Govt Cuts Royalty Burden On Oil, Gas Producers To Encourage Increased Output

India has reduced the royalty burden on oil and gas producers in an effort to boost domestic energy production and reduce dependence on imports.

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The government announced lower royalty rates for crude oil and natural gas production across several categories of oilfields.

The revised royalty framework was issued by the Ministry of Petroleum and Natural Gas on May 8, 2026.

The changes mainly focus on deepwater and ultra-deepwater oil and gas blocks, where exploration and production costs are significantly higher.

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Under the new rules, royalty rates for deepwater areas have been reduced to 5 percent for the first seven years of commercial production and 10 percent thereafter.

For ultra-deepwater fields, companies will not have to pay any royalty for the first seven years. After that period, a 5 percent royalty will apply.

The government has also reduced royalty rates on onshore crude oil production for nominated blocks and pre-NELP production-sharing contracts from 20 percent to 12.5 percent. Royalty on new well gas has been cut from 10 percent to 9 percent.

Officials said the move is aimed at encouraging greater investment in domestic oil and gas exploration at a time when India is facing energy security concerns due to global geopolitical tensions and volatile crude oil prices.

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India imports 80 percent of its crude oil and natural gas requirements. The government hopes that reducing royalty costs will improve the profitability of domestic production and make difficult exploration projects more financially viable.

Industry experts said the decision could provide a major boost to upstream oil and gas companies such as Oil and Natural Gas Corporation, Oil India, and Vedanta, which operate several onshore and offshore fields in India.

The policy change comes as India tries to strengthen its domestic energy sector amid rising crude oil prices, supply disruptions linked to the West Asia conflict, and concerns about the country’s growing import bill.

According to experts, the move could be a significant positive development for the upstream oil and gas sector because lower royalty payments directly improve profitability and cash flows for producers.

The revised royalty structure will apply across fields awarded under different exploration policies, including nomination-based blocks, pre-NELP blocks, HELP blocks, and Discovered Small Field policy areas.

Existing production-sharing agreements under earlier contracts will continue to follow their respective terms where applicable.

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