ONGC Shares Rally 6% After Government Cuts Crude Oil Royalty Rates
Shares of Oil and Natural Gas Corporation (ONGC) surged 6% following the Indian government's surprise decision to reduce upstream royalty rates on crude oil and natural gas production. Hong Kong-based brokerage CLSA described the move as a significant positive for state-run explorers, estimating it could increase ONGC's fair value by 7-9% and Oil India's by 9-11%. The revised framework lowers onshore crude royalty from 16.66% to 10%, offshore from 9.09% to 8%, and natural gas royalty from 10% to 8%. CLSA analysts noted that this change not only boosts earnings per share but also alleviates investor fears regarding potential new windfall taxes. For ONGC, the reduction is expected to add Rs 2.5-3 to earnings per share, while Oil India could see an addition of Rs 5.2-6.4. The brokerage reiterated its 'High Conviction Outperform' rating on ONGC with a target price of Rs 405, highlighting the government's intent to encourage upstream exploration rather than increase fiscal burdens on producers amidst rising crude prices.
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ONGC Shares Rally 6% After Government Cuts Crude Oil Royalty Rates
Shares of Oil and Natural Gas Corporation (ONGC) surged 6% following the Indian government's surprise decision to reduce upstream royalty rates on crude oil and natural gas production. Hong Kong-based brokerage CLSA described the move as a significant positive for state-run explorers, estimating it could increase ONGC's fair value by 7-9% and Oil India's by 9-11%. The revised framework lowers onshore crude royalty from 16.66% to 10%, offshore from 9.09% to 8%, and natural gas royalty from 10% to 8%. CLSA analysts noted that this change not only boosts earnings per share but also alleviates investor fears regarding potential new windfall taxes. For ONGC, the reduction is expected to add Rs 2.5-3 to earnings per share, while Oil India could see an addition of Rs 5.2-6.4. The brokerage reiterated its 'High Conviction Outperform' rating on ONGC with a target price of Rs 405, highlighting the government's intent to encourage upstream exploration rather than increase fiscal burdens on producers amidst rising crude prices.
Economic Times