The Centre’s nod to the Reliance-BP deal may provide the British oil major its long-desired footprint in the Indian exploration and production sector.
The $7.2 billion deal is the biggest ever foreign direct investment in the country and will allow RIL and BP to float a joint venture company which will look at trading and marketing of natural gas in India. The Committee on Economic Affairs (CCEA) on Friday allowed Reliance Industries Ltd to sale 30 per cent stake in 21 blocks to BP.
Bob Dudley, BP Group Chief Executive, said: “This transaction is part of BP’s strategy of creating long-term value through alliances with strong national partners, taking material positions in significant hydrocarbon basins and increasing our exposure to growing energy markets. We will now work to complete the commercial agreements for the deal in the next few weeks.”
BP's India head Sashi Mukundan had earlier told Business Standard that the company has always found the India market attractive due to its sheer size and resource play.
“Our deal with RIL gives us access to both. We get access to over 270,000 sq km of acreage at one shot; immediate production from KG D6 and discoveries from five different fields with more to go. Its a huge game changer on the exploration and production front for us. This deal also completes our presence in all the BRIC nations,” Mukundan had said.
The joint venture company will be independent of RIL and BP and nominate its own management team to lay the foundation on future strategy and plans. The companies together will also put in place a technical committee which will be the final authority to monitor the 23 blocks that RIL and BP operate in partnership.
BP had its presence in India through its lubricants business, Castrol, and its joint venture initiative with Tata Power, the Tata BP Solar.
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The technical team will be independent of the management committee and will not have any representation from either the upstream regulator DGH or the oil ministry.
“The technical committee which will jointly agree on what needs to be done with each block. It will have people from both companies to make sure there is equal representation. We are extremely impressed with what RIL is doing. They have a good set of capable technical people. We did not want to upset the existing arrangement and wanted to keep RIL as the operator. We will bring in technology and experience from around the world to the table and pool all our resources to make sure we are successful,” Mukundan said.
Analysts expect BP to help RIL ramp up gas output from the Krishna-Godavari basin. The block produces 46.8 mmscmd, against 61.5 mmscmd in March last year though the production was expected to touch around 70 mmscmd. RIL, which has been producing natural gas and crude oil from the K-G basin since April 2009, was unable to pump gas to full flow due to low well-head pressure.
Niko resources
The deck is now clear for Canadian exploration and production company Niko Resources to increase its stake in D6, NEC 25 and D4 blocks where it holds between 10 and 15 per cent stake.
"Niko can acquire up to a 30 per cent increase from current working percentages in all or any one of its stakes in D6. It will review this opportunity over the coming weeks," the company had said in February.
Niko now has the option to increase its stake 3 and 4.5 per cent, taking it to 13 per cent (from the present 10 per cent) and 19.5 per cent (from the present 15 per cent), respectively in the fields.
The deal will bring down RIL's holding in the blocks to 60-70 per cent.
Besides KG-D6, RIL's second biggest discovery block is NEC-25 in the Mahanadi basis off the Orissa coast where Niko holds 10 per cent interest.