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Informist, Thursday, Jun. 11, 2026

 

MUMBAI – The government has reinstated the effective rate of royalty to be paid by oil exploration companies on crude oil produced from on-land nomination blocks and areas awarded before the New Exploration Licensing Policy was implemented to 16.66%. The move comes a month after the government had announced a cut in the royalty rate.

 

The royalty rate on onshore nominated blocks has now been reset to 20% from 12.5?rlier, according to a gazette notification dated Jun. 4. The tax for these blocks will now be calculated on a cum-royalty basis, reversing the May 8 provision of a rationalisation exercise by which the effective royalty rate for on-land crude oil production from these blocks had come down to 10%.

 

The royalty rate for on-land blocks registered under the New Exploration Licencing Policy remains at 12.5% and will continue to be computed on an ex-royalty basis, according to the notification. Royalty for all offshore blocks will also continue to be calculated on an ex-royalty basis. In the May notification, the government had reduced the effective royalty rates on on-land crude oil production to 10%, offshore crude oil production to 8% from 9.09%, and natural gas to 8% from 10%. It had also added concessional rates for deepwater and ultra-deepwater production.

 

While the effective royalty is still lower than the earlier charge, the revised rate is higher than that levied under the May notification and will add to the costs of upstream oil companies, several analysts and brokerages said. Oil India and Oil and Natural Gas Corp. are likely to see a hit to their earnings per share, they added.

 

"This will add to the tax burden on Oil India and ONGC in the coming quarters," an analyst from a domestic brokerage said. The analyst said Oil India will see an increase in royalty costs to $13 per barrel from $10 earlier while ONGC will see an increase in the costs to $8.6 per barrel from $7.7 per barrel.

 

For Oil India, where the earnings per share impact is sharper at 9%, brokerage CLSA said it still expects the company to report a notable jump in production in its June quarter results, which would help to offset some of the headline royalty drag, as per several media reports. Kotak Securities said it expects the move to fetch the government between INR 23 billion and INR 25 billion, according to CNBC-TV18. The brokerage also sees a negative 1-1.5% impact on ONGC's earnings per share and a hit of 5-6% on Oil India's earnings per share. "While such policy flip-flops are disappointing, we remain confident that fiscal stability and economic equilibrium provided in amended Acts and PNG (piped natural gas) rules are here to stay," Kotak Securities wrote in a note.

 

ICICI Securities has cut its earnings-per-share estimate for the financial year 2026-27 (Apr-Mar) for both oil explorers by 5.6%. Despite this, the brokerage has maintained its "buy" recommendation on ONGC and "add" recommendation on Oil India. The US-Iran conflict and the blocking of the Strait of Hormuz--which accounted for 20% of the world's oil supply before the war--have driven a sharp rally in crude oil prices since, which could drive strong earnings for the June quarter for the companies, the brokerage said. Even with eventual resolution of the conflict, crude oil prices could remain in the range of $80-$85 per barrel over FY27 and FY28, the brokerage added.

 

Thursday, shares of Oil India ended at INR 429.35, up 0.5% from Wednesday, and ONGC ended at INR 252.60, up 0.3%, on the National Stock Exchange.  End

 

Reported by Eshitva Prakash

Edited by Rajeev Pai

 

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