ONGC has sent an SOS to the government, seeking a cut in taxes as well as being granted pricing and marketing freedom for gas to help it weather the slump in prices that has made sustaining operations difficult and may force a cut in investments.

The slump in international oil prices to low-20s ($/barrel) and natural gas prices falling to a decade low of $2.39 per million British thermal unit (mBtu) is threatening to push the company into making cash-losses on a monthly basis, sources with direct knowledge of the development said.

While the gas price is way below the cost of production, high tax incidence is resulting in cash losses even on crude oil output.

State-owned Oil and Natural Gas Corp (ONGC) last month wrote to the government, seeking the abolition of oil cess if the price realised by producers is less than $45 per barrel. Also, it wants the 20 per cent of price paid as royalty to the state governments be halved.

At present, the government levies 20 per cent ad valorem cess on the price that producers get. Also, ONGC/Oil India are required to pay 20 per cent royalty on the price of crude oil it extracts from onland oil blocks to the state governments.

Sources said ONGC wants the formula of pricing domestically produced natural gas at rates prevalent in gas-surplus nations such as US and Russia.

The rates using the formula came to $2.39 per million British thermal unit from April. This price is the lowest that the company will realise since 2010 when the government had moved towards deregulating gas pricing.

In May 2010, the cabinet had approved an oil ministry proposal to raise the rate of gas sold to power and fertiliser firms from $1.79 per mBtu to $4.20 per mBtu.

ONGC and Oil India got $3.82 per mBtu price for the gas they produced from fields given to them on a nomination basis and after adding 10 per cent royalty, the fuel cost $4.20 per mBtu for consumers.

The Congress-led UPA had approved a new pricing formula for the implementation in 2014 that would have raised the rates but the BJP-led government scrapped it and brought a new formula.

The BJP-led government had in October 2014 adopted a formula that takes into account the volume-weighted annual average of the prices prevailing in Henry Hub (US), National Balancing Point (UK), Alberta (Canada) and Russia with a lag of one-quarter.