The Central Government has issued a fresh notification revising the royalty structure for crude oil, casing head condensate and natural gas production under the Oilfields (Regulation and Development) Act, 1948. The Ministry of Petroleum and Natural Gas has notified the revised Schedule of royalty rates.The notification replaces the existing Schedule under Section 6A(4) of the Act and introduces revised and concessional royalty rates for different categories of oil and gas fields under various exploration and production regimes, including the Hydrocarbon Exploration and Licensing Policy (HELP), New Exploration Licensing Policy (NELP), Discovered Small Field Policy and Coal Bed Methane Policy.Why the revision?The government aims to boost domestic exploration.The revised royalty framework is being viewed as a significant fiscal reform aimed at encouraging exploration in technically difficult offshore regions and improving India’s domestic hydrocarbon production.Officials believe the concessional royalty regime, especially for deep-water and ultra-deep-water blocks, could improve investor interest and accelerate commercial production in frontier exploration areas at a time when India is seeking to reduce dependence on imported crude oil and natural gas.NEW STRUCTURERoyalty Rates for Crude Oil and Condensate RevisedUnder the revised Schedule, onshore crude oil and casing head condensate production from areas awarded on nomination basis to National Oil Companies, blocks awarded to private or joint venture contractors prior to NELP, and areas awarded under NELP will continue to attract a royalty rate of 12.5 per cent. Shallow-water offshore blocks under these regimes will attract 10 per cent royalty.For deep-water offshore production in these categories, royalty has been fixed at 5 per cent for the first seven years from the commencement of commercial production. From the eighth year onwards, the royalty rate will increase to 10 per cent.In the case of areas awarded under the Discovered Small Field Policy and HELP, the royalty rate for onshore blocks has been fixed at 12.5 per cent and 7.5 per cent for shallow-water blocks. However, for deep-water blocks under these policies, no royalty will be charged for the first seven years from commencement of commercial production. From the eighth year onwards, royalty will be levied at five per cent. For ultra-deep-water blocks, royalty will remain zero for the first seven years and thereafter rise to 2 per cent.Natural Gas Royalty Structure Also ModifiedThe notification separately revises royalty rates for natural gas production, excluding additional production from Administered Price Mechanism (APM) fields over and above the Business-as-Usual scenario.Under conventional nomination and pre-NELP regimes, onshore and shallow-water gas production will attract royalty at 10 per cent. For NELP deep-water fields, royalty will be 5 per cent for the first seven years and 10 per cent from the eighth year onwards.For contracts awarded under the Discovered Small Field Policy and HELP, royalty for onshore gas production has been fixed at 10 per cent and 7.5 per cent for shallow-water blocks. Deep-water and ultra-deep-water projects under these policies will enjoy zero royalty for the first seven years. Thereafter, deep-water blocks will attract 5 per cent royalty and ultra-deep-water blocks 2 per cent royalty.Special Concessional Rates Introduced for HELP Blocks Awarded After April 11, 2019The notification also introduces concessional royalty rates for commercial production from contracts awarded under HELP based on bids invited on or after April 11, 2019. These concessional rates will apply where commercial production begins within four years for onshore and shallow-water blocks, and within five years for deep-water and ultra-deep-water blocks.For crude oil production from onshore HELP blocks, royalty rates have been fixed at 11.25 per cent for Category-I basins, 10 per cent for Category-II basins and 8.75 per cent for Category-III basins. Shallow-water offshore crude oil blocks will attract royalty between 5.25 per cent and 6.75 per cent depending upon basin category.For deep-water crude oil blocks under HELP, royalty will remain zero for the first seven years. After that, rates will vary between 3.5 per cent and 4.5 per cent according to basin category. Ultra-deep-water crude oil blocks will attract royalty between 1.4 per cent and 1.8 per cent after the seven-year exemption period.For natural gas production under HELP, royalty rates for onshore blocks have been fixed at 9 per cent, 8 per cent and 7 per cent for Category-I, II and III basins respectively, while shallow-water blocks will attract rates ranging from 5.25 per cent to 6.75 per cent. Deep-water and ultra-deep-water gas projects will also enjoy zero royalty for the first seven years, after which concessional rates between 1.4 per cent and 4.5 per cent will apply depending upon basin category.India’s Sedimentary Basins Divided into Three CategoriesThe revised Schedule categorises India’s sedimentary basins into three categories for concessional royalty purposes. Category-I includes Krishna-Godavari, Mumbai Offshore, Assam Shelf, Rajasthan, Cauvery, Assam-Arakan Fold Belt and Cambay Basin. Category-II includes Saurashtra, Kutch, Vindhyan, Mahanadi and Andaman-Nicobar basins. Category-III includes Kerala-Konkan, Bengal-Purnea, Ganga-Punjab, Pranhita-Godavari, Chhattisgarh, Narmada, Deccan Syneclise, Bastar and several other frontier basins.Additional Incentive for Extra Gas Production from APM FieldsThe notification further states that additional gas production from APM fields over and above the Business-as-Usual scenario, once evaluated by a third-party expert agency and approved by the Directorate General of Hydrocarbons, will be eligible for a 10 per cent reduction in the applicable royalty rates.