ONGC, Oil India Shares Jump After Centre Cuts Upstream Royalty Rates

State-owned upstream oil companies saw strong buying interest on Tuesday, 12 May 2026, after the Centre announced changes to the royalty framework for crude oil and natural gas production.

At 12:59 pm IST, ONGC shares were trading at ₹295.25, up 5.07% for the day. The stock opened at ₹286.90 and touched an intraday high of ₹299.90.

Oil India shares rallied even more sharply. At 12:59 pm IST, the stock was trading at ₹491.00, higher by 7.68%. Oil India opened at ₹472 and rose to an intraday high of ₹499.40 during the session.

The rally came despite weakness in the broader market. The gains followed the government’s decision to reduce royalty rates across several categories of oil and gas fields, including deepwater and ultra-deepwater blocks. The move is expected to improve profitability for upstream producers and remove uncertainty around future taxation.

What Has Changed In The Royalty Structure?

Union Petroleum and Natural Gas Minister Hardeep Singh Puri on Monday announced rationalisation of royalty rates under the Oilfields (Regulation and Development) Act framework.

The revised structure reduces royalty rates and standardises calculations across production categories.

• Effective royalty on onshore oil production has been reduced from 16.66% to 10%

• Offshore royalty has declined from 9.09% to 8%

• Royalty on natural gas has been cut from 10% to 8%

The changes come after amendments made to the ORD Act and PNG Rules in 2025.

The government said the revised framework aims to remove inconsistencies in the upstream sector and create a more stable and predictable policy environment for oil and gas producers.

Royalty is a levy paid by oil and gas producers to the centre or state governments for extracting hydrocarbons from leased fields.

Market participants believe lower royalty payouts could directly improve operating economics for upstream companies such as ONGC and Oil India.

Why Are Brokerages Positive On ONGC And Oil India?

Brokerage firms believe the royalty changes could improve both profitability and investor sentiment towards upstream energy companies.

According to the analysts, the royalty reduction came as a positive surprise because investors were earlier concerned about the possibility of a fresh windfall tax if crude oil prices remained elevated.

The government’s decision to lower royalties instead of increasing taxes sends a stronger policy signal for the sector.

Thus far in calendar year 2026, ONGC shares have risen around 24%, while Oil India has gained nearly 15%. In comparison, the benchmark market index has declined around 11% during the same period.

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What Are Investors Watching Going Ahead?

India continues to remain heavily dependent on crude oil imports, making higher domestic exploration strategically important for the energy sector. The latest policy changes are being viewed as part of the government’s broader effort to increase domestic oil and gas production.

Both ONGC and Oil India continue to trade at valuation discounts compared with several global upstream peers despite relatively strong cash flows.

The latest royalty revisions are being seen as a step towards improving long-term visibility for the sector, especially at a time when global energy markets remain volatile.

Sources:

Business Standard

Financial Express