ONGC Share price jumps 5% - Read details

12 May 2026 , 11:49 AM

Shares of Oil and Natural Gas Corporation (ONGC) surged more than 5% to 297 . 00 per share, after the Indian Government announced a significant reduction in royalty rates on crude oil and natural gas production; a move that markets interpreted as a major structural positive for upstream energy companies.

The policy change change is expected to directly improve profitability, strengthen cash flows, and potentially support higher dividends for companies such as Oil India Limited as well.

What Changed?

The government revised royalty rates across key hydrocarbon segments:

Segment	Old Rate	New Rate
Onshore crude oil	16.66%	10%
Offshore crude oil	9.09%	8%
Natural gas	10%	8%

The sharpest benefit comes from onshore crude oil production, where royalty rates were reduced dramatically from 16.66% to 10%.

 

Why Royalty Cuts Matter

Royalty is essentially a payment made by oil and gas producers to the government for extracting natural resources. Since it is treated as a direct production cost, any reduction immediately boosts operating profitability.

For ONGC, the implications are substantial:

• Higher EBITDA margins
• Improved net profits
• Stronger free cash flow generation
• Better dividend sustainability
• Improved economics for exploration projects

The move is particularly important for capital-intensive areas such as deepwater and ultra-deepwater exploration, where production costs are significantly higher and profitability has historically been pressured.

Why the Market Reacted Positively

Investors viewed the announcement as more than just a short-term earnings boost. The royalty reduction signals a potentially more supportive policy environment for upstream energy producers.

Another major takeaway for markets was the reduced fear of aggressive future taxation or unexpected windfall levies — concerns that had weighed on investor sentiment in the past.

As a result, ONGC stock witnessed strong buying interest immediately after the announcement.

Technical Picture: Bullish Momentum Building

From a technical perspective, ONGC’s chart structure has also improved considerably.

Key bullish indicators include:

• Strong support emerging near ₹280, which aligns with the 50-day EMA
• A gap-up move accompanied by strong trading volumes
• RSI rebounding above 60, indicating strengthening momentum

 

Level	Significance
₹280–285	Immediate support zone
₹307	Near-term resistance
₹320	Potential breakout target
₹405	CLSA long-term target

 

As long as the stock remains above the ₹280 support zone, traders may continue to view the trend as bullish.

Key Factors Investors Should Monitor

1. Brent Crude Oil Prices

ONGC’s earnings are highly sensitive to global crude oil prices. If Brent crude remains elevated, the benefits of lower royalty rates could be amplified further.

2. Government Policy Stability

Investors will closely watch whether the government maintains a stable tax and royalty framework or reintroduces windfall taxes during periods of high oil prices.

3. Production Growth

Lower royalty rates improve project economics, but actual earnings growth will also depend on ONGC’s ability to increase production volumes.

4. Dividend Outlook

ONGC has traditionally been viewed as a strong dividend-paying PSU stock. Improved cash generation may further strengthen payout sustainability.

Risks Investors Cannot Ignore

Despite the positive developments, some risks remain:

• A sharp fall in crude oil prices
• Global recession impacting energy demand
• Future government intervention or taxation
• Delays in deepwater exploration projects
• Volatility in global energy markets

These factors could limit the extent of any long-term rerating.

The Bigger Picture

The royalty cut marks one of the most meaningful positive policy changes for India’s upstream oil and gas sector in recent years.

For ONGC, the benefits are multi-layered:

• Lower operating costs
• Improved earnings visibility
• Better exploration economics
• Reduced regulatory uncertainty
• Stronger free cash flow profile

In the short term, market momentum remains constructive as long as the stock trades above key support levels.

Over the medium to long term, ONGC could witness a valuation rerating if crude prices remain supportive and policy stability continues.

For investors, the latest move reinforces ONGC’s positioning as a potentially stronger cash-generating energy PSU with improving fundamentals and renewed institutional confidence.

Disclaimer – The stock/s and indices mentioned in this article is discussed solely for informational and educational purposes. It should not be construed as investment advice or a recommendation to buy or sell any securities. Investors should conduct their own research or consult a financial advisor before making any investment decisions. Investments in securities market are subject to market risks. Read all the related documents carefully before investing.