India comes of age in E&P sector

In less than two years of India’s major oil and gas discoveries going into production, the country has attracted major investments — something that it could not do in the eighth round of New Exploration Licensing Policy (Nelp).

While this could mean coming off age of the Indian exploration and production (E&P) sector, it also shows that there was no dearth of interest in the less risky production phase.

Both Reliance Industries Ltd and Cairn India have made use of their D6 gas production and Mangala gas production, respectively, to get good valuations.

RIL started producing gas in April 2009 making India a bigger producer of gas than oil, while Cairn started production in August 2009. “Considering BP is participating in 23 Nelp blocks of RIL, it is good for the country,” petroleum secretary S Sundareshan told Business Standard.

BP has committed around $20 billion investments of which $7.2 billion will be paid to RIL. Though it has chosen to directly buy into the blocks instead of a stake in the company – like what Anil Agarwal-controlled Vedanta Resources did for Cairn India for $9.6 billion – the two deals are similar in the good valuations they managed. “Though Vedanta is acquiring a controlling stake in the company, the two developments are a good sign. No company will take equity if they were not sure of returns,” said Avinash Chandra, former DG hydrocarbons.

It is standard practice for oil and gas companies to farm out a little bit of equity to get value out of investment and then invest that money into some other project.

“With RIL downloading equity in the blocks, there will be two heads working instead of one. Hopefully, BP will bring in expertise and management skills,” Chandra added.

BP has proprietary data and technology, well log details and software that would add to RIL’s exploration and production skills.