India cuts oil and gas royalty rates to boost domestic energy production
Deepwater and ultra-deepwater projects receive zero royalty for first seven years
Revised framework lowers exploration costs and encourages upstream investment activity
India has cut oil and gas royalty burden on producers, providing fresh incentives for deepwater exploration as the conflict in West Asia continues with no sign of negotiations between the US and Iran.
Under the revised framework, effective royalty on onshore crude oil production has been cut to 10%. In comparison, royalty on offshore crude production has also been reduced to 8%, as per the new calculation mechanism.
1 May 2026
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For natural gas, the effective royalty rate now stands at 8% following the government's introduction of a new flat deduction formula for calculating the "wellhead price" used as the basis for royalty payments.
Under the notification, royalty will henceforth be calculated on the wellhead price after applying a fixed deduction for post-wellhead costs — set at 20% of the sale price for nomination regime blocks and 15% for all other regimes.
The government has also retained concessional royalty rates for deepwater and ultra-deepwater fields, in a bid to encourage production from more challenging geographies.
Under the revised framework, crude oil and condensate output from blocks awarded under the Discovered Small Field (DSF) Policy and the Hydrocarbon Exploration and Licensing Policy (HELP) will attract zero royalty for the first seven years in deepwater and ultra-deepwater areas. From the eighth year onwards, royalty rates will be pegged at 5% for deepwater blocks and 2% for ultra-deepwater blocks.
The same concession has been extended to natural gas production from DSF and HELP blocks, with royalty rates remaining at zero for the first seven years before increasing to 5% and 2%, respectively.
By offering strong policy support, the government aims to encourage exploration, increase domestic production, and enhance energy security.
The overhaul of the royalty regime is expected to reduce costs for companies exploring difficult and capital-intensive oil and gas fields. In this field, India has been trying to attract more investment to boost local energy production and reduce import dependence as well.
"These actions confirm the government's intention to promote policies which boost upstream exploration and production," said global brokerage firm CLSA in a report.
