Once approvals in, partners expect to work out a comprehensive business plan.
Once their deal is closed, Reliance Industries Ltd (RIL) and BP said they will put a business plan together and get the economics in line with government and board approvals.
Reliance has more than 25 blocks in the east coast, in the Mahanadi basin, the Krishna-Godavari basin and the Cauvery-Palar basin.
Of the 23 blocks where RIL has given 30 per cent participating interest to BP, 17 are in the Krishna-Godavari (KG) basin. In the KG-D6 block, Reliance has so far made 27 oil and gas discoveries, of which it has put two — Dhirubhai-1 and 3, and one oil find — MA — into production. RIL is currently making a technical review of KG-D6, where output has fallen.
Bob Dudley, Group Chief Executive of BP, said: “Over a five-year period, the companies could know each other well. And in the last few months ,the technical team has been talking about exploration potential of the blocks, the sub-sea reservoir engineering etc. We realised great potential of the exploration and production blocks held by RIL.”
After the announcement, RIL’s global depository receipts were up 6.9 per cent, at $44.5 today, against the previous close of $41.6. The deal was announced after market hours in India, where RIL’s scrip was up two per cent, at Rs 956.5.
What it’s about
BP said it will look at exploration in India and the natural gas market value chain. According to RIL, it had been in discussions with BP since late 2007, as it wanted a single international partner for all its blocks. “Our rationale was simple. We needed one global energy major for a long-term partnership. We did not want separate partners for separate blocks,” said RIL chairman Mukesh Ambani.
Adding: “RIL’s assessment is that BP is the best finder of hydrocarbons globally. Right now, we are just focusing on making sure that we get the right partner for accelerating development for the east coast of India and that is our focus at present.”
The deal is expected to close in the next financial year— April 2011 to March 2012. RIL will use the proceeds towards exploration of hydrocarbon. “The consideration from this deal will strengthen RIL’s balance sheet and help us invest back into India. I am a big believer in the potential of the east coast of India and I guess we need world-class competencies to complement our competencies. We see this deal help us find more hydrocarbons,” Ambani said.
While $1.8 billion is contingent on exploration and production and finding more hydrocarbon resources, the balance investment will be made in the next many years on building new facilities and sustaining production of hydrocarbons in the block that RIL already has reserves in. “We would be developing some of our existing resource and bring some new resources to market,” added Ambani.
