Government slaps a windfall tax on crude oil production, stocks of ONGC and Oil India fall

1 Jul 2022 , 03:08 PM

On July 1, after the government levied a special additional excise levy of Rs23,250 per tonne of crude oil production, shares of Oil and Natural Gas Corporation and Oil India fell.

The government levied special excise duties or a windfall gains tax on the oil and gas industry in a broad notification that aimed to limit some of the excessive benefits enjoyed by local oil producers and crude oil refiners.

The increased profits from increased global crude oil prices will be significantly curtailed by the introduction of the additional excise levy for businesses like ONGC and Oil India.

Following a large increase in the price of crude oil earlier this year, several brokerage firms recently improved their ratings or price targets for both stocks in anticipation of strong earnings in 2022—2023.

Following the sanctions put in place by a number of Western nations against Russian crude oil shipments in response to the nation’s invasion of neighboring Ukraine, global crude oil prices have increased by more than 40% in 2022.

Brent crude oil futures reached a high of $137 per barrel in March, but they have since given up some of their gains and are currently trading at $115 per barrel. Nevertheless, due to high demand and severely constrained global supplies, several international brokerage firms anticipate that for the next 18 months, crude oil prices will remain above the $100 per barrel barrier.

Analysts had anticipated a significant increase in the firms’ earnings per share as average crude oil realizations for ONGC and Oil India were anticipated to grow rapidly to more than $90-100 per barrel in 2022—23 from approximately $70 per barrel in 2021—22.

At 3:05 pm, shares of Oil India fell 15.15% to Rs213.40 while those of ONGC fell 13.1% to Rs131.7 on the National Stock Exchange.