Shares of Oil and Natural Gas Corporation (ONGC) and Oil India surged sharply on Tuesday after the Centre announced major changes in royalty rates for crude oil and natural gas production.
The move boosted investor sentiment across the upstream energy sector, with ONGC shares rising nearly 6.6 percent and Oil India jumping close to 9 percent during the session.
Brokerage firm CLSA called the decision a “significant positive” for both companies and said the revised framework could substantially improve profitability and long-term valuations.
Government Cuts Royalty Burden to Boost Domestic Energy Production
The government has rationalised royalty rates and revised the methodology for crude oil, natural gas and casing head condensate production.
The policy change is aimed at encouraging exploration activities, increasing domestic production and reducing India’s dependence on imported energy.
Officials believe the revised framework will help attract fresh investments into difficult and capital-intensive oil and gas fields.
The Centre has also been focusing on strengthening India’s energy security amid volatility in global crude oil markets.
Major Crude Oil & Natural Gas Stocks in India (May 2026)
| Company | Sector | Approx Stock Price | Market Position / Growth |
| Oil and Natural Gas Corporation | Crude Oil & Natural Gas Exploration | ₹245–₹265 | India’s largest upstream oil producer |
| Oil India | Oil & Gas Exploration | ₹680–₹760 | Strong government-backed upstream expansion |
| Reliance Industries | Oil-to-Chemicals, Gas & Energy | ₹1,350–₹1,500 | Strong refining and energy transition business |
| GAIL | Natural Gas Transmission | ₹190–₹220 | India’s largest gas pipeline operator |
| Petronet LNG | LNG Import & Gas Infrastructure | ₹290–₹340 | Key LNG importer benefiting from rising gas usage |
| Gujarat Gas | City Gas Distribution | ₹480–₹550 | Strong industrial and retail gas demand |
| Indraprastha Gas | City Gas Distribution | ₹190–₹230 | Expanding CNG and PNG network |
| Mahanagar Gas | City Gas Distribution | ₹1,250–₹1,450 | Mumbai-focused gas distribution leader |
| Hindustan Petroleum Corporation | Oil Refining & Marketing | ₹370–₹430 | Benefits from refining margins and fuel demand |
| Bharat Petroleum Corporation | Refining & Fuel Retail | ₹290–₹360 | Strong retail fuel network |
| Indian Oil Corporation | Refining & Energy | ₹135–₹170 | India’s largest fuel retailer |
CLSA Says Royalty Changes Could Add Significant Value for ONGC and Oil India
According to CLSA, the reduction in royalty rates could add nearly 7-9 percent fair value for ONGC and 9-11 percent for Oil India.
The brokerage highlighted that the government has revised the royalty structure for nomination blocks by introducing a standard ad-valorem deduction of 20 percent.
Under the new system, royalty rates will be 12.5 percent for onshore blocks and 10 percent for offshore blocks.
CLSA said the effective royalty burden on onshore crude production will decline sharply under the revised structure.
Here’s What Happened Today and Why Traders Reacted
Several major developments triggered strong buying interest in oil and gas stocks:
- Government reduced royalty rates on crude oil and natural gas production.
- Revised rules are expected to lower operational costs for upstream companies.
- CLSA projected strong valuation upside for ONGC and Oil India.
- Investors viewed the move as a positive long-term policy signal.
- Concerns over possible windfall taxes also eased after the announcement.
The announcement created optimism that profitability for upstream energy companies could improve significantly in the coming years.
New Royalty Framework May Improve Margins for Oil Companies
According to CLSA, the effective royalty rate on onshore crude production may decline from 16.66 percent to nearly 10 percent.
For offshore production, the royalty burden could reduce from 9.09 percent to around 8 percent.
Royalty on natural gas production has also been lowered from 10 percent to 8 percent.
The revised structure is expected to directly improve operating margins for companies like ONGC and Oil India, which have significant upstream exposure.
India’s Oil & Gas Sector Enters a New Wealth Creation Cycle
Why Oil & Gas Stocks Are Rising
- Government has reduced royalty burden on crude oil and natural gas production.
- Lower royalty rates improve profitability for upstream energy companies.
- Policy aims to boost domestic oil & gas exploration and reduce import dependence.
- CLSA believes the move could significantly improve valuations of ONGC and Oil India.
Top Crude Oil & Natural Gas Stocks in India
Upstream Oil Exploration Leaders
- Oil and Natural Gas Corporation
- India’s largest oil & gas explorer
- Expected to benefit strongly from royalty cuts
- Stable cash flow and strong dividend history
- Oil India
- Strong government-backed exploration company
- CLSA estimates fair value upside of 9–11%
- Rising production and lower royalty burden support growth
Natural Gas Infrastructure Leaders
- GAIL
- India’s largest natural gas pipeline operator
- Long-term beneficiary of rising gas demand
- Petronet LNG
- Major LNG importer and gas infrastructure player
- Benefits from India’s growing LNG consumption
City Gas Distribution Growth Stocks
- Gujarat Gas
- Strong industrial gas demand
- Expanding city gas network
- Indraprastha Gas
- Strong CNG and PNG growth
- Urban clean-energy demand rising steadily
- Mahanagar Gas
- Dominant Mumbai gas distributor
- Stable long-term earnings business
Integrated Energy Giants
- Reliance Industries
- Strong oil-to-chemicals and energy business
- Expanding into clean energy and green hydrogen
- Indian Oil Corporation
- India’s largest fuel retailer
- Massive refining and energy infrastructure presence
- Bharat Petroleum Corporation
- Strong refining margins and fuel demand growth
- Hindustan Petroleum Corporation
- Government-backed refining and retail giant
Government Pushes Exploration Through New Incentives
The revised policy also includes additional incentives for fields awarded under the Discovered Small Field (DSF) Policy and Hydrocarbon Exploration and Licensing Policy (HELP).
Under the updated structure, ultra-deep-water production in such fields will attract zero royalty for the first seven years.
This will later increase to 5 percent and eventually 2 percent in subsequent phases.
Experts believe these incentives could attract long-term investments into India’s exploration and production sector.
What Impact Could This Have on Investors and the Market?
The government’s decision is being seen as a strong positive for upstream oil companies and energy sector investors.
Lower royalty payments can improve earnings visibility and cash flows for companies like ONGC and Oil India.
The move may also support higher capital expenditure and exploration spending over the next few years.
For traders, the policy announcement has triggered strong momentum in oil and gas stocks, especially in the PSU energy segment.
Analysts believe energy stocks could remain in focus if global crude prices stay elevated and the government continues supporting domestic production growth.
