The Centre has reduced effective royalty rates on crude oil and natural gas production in a move aimed at boosting domestic exploration and production at a time when prolonged disruptions in West Asia and elevated crude prices are increasing pressure on India’s energy security and import bill.
Under the revised framework notified by the ministry of petroleum and natural gas, effective royalty on onshore crude oil production has been reduced to 10% from 16.66%, while offshore crude royalty has been lowered to 8% from 9.09%. Royalty on natural gas has also been cut to 8% from 10%.
The changes come as India continues to face supply risks and higher import costs due to the ongoing conflict in West Asia. India imports nearly 88% of its crude oil requirement, while crude petroleum remained the country’s largest import item in FY26 at $134.7 billion out of the total import bill of $775 billion.
Revise framework intends to simplify royalty structure
The government said the revised framework is intended to simplify the royalty structure, improve investment visibility and support upstream exploration and production.
Union petroleum and natural gas minister Hardeep Singh Puri said the changes were part of broader reforms under the Oilfields (Regulation and Development) Amendment Act, 2025 and revised Petroleum and Natural Gas Rules.
“The revised Schedule removes long-standing inconsistencies across regimes to ensure a stable, predictable, and investor-aligned framework for India’s upstream sector,” Puri said in a post on X.
“This decision is a culmination of a decade-long effort to modernize our regulatory landscape by replacing complexity with consistency to fuel India’s energy future,” he added.
The move comes alongside the government’s push to increase domestic production through initiatives such as the Open Acreage Licensing Policy (OALP), Hydrocarbon Exploration and Licensing Policy (HELP) and the recently announced “Samudra Manthan” programme focused on deep-sea exploration of oil, gas and critical minerals.
Under the revised methodology, royalty will now be calculated after allowing a flat deduction towards post well-head costs instead of linking calculations to actual post-production costs.
For nomination regime blocks, royalty will be calculated after a 20% deduction from sale price, while all other regimes will attract a 15% deduction.
The government has also retained concessional royalty structures for deepwater and ultra-deepwater blocks to encourage investments in difficult geographies.
Under the revised structure, crude oil and condensate production from HELP and Discovered Small Field (DSF) blocks will attract zero royalty for the first seven years in deepwater and ultra-deepwater areas.
After seven years, royalty rates will rise to 5% for deepwater blocks and 2% for ultra-deepwater fields.
The same concession will apply to natural gas production from such blocks.
Industry analysts said the royalty rationalisation could improve project economics for upstream producers at a time when India is trying to increase domestic production and reduce exposure to global supply disruptions.
The government said the reforms are intended to create a more transparent and globally competitive upstream framework and encourage fresh investments in exploration and production activities.
According to global brokerage CLSA, the royalty reduction is expected to improve the earnings outlook for ONGC and Oil India and reduce concerns around higher upstream taxation.
The brokerage said the changes could increase fair value for ONGC by 7%-9% and Oil India by 9%-11%.
CLSA maintained a “High Conviction Outperform” rating on ONGC with a target price of ₹405.
The brokerage said fears of another windfall tax similar to the one imposed in 2022 had weighed on upstream stocks.
“These fears have made ONGC and Oil India some of the worst-performing E&P stocks globally,” CLSA said in its report dated May 12.
According to CLSA, the revised royalty structure could improve ONGC’s earnings by around ₹20-24 per share and Oil India’s by ₹42-51 per share at crude prices of $80-100 per barrel.
The brokerage also estimated that ONGC could deliver over 50% total return at Brent crude prices of $80 per barrel.
Reflecting investor optimism, Oil And Natural Gas Corporation shares on the BSE rose as much as 6.74% during intra-day trade to ₹299.90 against the previous close of ₹280.95. The stock opened at ₹288.50, touched a low of ₹286.70 and eventually settled 5.09% higher at ₹295.25.
Oil India shares surged up to 9.25% intra-day to ₹498.80 from the previous close of ₹456.55. The stock opened at ₹470.10, hit a low of ₹470.10 and closed 7.52% higher at ₹490.90 on the BSE.