) from the US as there have been few takers for the multi-billion dollar contracts. Sources told FE that even though two Japanese consortia participated in the bidding process that lasted two years, they could not be finally selected due to the stringent indigenisation norms. GAIL, sources said, would now look to charter LNG ships for short terms of three to four years, till a new proposal is made, a senior official told FE. There were no takers for the tender even after an aggressive diplomatic push from India’s external affairs minister Sushma Swaraj and petroleum minister Dharmendra Pradhan. No Indian shipyard has ever built a vessel to transport LNG and foreign giants based in Korea and Japan are not keen to accept India’s request to form a joint venture and transfer technology here. The delay in finalising the tender could land GAIL in a crisis for not having LNG vessels on time to import gas from the US, which is expected to start from 2017. According to the initial plan, the vessels build overseas are to be delivered between January-May 2019 and one out of three made locally are to be ready between July 2022 and June 2023. GAIL has floated the latest tender for time-charter hiring of up to 11 ships for 15 to 18 years through international competitive bidding. Exact number of ships to be chartered will be decided in due course. The tender was floated on September 15, 2015 with a due date of submission of December 14, which was later extended till February 29, 2016. The tender was first launched with a cut off date of October 30, 2014, which was later extended several times to December 4, January 6 and February 17 next year. GAIL did not respond to an email seeking its comments on cancelling the tender. The two Japanese bidders who participated in the last bid include – a consortium of Mitsui OSK Lines (MOL)-Nippon Yusen Kabushiki Kaisha (NYK Line) and Mitsui & Co. The second consortium comprises Mitsubishi Corporation-Kawasaki Kisen Kaisha Ltd (K Line) and GasLog. Industry watchers feel the tender conditions are too stringent to be met. This is at a time when most Indian shipmakers do not have the financial muscle to spent capex for upgradation of shipyards. For the shipyards there are two challenges — to find the technology as well as investors. Moreover, such an opportunity has emerged for the first time in India and hence it would take time to fructify. In December 2011, GAIL signed a deal with Cheniere Energy Partners to buy 3.5 mtpa of LNG from the Sabine Pass Terminal in Louisiana on FoB basis. Deliveries would start between March and August 2018. In April 2013, GAIL booked another 2.3 mtpa capacity to export LNG from the Dominion Cover Point terminal in Maryland, delivery of which is expected from end-2017. After a government directive, GAIL was forced to take out a tender with a clause that out of three LNG vessels one has to be built in India. Generally, it takes 30 months for Japanese and Korean companies to deliver an LNG ship Jerick McKinnon Jersey
Rs1.5 trillion refinery complex to be set up in Rajapur
A Rs1.5 trillion mega refinery and petrochemical complex proposed by oil marketing companies (OMCs) will come up in Rajapur city of Ratnagiri district in Maharashtra, said two senior OMC officials aware of the development. The OMCs and the Maharashtra government have been looking for land for the past 10 months, ever since Union oil minister Dharmendra Pradhan announced the project on 28 December 2015. Rajapur is a city in the Ratnagiri district of Maharashtra, around 385km from Mumbai. The OMCs—Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL)—plan to jointly build a 60 million tonnes per annum (mtpa) refinery at a cost of Rs1.5 trillion in two phases of 40 and 20 mtpa. “The piece of land identified is exactly what we wanted. It is near a potential port and around 14,000 acres. We recently received a confirmation from the Maharashtra government that they have found the required land. Now MIDC (Maharashtra Industrial Development Corporation) will go ahead with the acquisition of this land,” said the first of the officials cited earlier. Emails sent to the three OMCs on 28 October remained unanswered. The second of the officials added that the land identified is only for the refinery. “We still need some piece of land to set up a jetty and a desalination plant for captive water supply. So we are looking for land for that,” he said. Mint had reported in September that the OMCs and the state government were finding it difficult to find 15,000 acres of contiguous land in the Konkan region for the complex. Government officials had asked the OMCs to reduce the land requirement. The first official cited earlier said around 20-30% of the land parcel identified is rocky and the OMCs may need to invest Rs10,000-15,000 crore to flatten this portion of land. “However, we are happy that the land that has been finalized,” he added. The OMCs will form a special purpose vehicle for the project. While Indian Oil will hold a 50% stake, HPCL and BPCL will hold 25% each. The official said they are keen on bringing in a strategic partner in the project and may rework the equity structure post that. “Some international partners have shown interest in the project but they will participate only after we have some concrete plans in place (for the refinery) to present to them,” said the official. Pradhan had said on 6 June that the refinery had been offered to Saudi Aramco as a prospective partner. The OMCs have finalized the configuration and petrochemical linkages that the refinery will have. The government has appointed Engineers India Ltd as the technical agency to prepare a detailed feasibility report (DFR). The two OMC officials added that with the identification of the piece of land, the DFR can now be commissioned and that the report may take 8-10 months to prepare. Besides, the process for environmental approvals, deliberations on financing options, tax concessions and various board approvals can be put in place now. An analyst with a domestic brokerage said, “India has been an exporter of petroleum products and its existing refineries are also being further expanded. Though the country’s own demand for petro products is growing at a fast pace and there is infrastructure development happening, it remains to be seen how far we will be able to absorb additional supply (of products).” Calais Campbell Womens Jersey
BP, Rosneft entry set to challenge Indian oil companies
