- A policy shift by the Indian Government has lowered royalty rates on the upstream oil and gas industry, and is expected to attract more investors
- Geopolitical risks around the Iran War favour upstream corporations like ONGC than downstream distributors
- Retesting ₹300 in the current environment and a valuation with a P/E of 9.74 versus an industry average of 23.67 also makes ONGC stock attractive
ONGC shares have been getting a lot of attention from investors lately. On May 12, 2026, the stock hit the psychological round figure ₹300, after jumping up to 6% during the day before closing around ₹ 295. This big jump shows that people are feeling more confident about India’s biggest oil and gas producer.
The Royalty Cut That Changed Everything
The immediate trigger for the latest surge is a policy move that few saw coming. On May 8, the Ministry of Petroleum and Natural Gas announced new rules for how much royalty companies have to pay for crude oil, natural gas, and casing head condensate. These adjustments are integral to wider reforms designed to foster a more predictable and appealing environment for investors within India’s upstream oil and gas industry.
For onshore crude in nominated and pre-NELP blocks, royalty rates decreased from 20% or 16.66% to 12.5% or 10%. Offshore crude royalty was adjusted downwards from 9.09% to 8%, while natural gas royalty had a reduction from 10% to 8%, alongside the introduction of a new flat deduction formula.
The move is expected to improve net realizations by approximately $2.4-3 per barrel for ONGC at $80-100 crude prices, adding Rs 2.5-3 to earnings per share. This translates to a potential Rs 20-24 uplift in fair value per share.
Beyond direct cost savings, the policy underscores a supportive approach for domestic exploration and production activities. It also addresses earlier anxieties concerning prospective windfall taxes. These concerns had previously suppressed valuations, contributing to ONGC’s performance lagging some of its global upstream counterparts.
Can the Rally Sustain?
The rest of 2026 looks pretty good for ONGC, as long as crude oil prices stay strong. Geopolitical risks around the Iran war might keep oil prices higher, with some experts guessing they’ll average $80-85 or even more. This kind of market helps companies that find and produce oil, like ONGC, more than those that just sell it.
From a valuation standpoint, the stock continues to present an appealing profile. Currently, ONGC’s PE ratio stands at 9.74, which is notably lower than the energy sector’s average of 23.67. Furthermore, the company provides a dividend yield of roughly 4.58%.
There’s also the story of BP partnership. ONGC signed a deal with BP Plc as a technical service provider for its Western offshore assets, with BP committing to up to 60% incremental production over base levels across a 10-year contract period. The results are already beginning to show, with the long-standing decline at the company’s flagship Mumbai High fields being arrested
The near-term catalyst to watch is earnings. ONGC’s next earnings announcement is set for May 26, 2026. This event could introduce further market fluctuations, yet it also presents a new chance for the market to re-evaluate the stock’s overall direction.
