Shares of Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) came under pressure after the government raised the effective royalty rate on onshore crude oil production to 13.33 percent, reversing part of the relief announced last month.
The revision comes just weeks after the government had reduced the rate to 10 percent on May 8.
Although the new rate remains below the historical level of 16.67 percent, analysts said the move could trim earnings for domestic oil producers.
What’s changed?
The government has increased the effective royalty rate on onshore crude oil production to 13.33 percent.
However, some provisions remain unchanged:
- Offshore oil and gas royalty rates have not been altered.
- Standardized ad valorem deductions of 20 percent for nominated blocks and 15 percent for other blocks continue.
The latest change has raised concerns over policy consistency, though brokerages largely view it as a one-time adjustment.
Impact on earnings
According to Kotak Institutional Equities, the royalty revision could generate ₹2,300 crore to ₹2,500 crore in additional revenue for the government.
The brokerage estimates:
ONGC
- EPS impact of 1-1.5 percent.
Oil India
- EPS impact of 5-6 percent.
Kotak said it continues to prefer ONGC among the two state-run upstream companies.
Global brokerage CLSA also described the move as a localized measure aimed at protecting state government revenues.
Its estimates suggest:
ONGC
- EPS impact of around 2 percent.
Oil India
- EPS impact of about 9 percent.
CLSA added that the abrupt reversal could make investors wary of future government interventions.
Stock performance
Oil India
Oil India has a market capitalization of ₹69,814 crore.
Its shares were trading at ₹429.20, compared with the previous close of ₹427.45.
ONGC
ONGC has a market capitalization of ₹3,16,771 crore.
The stock was trading at ₹251.80, slightly lower than the previous close of ₹251.90.
About the companies
Oil India Ltd is a Maharatna public sector company engaged in the exploration, development and production of crude oil and natural gas. It has a strong presence in Assam and other northeastern states and also owns domestic and overseas assets.
ONGC is India’s largest producer of crude oil and natural gas. The Maharatna PSU operates across exploration, drilling and production activities and accounts for a significant share of the country’s hydrocarbon output.
TL;DR
The government has raised the effective royalty rate on onshore crude oil production to 13.33% from the 10% announced in May. Brokerages expect a limited impact on ONGC’s earnings but a bigger hit for Oil India.
AI summary
- Government raised onshore crude royalty to 13.33%.
- The earlier announced rate was 10%.
- Kotak sees a 1-1.5% EPS impact on ONGC and 5-6% on Oil India.
- CLSA estimates a 2% hit for ONGC and a 9% impact for Oil India.
- Brokerages view the move as a one-off measure to protect state revenues.