London: Reliance Industries Limited (RIL) and BP on Monday announced a partnership between the two companies. Under the partnership BP will take a 30 per cent stake in 23 oil and gas blocks belonging to RIL in India.
The deal was signed in London by RIL Chairman and Managing Director Mukesh Ambani and BP Group Chief Executive Robert Dudley.
The partnership across the full value chain comprises BP taking a 30 per cent stake in 23 oil and gas production sharing contracts that Reliance operates in India, including the producing KG D6 block, and the formation of a 50:50 joint venture between the two companies for the sourcing and marketing of gas in India.
The joint venture will also endeavour to accelerate the creation of infrastructure for receiving, transporting and marketing of natural gas in India.
“We are delighted to partner with BP, one of the largest energy majors and one of the finest deep water exploration companies in the world. This partnership combines the skills of both companies and will be focused on finding more hydrocarbons in the deep water blocks of India and significantly contribute to India’s energy security,” said Mukesh Ambani.
BP hoped to leverage RIL’s strong position in the Indian market.
“This partnership meets BP’s strategy of forming alliances with strong national partners, taking material positions in significant hydrocarbon basins and increasing our exposure to growing energy markets,” said Carl-Henric Svanberg, Chairman of BP.
BP will pay RIL Limited an aggregate consideration of $7.2 billion, and completion adjustments, for the interests to be acquired in the 23 production sharing contracts. Future performance payments of up to $1.8 billion could be paid based on exploration success that results in development of commercial discoveries. These payments and combined investment could amount to $20 billion.
The 23 oil and gas blocks together cover approximately 270,000 square kilometres. This will make the partnership India’s largest private sector holder of exploration acreage.
BP has been working with RIL since December 2008 on the D-17 deep-water block in the Krishna Godavari (KG) basin on the east coast of India. BP, with a 50 per cent interest, operates the block and Reliance holds the remaining interest.
However, Oil Secretary S Sundareshan said that the RIL-BP deal will need the government’s approval as New Exploration and Licensing Policy blocks are involved.
The market welcomed the deal as a sign of confidence in India and the country’s oil potential.
BP’s shares were down 0.2 per cent at 492.1 pence at 1517 GMT following the news. Reliance Industries shares, which had closed 2 percent higher before the announcement, were expected to gain when they reopened on Tuesday.
“It is a big positive in terms of getting foreign direct investment into India. It shows the confidence in India at large and its oil and gas potential,” Sandip Sabharwal, CEO of portfolio management services at Prabhudas Lilladher in Mumbai said, adding others could follow BP’s lead.
India is on track in the fiscal year ending in March to attract $27.6 billion in foreign direct investment, down from $35.6 billion the previous year, a senior official said.
Last month, India approved a $12 billion steel mill project by South Korea’s POSCO after years of delay, giving clearance to its largest foreign direct investment. The biggest completed FDI deal to date was Vodafone’s $11.1 billion deal in 2007 for control of a cellular carrier, in 2007.
India’s energy sector has struggled to attract investment due to regulatory uncertainty. A $9.6 billion bid for control of Cairn Energy’s Indian assets by Vedanta Resources, has waited six months for a government nod as royalty payments are hammered out with state-run partner ONGC.
Reliance’s tie-up with BP is also subject to government approval, although Ambani said he expected to get the greenlight from the authorities “soon”.
Once the deal is approved, BP will pay the $7.2 billion to Reliance in stages up until March 2012, Dudley said.
BP already has a presence in India, including an interest in a deepwater block called D-17, which it has been working on with Reliance Industries since late 2008.
When asked if BP had plans to buy a stake in Reliance Industries, Dudley said the company was happy with the partnership and that would be the focus of its future efforts.
The powerful Indian group is controlled by billionaire Ambani, who is the world’s fourth-richest man, according to last year’s Forbes magazine rich list.
Mukesh Ambani and his brother Anil split their late father’s business empire in 2005, and were locked in a public feud before a truce last year, when they reached agreement over disputed gas supply contracts from Reliance Industries to a company controlled by Anil Ambani.
Reliance Industries runs the world’s biggest refining complex. It has also been buying up shale gas assets in the United States and has interests in petrochemicals and retail, and is now looking at diversifying.
It bought telecoms business Infotel Broadband in a $1 billion deal in 2010 and in August 2010, it bought a stake in hotel chain EIH Ltd, which runs the luxury Oberoi and Trident hotels.