In today’s Finshots, we dive into India’s new Petroleum and Natural Gas Rules, and why they matter not just for the oil and gas sector, but for the broader economy too.

But here’s a quick sidenote before we begin. This weekend, we’re hosting a free 2-day Insurance Masterclass where we’ll walk you through simple rules to pick the right insurance plan and the common mistakes you should avoid.

📅 Saturday, 20th Dec ⏰at 11:00 AM: Term Insurance
How to protect your family, choose the right cover amount, and understand what truly matters during a term claim.

📅 Sunday, 21st Dec ⏰at 11:00 AM: Health Insurance
How hospitals process claims, common deductions, the mistakes buyers usually make, and how to choose a policy that won’t disappoint you when you need it most.

👉🏽 Click here to register while seats last.

Now, on to today’s story.

The Story

For a while, I’ve lived in a place called Ashoknagar in West Bengal, about 50 km from Kolkata. You’ve probably never heard of it. And that’s fair because it’s a small town, not particularly known for anything out of the ordinary.

But in 2018, something unexpected happened. ONGC struck its first commercial crude oil discovery just ten minutes from my home. Test production followed between 2020 and 2022, and since then, ONGC has gone on to make a few more discoveries nearby.

And yet, years later, commercial oil extraction still hasn’t begun.

The reason?

ONGC and the West Bengal government got stuck arguing over a deceptively simple question: what exactly is the “value of the lease” on which stamp duty should be paid?

To see why this stalled everything, you need a bit of context. When a company wants to do upstream oil business — basically find oil and gas and extract it, it needs something called a petroleum mining lease. If the oilfield lies within a state, the state government grants the lease. If it’s offshore, the Central government does.

This lease gives the company exclusive rights to explore, develop, produce, and sell oil and gas. Think of it like renting land. One party owns the land, the other pays to use it. Here, the state is the owner, and the oil company pays an annual lease rent. On top of that, it also pays royalty, which depends on how much oil is actually produced and sold. All of this is governed by the Oilfields (Regulation and Development) Act, 1948.

But before the lease becomes operational, there’s one more step. The company has to pay stamp duty or a one-time tax when the lease deed is executed. For the state, this is upfront revenue. And it’s calculated as a percentage of the lease’s “value”.

And that’s where Ashoknagar’s project hit a wall.

ONGC and the West Bengal government disagreed on what should count as the “value of the lease” for stamp-duty purposes. Should it be the lease rent paid over the full period? Should it include future royalty from oil that hadn’t even been produced yet? Or should stamp duty be charged on whichever number turned out to be higher?

The problem was that the Petroleum and Natural Gas Rules (we’ll just call it the PNG Rules), written back in 1959, never clearly defined this. That single ambiguity was enough to slow down the lease approval by quite a few years.

And the cost of that delay has been massive. ONGC has already spent over ₹1,000 crore on exploration and appraisal, yet production hasn’t started. The state hasn’t earned any royalty or revenue. To put this in perspective, the Ashoknagar field, being the first identified oilfield in West Bengal, is estimated to produce oil worth around ₹45,000 crore, with West Bengal’s potential revenue at roughly ₹4,500 crore over the field’s life. None of that has come in yet. There’s also been no jobs boost and no local services boom — the kind that usually follows drilling and accompanying operations.

The cost doesn’t stop at the state level. For the country as a whole, this delay matters because India still imports about 88% of the crude oil it consumes. Sure, Ashoknagar, wouldn’t have transformed that equation overnight. But it definitely could have helped chip away at that dependence a little. Instead, its barrels are still stuck underground.

But this isn’t an isolated case. For years, the old PNG rules quietly held back India’s entire oil and gas sector.

The most visible damage showed up in domestic production. Under an uncertain and cumbersome regulatory regime, India’s crude oil output steadily slipped. Production stood at about 34 million metric tonnes (MMT) in 2019. But by 2024, it had fallen to around 29 MMT. In simple terms, we were extracting less oil from our own ground, which automatically pushed us to rely more on expensive imports.

ONGC tells an even sharper story. In FY25, it saw crude production fall by about 3%, despite capital expenditure more than doubling to ₹62,000 crore. Yes, the government has rolled out several policy reforms over the years. But the fact that ONGC spent twice as much and still got less output suggests something deeper was broken. The regulatory framework was choking productivity, even as investment kept rising.

