ONGC share price jumps 6.5%, Oil India rallies 9% after govt slashes oil and gas royalty rates

Oil and Natural Gas Corporation (ONGC) share price surged 6.5% on Tuesday, 12 May, after the government reduced royalty rates on crude oil and natural gas production across multiple field categories, including deepwater and ultra-deepwater blocks, to boost domestic exploration.

Similarly, another oil PSU, Oil India, witnessed a 9% increase in its stock as the updated framework is anticipated to benefit upstream oil companies.

Govt cuts oil and gas royalty rates

The government has reduced the royalty on onshore crude oil production from 16.66% to 10%. Royalty on offshore crude production has been cut to 8% from 9.09%, while the rate on natural gas has been lowered to 8% from 10%, following the introduction of a new flat deduction formula.

Royalty represents the payment made by oil and gas firms such as ONGC and Oil India to the government for extracting crude oil and natural gas from the nation’s reserves. This fee is typically calculated as a percentage of the market value of the extracted oil or gas. The term “royalty rate” refers to this percentage set by the government.

Increased royalty rates raise upstream companies' expenses, while reduced rates enhance profitability and may stimulate further exploration and production, particularly in costly deepwater and ultra-deepwater ventures.

According to a CLSA report, quoted by CNBC TV-18, the government’s recent move to cut royalty rates came as a positive surprise.

As per the news report, CLSA estimates that the decision could increase ONGC’s fair value by 7%–9%, while Oil India Limited could see an upside of 9%–11%. The brokerage highlighted that the move helps ease concerns around potential upstream taxation risks, including the reintroduction of a windfall tax similar to 2022.

Such concerns had previously weighed on ONGC and Oil India, making them among the weaker-performing upstream energy stocks globally. CLSA further noted that at Brent crude prices of $80 per barrel, ONGC could deliver a total return of over 50%, as the stock currently factors in a lower crude price assumption of around $65 per barrel, CNBC-TV18 reported.

It reiterated its ‘High Conviction Outperform’ rating on ONGC with a target price of ₹405.

ONGC share price today

ONGC share price today opened at ₹288.50 per share on the BSE, touched an intraday high of ₹298.95 per share, and an intraday low of ₹286.70 per share.

Rajesh Bhosale, Equity Technical and Derivative Analyst at Angel One, said the stock has held its support near the 50-day EMA around ₹280, followed by a strong gap-up opening and sustained buying interest. Prices are currently up over 6% and are likely to retest recent highs near ₹307, with the potential to extend towards ₹320.

On the downside, the bullish gap between ₹285– ₹280 is expected to act as immediate support. Bhosale also noted that the RSI has rebounded from 50 to above 60, reinforcing the positive momentum.

Oil India share price today

Meanwhile, Oil India share price today surged over 9%, hitting an intraday high of ₹498.80 and a low of ₹470.10 on the BSE.

Bhosale said the stock had been in a correction phase over the past few weeks, but bulls have regained control. "The price has decisively moved above key moving averages, supported by a strong bullish candle and a spike in volume."

With gains of over 8%, the stock is likely to see further upside in the near term, Bhosale added. The ₹525– ₹540 zone is seen as the next resistance, while the ₹470 level, where a bullish gap remains, is expected to act as immediate support, according to him.

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