ONGC, Oil India rally on royalty cuts: key rates 2026

Market reaction: upstream PSUs lead in a weak tape

Shares of upstream oil and gas producers Oil and Natural Gas Corporation (ONGC) and Oil India rose strongly during Tuesday’s intraday trade after the central government approved a rationalisation of royalty rates. The move was positioned as a clean-up of inconsistencies across different contractual and policy regimes, and the market read it as directly supportive for upstream earnings.

ONGC was trading 3.81% higher at ₹291.65 on the BSE at 9:40 am, with a market capitalisation of ₹3,66,903.84 crore. Oil India was up 5.86% at ₹483.30, with a market capitalisation of ₹78,613.95 crore. Later during the session, reports said Oil India rose as much as 7% to ₹490.85 and ONGC climbed up to ₹295.45 in intraday deals. The gains came even as the broader market was weak, with the BSE Sensex down 0.85% at 75,367 at around 09:54 am.

What the government announced

The government said it has approved rationalisation of royalty for India’s upstream sector under the Oilfields (Regulation and Development) Act, 1948 (ORD Act). Union Minister of Petroleum and Natural Gas Hardeep Singh Puri, in a post on X, described the revision as a step toward “regulatory clarity” and said it follows the 2025 amendments to the ORD Act and PNG Rules.

The minister said royalty rates and methodologies have been rationalised for crude oil, natural gas, and casing head condensate. The stated intent is to remove long-standing inconsistencies and create a stable and predictable framework for India’s upstream sector. The article also notes that royalty is a levy under The Petroleum and Natural Gas Rules, 1959, payable to the state or central government that grants the lease, and paid to the central government in case of offshore areas.

Reported rate changes: lower royalties across regimes

Multiple reports cited in the provided text describe rate cuts across categories of fields and regimes. One set of changes highlighted for nominated blocks and pre-NELP production sharing contracts said the onshore crude royalty rate was cut from 20% to 12.5% (ad valorem on the well-head price). For natural gas, the headline royalty rate was described as reduced from 10% to 9%, with an “effective” rate falling further to about 8% due to a revised well-head price calculation methodology that introduces fixed deductions.

Separately, the Hindi section in the input described a different set of effective rates: onshore crude royalty reduced from 16.66% to 10%, offshore crude royalty reduced from 9.09% to 8%, and natural gas royalty reduced from 10% to 8% after a new flat deduction formula. Across these descriptions, the common thread is a reduction in royalty burden and greater uniformity across regimes.

Offshore incentives: shallow-water to ultra-deepwater

Beyond legacy onshore categories, the policy also described targeted incentives for tougher geographies. Shallow-water offshore fields were cited as typically attracting a 10% royalty rate. Deepwater and ultra-deepwater blocks were described as receiving the most generous treatment, including zero royalty for the first seven years under many HELP and DSF block structures, reverting to 5% and 2% thereafter.

The stated purpose of these concessions is to improve project viability for capital-intensive exploration and development, and align fiscal terms more closely with global norms for deepwater projects.

Why ONGC and Oil India are in focus

The market’s immediate focus was on ONGC and Oil India because they operate a large base of nominated and legacy blocks. Lower royalty payouts can flow straight through to operating margins and cash flows. Tushar Badjate, Director of Badjate Stocks and Shares Pvt. Ltd., said the decision is positive for upstream companies because reduced royalty payments improve operating margins, free cash flow, and project viability.

Badjate also said that for ONGC, the move could support earnings upgrades and strengthen investor sentiment, and that reforms may reduce policy overhangs that have historically contributed to discounted valuations. He added that a more supportive policy stance could encourage investment into exploration and deepwater assets.

Oil price backdrop: Brent moves above $100

The royalty revision landed at a time when crude prices were already supporting upstream sentiment. The article notes Brent crude traded near $15 per barrel a few months earlier and has since moved above $100 per barrel. Brent crude futures were cited at $105 per barrel on Tuesday, according to Trading Economics.

Higher crude prices tend to support upstream realisations and earnings outlook. Another section in the input also stated that a $1 per barrel move in oil prices is estimated to increase annual revenue by ₹300 crore to ₹400 crore for ONGC and Oil India.

Brokerage view: CLSA on fair value and targets

CLSA was cited as calling the royalty move a surprise and positive for both companies. According to the report, the brokerage estimated the royalty cut could add 7% to 9% to ONGC’s fair value and 9% to 11% to Oil India’s fair value.

CLSA also said the action could help ease investor concerns about a potential return of higher upstream taxation similar to the 2022 windfall tax episode. In addition, the report cited that at $10 per barrel, CLSA projects over 50% total return potential for ONGC, arguing the stock was pricing in $15 per barrel Brent, and mentioned a target price of ₹405 per share. Another line in the same input also said the brokerage retained a ‘Buy’ rating on ONGC with a target price of ₹332 per share.

Key data snapshot

Market impact: what changes for investors and the sector

The immediate market impact was a sharp rally in upstream PSUs on expectations of improved netbacks from lower royalties and supportive crude prices. The policy also signals a push for regulatory clarity after the 2025 amendments to the ORD Act and PNG Rules, which is relevant for capital allocation decisions in long-gestation exploration projects.

Badjate noted that Indian Oil Corporation is unlikely to see a direct earnings impact given its downstream focus, though stronger domestic production economics can improve long-term supply stability for the broader energy ecosystem. The input also flagged that Vedanta, through Cairn Oil & Gas and its onshore operations, was in focus alongside the upstream PSUs after the notification.

Conclusion

ONGC and Oil India’s intraday gains reflected a clear read-through from lower royalty rates and a stronger crude price environment. The government framed the move as a decade-long effort to modernise upstream regulation and remove inconsistencies across regimes. Near-term market attention is likely to remain on how the revised royalty schedules translate into reported margins and cash flows as more details and implementation timelines are tracked by investors.