This decline fed straight into India’s import bill. If you look at the numbers you’ll see that India spent roughly $161 billion importing crude oil and petroleum products in FY25, which is about 3% more than the year before. And since oil imports are paid for in dollars, even small movements in the rupee make a big difference. A ₹1 depreciation for instance, can add ₹8,000–10,000 crore to the annual import bill, putting pressure on foreign exchange reserves and the currency. It’s a vicious cycle, and the old rules did little to break it.

Perhaps the most damaging consequence, though, was how India scared away global oil majors. On paper, the country allowed 100% foreign direct investment (FDI) in oil and gas. But in practice, a dense regulatory maze kept international players at bay. Projects required multiple approvals across different stages of exploration, development, and production, often from different government ministries, taking years to secure. So it wasn’t unusual for companies to spend years chasing just one permit.

Pricing policy made things worse. Under the Administered Price Mechanism, fuel prices were capped by the government. That meant even if a company’s costs went up, it couldn’t sell fuel above government-set prices. State-owned firms like ONGC were compensated for losses, but private and foreign players weren’t. This created a lopsided risk equation where investors bore the downside if costs rose but had limited upside even when things went well.

Add to that, lease terms that were temporary and could be changed or withdrawn at the government’s discretion, and it became hard to justify pouring billions of dollars into long-term oil and gas infrastructure.

The result was predictable. Despite its scale and energy needs, India attracted very little upstream oil and gas FDI.

At this point, you might be wondering: if these rules caused so much damage, why did we have them in the first place?

The answer is pretty straightforward. These rules were written for a very different India, shaped by memories of colonial extraction. After decades of foreign exploitation, the instinct was to keep strategic sectors like oil firmly under state control, with private capital viewed with suspicion.

That made sense back then. But as India changed and the country opened the sector to 100% foreign investment, even in public sector firms, the old rules began to work against it. So, what was meant to keep private capital out became a roadblock just when India needed investment most. This in turn slowed development, cut output, and chased away foreign money.

But just last week, the government amended the Oilfields (Regulation and Development) Act and notified the new PNG Rules, 2025. These rules replace the decades-old 1959 framework and, more importantly, fix the core issues that kept upstream oil projects stuck for years.

First, the new rules remove all ambiguity around what counts as the “value of the lease”. They clearly state that the value of the lease is the total lease rent payable over the entire lease term. Royalty is treated as a completely separate stream. In simple terms, rent is what the company pays to hold the lease, while royalty is what the state earns later, as oil is actually produced.

That gives everyone a single, objective way to calculate stamp duty. Take the annual lease rent, multiply it by the number of years in the lease, say, 30 years, and that number becomes the value of the lease for stamp-duty purposes. So the old debate over “lease rent or royalty, whichever is higher” simply disappears, because royalty isn’t part of the lease valuation at all.

Second, the rules finally put a time limit on approvals. Any application for a petroleum lease now has to be decided within 180 days. This means disputes and paperwork can’t drag on endlessly the way they did in Ashoknagar. If the lease falls under the Centre and no decision is taken within this period, the application is deemed approved. If it falls under a state and there’s still no decision after 180 days, it’s deemed rejected.

Third, instead of forcing companies to juggle multiple licences at different stages, a single petroleum lease now covers exploration, development, production, and even related activities like renewable energy projects.

Lease periods have also been extended. Companies can now hold leases for up to 30 years, with extensions tied to the economic life of the field. That kind of long-term certainty is crucial if you’re going to sink billions into drilling rigs, pipelines, and processing facilities.

There’s also a quiet but important fix around infrastructure. Companies are now required to report unused pipeline and facility capacity every year and make it available to others on fair terms. Earlier, large players could sit on spare capacity and block smaller operators. This change improves utilisation, lowers costs, and makes the sector more competitive.

And perhaps the biggest signal to global investors is that the new rules let foreign investors settle disputes through international arbitration, even outside India if they want. Since Indian courts can be slow, this gives investors more confidence and makes India an equally attractive destination as other oil-producing countries.

Which brings us back to Ashoknagar. As Petroleum and Natural Gas Minister Hardeep Singh Puri told the Rajya Sabha just a couple of days ago, oil production in the town could start within the next few weeks. And an issue that’s been stuck for years now has a clear path forward.

Sure, the new PNG Rules won’t work miracles overnight. And better rules can’t conjure up new reserves, and even the oil we do have will still take years to explore and extract.

But they do remove some of the biggest self-inflicted roadblocks. And that makes this a clear step in the right direction.

Until next time…

If this story helped you make sense of the new Petroleum and Natural Gas Rules in the simplest way possible, do us a favour and share it with a friend, family member, or even strangers on WhatsApp, LinkedIn, and X. And tell them to subscribe to Finshots too.