BP, Reliance in $7.2bn deal

British firm to buy 30% in RIL’s oil & gas fields, investment may touch $20 bn.

In the biggest foreign direct investment (FDI) into India, BP, the world’s fourth-largest energy company, will pay $7.2 billion for a 30 per cent stake in 23 oil and gas blocks of Reliance Industries Ltd (RIL). The fields include the most prolific KG-D6 off the east coast.

RIL Chairman Mukesh Ambani said this could possibly be the single-largest FDI into any emerging market.

The companies said BP would pay RIL $7.2 billion, and completion adjustments, for the interests it would acquire in the 23 production sharing contracts. Future performance payments up to $1.8 billion could be paid based on exploration success resulting in development of commercial discoveries. The two will also enter into a 50:50 joint venture for sourcing and marketing of gas. These payments and the combined investment could amount to $20 billion, BP said.

At a press conference in London, Ambani said the deal would go a long way in strengthening India’s energy security, as the country depended on imports for 70 per cent of its energy needs.

Ambani said the deal was signed after intense talks over two years and with an eye on technology that would come to India. Later, he said, “These guys are the best (in exploration). If you want to climb Mount Everest, make sure you have the best Sherpa with you.”

The companies said in the particular field they had agreed to work together, it would be an exclusive arrangement. Neither was able to clarify if this exclusivity was part of the signed deal. BP has a tie-up in India with Tata for solar power and an interest in the lubricant business through Castrol. BP CEO Robert Dudley said the company’s current interests in India would remain intact.

The 50:50 joint venture would endeavour to accelerate the creation of infrastructure for receiving, transporting and marketing of natural gas in India, the companies said.

“The partnership will combine BP’s world-class deep-water exploration and development capabilities with Reliance’s project management and operations expertise,” said a joint statement.

Ambani said: “This partnership combines the skills of both and will be focused on finding more hydrocarbons in the deep-water blocks of India and significantly contribute to India’s energy security.”

Dudley said in the coming decades, two-thirds of world energy consumption would be in emerging markets such as India and China. “BP being a global energy company, we need to be part of this growing opportunity,” Dudley said.

Ambani said the initial payments would start flowing into RIL’s books next financial year. BP is funding the deal from its own cash reserves and expected cash flows from sale of some non-strategic assets. The company recently announced a $22 billion disinvestment plan. Another $8 billion is expected from sale of more assets. Dudely, however, said the new “look east” policy did not mean BP was moving away from the US.

The 23 oil and gas blocks cover approximately 270,000 square kilometres. This will make the partnership India’s largest private sector holder of exploration acreage. Reliance will continue to be the operator under the production sharing contracts. The blocks lie in water depths ranging from 400 metres to over 3,000 metres and produce about 1.8 billion cubic feet gas per day, over 30 per cent of India’s consumption and over 40 per cent production.