ONGC, Oil India Extend Fall on Higher Crude Oil Cess

Shares of upstream oil companies like ONGC and Oil India extended selloff to the second day after the government proposed to revise the cess on crude oil, a move which will lower earnings of oil producing companies. 

Shares of ONGC and Oil India fell as much as 3 per cent and 2.9 per cent each respectively. 

The government has revised Oil Industries Development Cess on domestically produced crude oil from fixed Rs 4,500 per metric tonne to 20 per cent of the total value for domestically produced crude oil. 

Analysts say, at present upstream oil companies pay a fixed cess Rs 4,500 per metric tonne on domestically produced crude oil, which comes out to $9.5 per barrel. However, the proposed cess of 20 per cent on total value of crude oil may significantly increase the cess for oil explorers if crude oil price increases from around $30 per barrel to $100 per barrel. The industry was expecting a cess of 10 per cent on total value crude output. 

Bank of America Merrill Lynch says the revised cess is a big hit for Oil India and ONGC. The brokerage has cut FY17 earnings per share (EPS) estimates for ONGC and Oil India by 3-5 per cent and FY18 EPS estimates by 11-12 per cent. 

Global brokerage CLSA has also downgraded ONGC to "sell" and Oil India to "underperform" on cess increase. 

ONGC shares closed 1.34 per cent lower while Oil India ended 2.52 per cent lower compared to 3.38 per cent gain in the broader Sensex.