Global oil majors BP Plc and Rosneft PJSC are eyeing a piece of India’s $117 billion retail market for fossil fuels, threatening to shake up government-owned companies that have faced little competition for a decade. BP has already secured licenses to open as many as 3,500 fuel stations in the world’s second most-populous nation. Rosneft gained access to about 2,700 pumps through last month’s acquisition of Essar Oil Ltd, which has plans to add 2,600 more outlets. Along with Reliance Industries Ltd and Royal Dutch Shell Plc, the private players will try to chip away at the dominant position of three state-owned enterprises that control 90% of market volume. “Competition is expected to intensify with the entry and expansion of private players and multinational companies,” said Rahul Prithiani, a Mumbai-based director at CRISIL, a unit of S&P Global Ratings. Private players and multinational companies are expected to increase their market share though government companies will probably still dominate given their vast network of fuel retailing stations, he said. Retail sales have become more viable for private-sector refiners ever since Prime Minister Narendra Modi’s government scrapped diesel-price controls two years ago. Pricing freedom coupled with record oil consumption as the number of trucks, cars and motorbikes multiply is helping India stand out as a country that global oil majors can’t ignore. The Paris-based International Energy Agency predicts India will be the world’s fastest-growing oil consuming nation through 2040. “This sort of growth they will not get anywhere,” said Lalit Kumar Gupta, chief executive officer of Essar Oil. “Europe is virtually saturated, there is hardly any growth. In the US there is tough competition. India is the only country which is growing and which is growing by a big number and they feel there is scope.” Companies including Saudi Aramco and France’s Total SA have shown an interest in India, while existing players such as Shell are planning to expand their footprint, oil minister Dharmendra Pradhan said in June, flagging further reforms in the oil and gas sector. More fuel retailers will increase competition and benefit consumers, he said. This is India’s second attempt at deregulation. Billionaire Mukesh Ambani-owned Reliance Industries had captured 14% of retail diesel sales and 7% of petrol sales in 2006, after the government deregulated prices more than a decade back. The company had to close down pumps after price caps were re-introduced. The October 2014 deregulation is an opportunity for Reliance Industries to re-enter the retail market and ramp up volumes, according to the company’s latest annual report. “RIL plans to launch aggressive customer acquisition programs to quickly regain targeted market share,” it said. Reliance Industries has re-secured over 4.5% of sales to bulk users of diesel, such as railways and state-operated bus services, the company said. It has opened about 1,100 stations so far, with plans to increase the number to 1,400 by March. Rising consumption India’s fuel demand grew 11%in the year ended 31 March, the fastest pace in records going back to fiscal 2001. Consumption expanded 8% in the first half of the financial year that started 1 April, according to the oil ministry’s Petroleum Planning and Analysis Cell. “BP sees a strong future for transportation fuels in India,” the British oil major said in an emailed statement last week. “We are keen to be involved in this market and contribute to its development.” Still, private players have a long battle on their hands given the dominating position of the three government-owned companies, Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd, which together operate almost 53,000 fuel stations in India. “If we compare with 10 years ago when private players had come, since then the state-run oil marketing companies are much better prepared,” said Sanjiv Singh, head of refineries at Indian Oil, the country’s biggest fuel retailer. “It will definitely bring in efficiency. The challenge before us is that while private players target the very-prime market, our commitment is to feed the total market.” International companies may first make a dent in the large-scale industrial and commercial market, since public-sector companies have established themselves at prime locations for fuel pumps, Vikas Halan, vice president at Moody’s Investors Service, said by phone. “That’s where the competition heats up with the foreign players,” he said. Austin Romine Jersey
ONGC, Cairn face Rs 1,922 crore service tax on royalty payments
In a setback to energy firms like ONGC and Cairn India, the government will from this fiscal levy service tax of about Rs 1,922 crore on royalties they pay to the exchequer on oil and gas they produce. Companies currently pay 9.09 per cent of the price they realise on oil and gas produced from onland or onshore fields and 16.67 per cent on the same from offshore areas. The Central Board of Excise and Customs (CBEC), in a recent clarification, has stated that the licence granted by the government to a company to exploit a natural resource is a taxable service and hence liable for service tax. As a rule, service tax is paid by the entity providing the service, but in certain cases it is the liability of the party that receives the service to remit the levy under a system called reverse charge. In the circular clarifying on service tax liability on use of wireless spectrum, CBEC stated that all periodic payments such as royalty on use of natural resources will attract 15 per cent service tax. Following the clarification, the Service Tax department has sent letters to companies like Oil and Natural Gas Corp (ONGC), Cairn India Ltd and Reliance Industries seeking information on royalty payments, industry sources said. These companies had paid a total of Rs 4,885 crore royalty on oil and gas produced in 2015-16 to the Centre and another Rs 7,932 crore to states. Considering change in prices and production profile, the service tax liability would come to over Rs 1,922 crore this fiscal on top of the royalty payout. CBEC is using the logic that since service tax is leviable on wireless spectrum, which is a natural resources, the same should extend to oil and gas as well. Sources said energy explorers through their association have taken up the matte with the Oil Ministry saying their profitability has been severely impacted by slump in oil and gas prices to multi-year low and the additional levy would erode it further. CBEC in the circular stated that one-time payments for natural resources are exempt from service tax but not any periodic payments. Oil companies have to pay royalty on a monthly basis. Exemption from payment of service tax is applicable only to “one time charge, payable in full upfront or in installments, for assignment of right to use any natural resource and not to any periodic payment required to be made” such as Spectrum User Charges, license fee in respect of spectrum, or monthly payments with respect to the coal extracted from the coal mine or royalty payable on extracted coal and other natural resources, CBEC has said. Brett Hull Womens Jersey