India has announced a major Oil & Gas Royalty Cut to support domestic energy production and attract more investment in the hydrocarbon sector. The Ministry of Petroleum and Natural Gas notified the revised royalty rates on 8 May 2026 for onshore, offshore, deepwater, and ultra-deepwater oil and gas fields across the country.

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What is Royalty in the Oil and Gas Sector?

Royalty is a payment made by companies to the government for extracting natural resources like crude oil and natural gas from licensed areas. In the hydrocarbon sector, royalty is usually calculated based on production value or well-head price. The well-head price means the value of oil or gas at the production site before transport and marketing costs are added.

Revised Oil & Gas Royalty Cut Rates

The government has reduced royalty rates for both crude oil and natural gas production.

Onshore crude oil royalty has been reduced from 16.66% to 10%.
Offshore crude oil royalty has been reduced from 9.09% to 8%.
Natural gas royalty has been reduced from 10% to 8%.

The government has also introduced a flat deduction method to calculate the well-head price of natural gas. This move is expected to simplify pricing and improve production economics for companies.

Relief for Deepwater and Ultra-Deepwater Fields

Under the new Oil & Gas Royalty Cut policy, deepwater and ultra-deepwater fields awarded through the Discovered Small Field (DSF) Policy and Hydrocarbon Exploration and Licensing Policy (HELP) will enjoy zero royalty for the first seven years of production.

After the seven-year period:

Deepwater fields will attract 5% royalty.
Ultra-deepwater fields will attract only 2% royalty.

These changes are aimed at encouraging exploration in technically difficult and capital-intensive offshore areas.

Focus on Domestic Energy Production

India imports a large portion of its crude oil and natural gas needs. The revised royalty system is expected to support domestic exploration and production activities. Lower royalty rates can help companies invest more in upstream projects and improve India’s energy security.

Public sector companies like Oil and Natural Gas Corporation and Oil India are expected to benefit from the revised structure. The government believes the new policy will encourage higher production and attract fresh investment into the sector.

DSF and HELP Policies Explained

The Discovered Small Field (DSF) Policy was introduced to develop discovered hydrocarbon fields that remained unused for years. The Hydrocarbon Exploration and Licensing Policy (HELP) provides a revenue-sharing model for exploration and production activities in India.

Both policies play an important role in expanding India’s domestic oil and gas production capacity.