Centre reduces royalty burden on offshore deepwater oil and gas production

India eases royalty rules for offshore oil production. PIC/HELP Energy portal

The government has reduced royalty charges on crude oil and casing head condensate produced from deepwater and ultra-deepwater offshore blocks under the latest oil and gas regime, as per IANS.

According to the new structure, royalty rates have been lowered in the early years of production to encourage investment and improve output from difficult offshore reserves.

Lower royalties for deepwater and ultra-deepwater fields

-Under the revised rules: Deepwater blocks will attract a 5 per cent royalty for the first seven years of commercial production. From the eighth year onwards, the royalty will increase to 10 per cent.

-For ultra-deepwater blocks, the relief is even higher: No royalty will be charged for the first seven years and a 5 per cent royalty will apply from the eighth year onwards.

Coverage across multiple oil and gas regimes

The revised royalty structure applies not just to new projects but also across several existing allocation systems, including:

-Nomination-based awards to national oil companies
-Blocks awarded before the New Exploration Licensing Policy (NELP)
-Areas under the Hydrocarbon Exploration and Licensing Policy (HELP)
-Discovered Small Field (DSF) Policy blocks

For onshore and shallow water areas, royalty rates largely remain unchanged at 12.5 per cent in most categories. However, some offshore and ultra-deepwater categories will continue to benefit from lower levies, while a 7.5 per cent rate has been retained for certain specified cases, as per agency reports.

Production-sharing contracts signed under earlier policies will continue to follow their existing agreed royalty terms.

Objective of the policy change

The revised royalty structure marks a significant shift in India's offshore oil policy, aimed at encouraging deepwater exploration and boosting domestic production.

With reduced early-stage costs, the government intends to support higher-risk offshore exploration projects that require heavy investment and long development timelines and attract more investment while navigating a volatile global energy environment.

A government source noted that the objective is to make domestic production more attractive while reducing dependence on imports. The decision comes at a time when global energy markets are under pressure due to ongoing conflict in West Asia and rising crude price uncertainty, reported the news agency.

At the same time, officials have reassured that India currently has adequate petroleum reserves and a stable LPG supply for household cooking needs.

Global and domestic backdrop

The policy revision also comes amid heightened geopolitical tension. US President Donald Trump recently said he was dissatisfied with Iran's response to a US peace proposal, calling Tehran's position "completely unacceptable".

Domestically, Prime Minister Narendra Modi has also urged citizens to support economic stability by moderating consumption. He had appealed to people to reduce non-essential gold purchases, cut foreign travel, and lower fuel consumption to help conserve foreign exchange reserves during the ongoing global uncertainty.

(With IANS Inputs)