Centre cuts oil royalty for deepwater blocks to boost exploration
Synopsis
The Centre has slashed royalty rates for deepwater and ultra-deepwater oil blocks — offering zero royalty for the first seven years of ultra-deepwater production — in a significant policy shift designed to attract exploration investment as global energy markets face West Asia-driven turbulence.
Key Takeaways
The Centre has revised royalty rates for offshore deepwater and ultra-deepwater oil and gas blocks.
Deepwater areas : 5% royalty for the first 7 years , rising to 10% from year eight.
Ultra-deepwater blocks : zero royalty for the first 7 years , then 5% from year eight.
Onland and shallow water royalty rates remain at 12.5% in most categories.
The revision covers blocks under NELP , HELP , DSF Policy , and nomination-based awards to national oil companies.
The move comes as the West Asia conflict drives global energy market volatility and PM Modi has urged citizens to conserve foreign exchange.
The Centre has reduced the royalty burden on crude oil and casing head condensate production from offshore deepwater and ultra-deepwater blocks, according to revised royalty provisions notified in the latest schedule under India's oil and gas regime. The move is aimed at incentivising exploration investment at a time of heightened global energy market volatility.
Key Changes in the Revised Royalty Structure
Under the revised framework, royalty for deepwater areas has been fixed at 5 per cent for the first seven years from the commencement of commercial production, rising to 10 per cent from the eighth year onwards. For ultra-deepwater blocks, no royalty will be charged for the first seven years of commercial production, with a rate of 5 per cent applying from the eighth year onwards.
For onland and shallow water areas, royalty rates remain at 12.5 per cent in most categories, while certain offshore and ultra-deepwater production categories will attract lower levies. The government has also retained a 7.5 per cent royalty rate for some categories specified under the revised framework.
Scope of the Revised Schedule
The revised royalty schedule covers areas awarded under various regimes, including nomination-based awards to national oil companies, blocks awarded before the New Exploration Licensing Policy (NELP), and areas awarded under the Hydrocarbon Exploration and Licensing Policy (HELP) and the Discovered Small Field (DSF) Policy. Production-sharing contracts awarded under earlier policies will continue to follow rates specified in their respective agreements.
Global Energy Context
The government's move comes amid mounting pressure on economies worldwide due to the ongoing conflict in West Asia and rising volatility in global energy markets. The government has confirmed that adequate stocks of petroleum products are available and that LPG is being supplied for domestic cooking without disruption.
Earlier this month, US President Donald Trump said he was unhappy with Iran's response to a US proposal aimed at ending the regional conflict, calling Tehran's position
Point of View
Not a cosmetic tweak. India's deepwater acreage has historically been underleveraged because the economics rarely pencilled out against global alternatives. By front-loading relief in the early, capital-intensive production years, the Centre is addressing the precise pain point that deterred private and foreign explorers. The timing, however, is double-edged: global oil price uncertainty driven by the West Asia conflict may still suppress investment appetite even with lower royalties. The real test is whether this revision is accompanied by faster clearances and contract certainty — without which the fiscal incentive alone will not move the needle on India's import dependence.
NationPress
2 Jul 2026
Frequently Asked Questions
What are the new royalty rates for deepwater oil blocks in India?
Under the revised structure, deepwater blocks will attract a royalty of 5 per cent for the first seven years of commercial production and 10 per cent from the eighth year onwards. Ultra-deepwater blocks will pay zero royalty for the first seven years, followed by 5 per cent thereafter.
Which policy areas are covered under the revised royalty schedule?
The revised schedule covers blocks awarded under nomination-based awards to national oil companies, blocks predating the New Exploration Licensing Policy (NELP), and areas under the Hydrocarbon Exploration and Licensing Policy (HELP) and Discovered Small Field (DSF) Policy. Earlier production-sharing contracts continue under their original agreed rates.
Why has the Centre reduced oil and gas royalty rates now?
The reduction comes amid global energy market volatility linked to the ongoing West Asia conflict and India's broader effort to incentivise domestic hydrocarbon exploration and reduce import dependence. The government has also confirmed adequate domestic petroleum product stocks amid the uncertainty.
Do onland and shallow water royalty rates change under the new framework?
No. Royalty rates for onland and shallow water areas remain at 12.5 per cent in most categories. The reduction is targeted specifically at offshore deepwater and ultra-deepwater blocks to encourage exploration in more technically challenging and capital-intensive areas.
How does PM Modi's appeal to citizens relate to this policy change?
Prime Minister Narendra Modi has urged citizens to avoid non-essential gold purchases, reduce foreign travel, and cut fuel consumption to help conserve foreign exchange reserves amid the economic impact of the West Asia crisis. The royalty revision is part of a broader government effort to strengthen domestic energy production and reduce dependence on imported oil.
