Explained: Why Vedanta shares are up 4% after government's royalty cut on crude oil ~ PARN HARIT

Shares of metal major Vedanta rallied as much as 4% to their day’s high of Rs 310 on the BSE on Tuesday after the Centre reduced royalty rates on the production of crude oil and natural gas from several categories of fields, including deepwater and ultra-deepwater blocks, in a move aimed at boosting domestic exploration and production. The revised rates were notified by the Ministry of Petroleum and Natural Gas on May 8.

But why is Anil Agarwal’s Vedanta a beneficiary? Hong Kong brokerage CLSA said the government has fixed the standard deduction at 15% for all blocks other than nomination blocks. According to the brokerage, this will reduce royalty rates for Vedanta’s Rajasthan fields from 16.67% to 10.6%.

The move is also expected to lower royalty burdens across several other fields, supporting higher exploration and upstream development activity in India. The brokerage added that royalty rates for blocks offered after 2019 under the Hydrocarbon Exploration Licensing Policy (HELP) have been reduced further to encourage fresh investments in the upstream oil and gas sector.

CLSA also highlighted the broader policy signal from the government, especially at a time when crude oil prices are rising, and fiscal pressures remain elevated. The brokerage said the royalty cut suggests the government is focused on encouraging upstream exploration and production rather than increasing taxes on producers.

Vedanta demerger

Mining major Vedanta has recently undergone its much-awaited demerger, with the Vedanta's share price now excluding the value of four of its recently demerged entities, leaving investors waiting for the four new listings to take place on BSE and NSE.

The company in April this year announced that each of its eligible shareholders will get one share of Vedanta Aluminium Metal (VAML), one share of Talwandi Sabo Power (to be renamed to Vedanta Power), one share of Malco Energy (to be renamed to Vedanta Oil and Gas) and one share of Vedanta Iron and Steel, for every share held in Vedanta, marking one of the biggest corporate rejigs in India’s metals and mining space.

During an investor call following the quarterly earnings announcement earlier this month, Vedanta Resources CEO Deshnee Naidoo said that the company will file with stock exchanges next week for listing approval of its demerged entities, with shares expected to list and commence trading by mid-June.

"In the next week, we will be filing with the exchanges for listing approval. The shares of the resulting companies are expected to list and commence trading by mid-June," she said.

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On Tuesday, May 12, 2026, shares of Vedanta Ltd rallied as much as 4%, reaching an intraday high of approximately ₹310 on the BSE. This surge follows a significant policy shift by the Indian government regarding royalty rates on domestic oil and gas production.

Here is the breakdown of why this move is boosting Vedanta's stock:

1. Significant Reduction in Royalty Rates

The Ministry of Petroleum and Natural Gas notified a revised royalty structure on May 8, 2026. This move is intended to boost domestic exploration and production (E&P) by lowering the financial burden on upstream producers.

Rajasthan Fields (Cairn Oil & Gas): For Vedanta's flagship Rajasthan blocks, brokerage reports (notably from CLSA) indicate that the government has introduced a standard 15% deduction for non-nomination blocks.
Effective Drop: This adjustment is expected to reduce the effective royalty rate for Vedanta’s Rajasthan production from 16.7% to 10.6%, representing a substantial saving that flows directly to the company's bottom line.

2. Encouragement for New Investments

The government also slashed rates for blocks under the Hydrocarbon Exploration Licensing Policy (HELP) and Discovered Small Field (DSF) policies.

Deepwater & Ultra-Deepwater: Royalty rates have been reduced to encourage exploration in difficult terrains, with some categories now attracting 0% royalty for the first seven years of production.
Policy Signal: This shift suggests a move away from "windfall taxes" toward production incentives, easing investor fears regarding tax hikes amid high global crude prices.

3. Broader Sector Sentiment

Vedanta is not the only beneficiary. State-run giants like ONGC and Oil India also saw their shares jump significantly (up to 9%) as their onshore royalty rates were cut from 20% to 12.5%. The collective rally reflects market optimism that Indian energy companies will now have higher margins and more capital for expansion.

Context: The "New" Vedanta Price

It is worth noting that Vedanta’s current trading price (around ₹310) reflects its ex-demerger valuation. Following the structural split on April 30, 2026, the company was divided into five entities.

Current Vedanta Ltd: Now represents the core diversified business.
Pending Listings: Shareholders are awaiting the listing of the four new entities—Vedanta Aluminium, Vedanta Power, Vedanta Oil & Gas, and Vedanta Iron & Steel—which is expected by mid-June 2026.

The 4% rise today indicates that even in its leaner, post-demerger form, the parent company remains a major beneficiary of the government’s favorable energy policies.

PARN HARIT