Govt sweetens royalty rates to attract investors, boost oil and gas output

New Delhi: With the intention to draw investments into the oil and gas exploration sector and improve production, the government has introduced incentives in royalty rates. For production that begins prior to four years for onland/shallow water blocks and before five years for deepwater/ultra deepwater blocks from the date of contract, the government will approve concessional royalty, senior officials said.

Royalty rates up to 30% approved

"Concessional royalty at the rate of 10 percent, 20 percent and 30 percent has been proposed for category-I, II and III basins respectively," a top government official said. "In case commercial production is not commenced in the time period mentioned, then royalty at existing rates will be applicable."

There would even be incentivising of additional gas production from APM (administered pricing mechanism) fields in the form of royalty reduction at 10 percent of applicable royalty on additional output in addition to the business as usual scenario, officials said.

According to the hydrocarbon exploration licencing policy (HELP), the royalty rate for offshore blocks in shallow water has been set at 7.5 percent for both oil and gas, and at 0 percent for deep water blocks in the first seven years and 5 percent after that. The royalty rate for ultra-deep blocks in the first seven years has been fixed at 0 percent and at 2 percent after seven years.

A royalty interest in the oil and gas industry denotes ownership of a portion of the resource or revenue that is generated.