Reliance Industries (RIL) today said it has received government approval for selling a 30% stake in 21 out of a proposed 23 oil and gas blocks to UK's BP for $7.2 billion.
The Cabinet Committee on Economic Affairs (CCEA) had on July 22 cleared the sale of stake by RIL to BP in 21 blocks, including the showpiece eastern offshore KG-D6 gas producing area and discovery area NEC-25. However, it held back the same for two inconsequential blocks -- one a deep sea area off the Orissa coast and the other an onland block in Assam -- over technical issues.
"RIL has received the government of India's approval for its transformational deal with BP," the company said in a press statement. "RIL is grateful to the government of India for the approval, which will result in the largest foreign investment in the domestic hydrocarbon sector."
BP will have to furnish a bank guarantee and performance guarantee, as per the Production Sharing Contract.
The deal, which might increase in value to $20 billion on the basis of future performance payments and investment, will give Reliance access to BP's expertise in deepwater drilling and accelerate development and production from its fields, particularly the under-performing KG-D6 block in the eastern offshore.
For BP, which has been struggling to recover from the disastrous Gulf of Mexico oil spill disaster last year, the transaction is a chance to enter a market where energy demand is growing at 5-8%.
"BP will take a 30% stake in 21 oil and gas Production Sharing Contracts (PSCs) that RIL operates in India, including the producing KG-D6 block. Following the approval, RIL and BP will work together to conclude the deal expeditiously," the statement added.
RIL, India's most valuable company, had on February 21 agreed to sell a 30% stake in 23 out of its 29 oil and gas blocks to London-based BP for $7.2 billion and may get an additional $1.8 billion if the two explorers find more hydrocarbons.
Approving the sale of stake in 21 blocks, the CCEA also delegated authority to the Oil Ministry to "dispose of the other two blocks subsequently on merit.
RIL may use BP's deepwater expertise to tackle the technical issues in the KG-D6 block.
The Dhirubhai-1 and 3 gas fields in the KG-D6 block have seen output fall to 38.4 million cubic metres per day from 53 mmscmd in March last year. Reliance has been forced to restrict oil production from the MA field, in the same area, to 14,500 barrels per day due to high water and gas cut.
Together with 7.6 mmscmd of gas produced from the MA field, the KG-D6 block produced 46 mmscmd in the week ended July 31, as against 61.5 msmcmd in March last year. As per projections, the output should have risen to about 70 mmscmd by now.
Approval for the sale of 30% interest in deepwater block NEC-DWN-2002/1 in the Bay of Bengal and Assam onland block AS-ONN-2000/1 would be decided later as oil regulator DGH and RIL were in disagreement over the status of exploration in the two acreages, sources said.
RIL had on February 25 applied for the government nod for the stake sale. The New Exploration Licencing Policy allowed for the sale or assignment of participating interest (farm-out), which is routinely approved by the Oil Ministry.
But the ministry, even though competent to approve the deal, decided to refer it to the CCEA.
Besides addressing the reservoir issues in KG-D6, BP is expected to help RIL quickly put into production nine satellite gas discoveries, for which the Mukesh Ambani firm has been struggling to piece together a viable development plan.
Europe's second biggest oil firm will pay $7.2 billion to RIL in three tranches during FY12.
RIL is the operator in all 23 blocks, while Canadian firm Niko Resources and UK's Hardy Oil have minority 10% interest in a few. After the deal, RIL's holding in the blocks will come down to 60-70%. 19 out of the 23 blocks lie off the East Coast, while two blocks are in Assam and Gujarat.
Niko has 10% interest in the KG-D6 block and after the BP deal, RIL's stake would fall to 60%.
