New Delhi, July 22: The cabinet committee on economic affairs (CCEA) today cleared the $7.2-billion deal that BP Plc struck with Reliance Industries Ltd (RIL) in February under which Europe’s second-largest energy giant will acquire a 30 per cent participating interest in 21 oil blocks that Mukesh Ambani’s flagship operates in India.
The original deal was for 23 blocks, but the government decided to clear the stake sale in only 21 blocks.
BP’s investment will swell to $20 billion — making it the biggest foreign direct investment in the country — if we take into account a contingent payment of $1.8 billion that is linked to the discovery of more commercially exploitable hydrocarbon resources and a $11-billion additional investment in a joint venture between BP and RIL to source and market gas in India. The joint venture also aspires to create infrastructure to receive, transport and market the gas.
“The CCEA has approved the stake sale deal. All conditions of production sharing contract will be imposed and formal approval will be given after BP (the parent firm) gives the necessary financial guarantees,” petroleum minister Jaipal Reddy said.
The spokesperson for Reliance Industries declined to comment on the development.
“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.” Bob Dudley, BP Group chief executive, said in a statement.
The Reliance-BP deal is bigger than the $12-billion Posco investment in an integrated steel project in Orissa that used to be touted as the biggest FDI proposal in the country.
It also dwarfs the $6.02-billion agreement reached last August under which Cairn Energy of the UK plans to sell a 40 per cent stake in Cairn India to Anil Agarwal’s Vedanta Plc. The Cairn deal size was pared from its earlier level of $9 billion after the government attached some riders to its conditional clearance.
Reddy also said final approval for the Cairn stake sale deal would come through “in the next few days”. He said the law ministry was vetting the terms of the agreement and a formal notice would go to the two partners.
Cash chest to swell
The $7.2-billion upfront payment by BP will swell Reliance Industries’ already robust cash chest, which is currently worth $9.5 billion (Rs 42,393 crore). The approval comes just two days before RIL holds its board meeting on Monday to consider its first-quarter results.
Reliance will be able to draw on BP’s expertise in deepwater exploration to resolve the glitches that have led to a decline in gas production from the KG-D6 block to about 48 million standard cubic metres per day (mmscmd) from 61.5 mmscmd.
India’s only deepwater block that started commercial production two years ago was supposed to raise production to 69 mmscmd by April.
Reddy said the consent for the two blocks was withheld because of technical reasons. “The two blocks are non-producing blocks and their clearance will be considered on merit after RIL gives its response to the oil ministry’s query,” he added.
The two blocks are in Assam (on-land block AS-ONN-2000/1) and in the North East Basin (NEC-DWN-2002/1). Both have completed first phase of exploration and have to secure approvals from the directorate general of hydrocarbons for the second phase of exploration.
For BP, which has been struggling to battle back 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 per cent.
RIL in its plan to the upstream regulator had projected that gas production from its KG basin field would be 43 mmscmd in 2011-12 and was estimated to slide to 38 mmscmd in 2012-13. These are figures significantly lower than the field development plan approved by the regulator.
The DGH had set a target of 80 million metric standard cubic meters of gas by April 2012 set in its field development plan for the KG basin blocks.
Uranium hunt
Australia-based UXA Resources Ltd today said its joint venture project with a subsidiary of Reliance Industries Ltd would commence exploration and drilling of uranium in mid-August. The two companies had entered into a joint venture around three years ago.
RIL Australia (RILA), a subsidiary of RIL, had reportedly paid around Rs 15 crore to UXA to acquire a 49 per cent interest in certain exploration licences held by the Australian company.
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