Global oil major BP will buy a 30% stake in Reliance Industries’ oil and gas blocks, including its trophy asset—the D-6 block—for $7.2 billion as part of a long-term deal that involves a total investment of $20 billion, making it the biggest-ever foreign investment in India. Reliance and BP will also form an equal joint venture to supply, market and trade natural gas, including LNG, which can deliver the fuel to millions of Indian homes and reduce the demand for subsidised liquefied petroleum gas. Analysts said Reliance would be able to source LNG from BP’s global facilities. A company official, who did not want to be identified, said Reliance would build LNG import facilities and develop a countrywide gas network. Apart from BP, Reliance had also talked to Exxon Mobil and Shell, but the process was put on hold after the unfavourable judgement from the Bombay High Court on its dispute with R-ADAG on pricing of gas, but talks resumed after the Supreme Court ruling set aside the lower court’s verdict. The announcement comes at a time of growing fears that foreign investors may be repelled by corruption scandals and perceived policy drift in the country, as well as the uncertainty over government approval for the $9.6-billion Cairn-Vedanta deal. Former ONGC chairman RS Sharma said the deal would boost investor sentiment at a time India is wooing potential foreign investors for the latest round of the New Exploration Licensing Policy. Reliance Industries Chairman and Managing Director Mukesh Ambani said the deal would create “unprecedented value” for shareholders. Analysts agree. Ambani, who was flanked by his son Akash, Chief Financial Officer Alok Agarwal, and Executive Director PMS Prasad, said the deal with BP would help find more oil and gas, boosting India’s energy security. "BP has one of the best track records of finding new oil and gas globally. This partnership will bring in more investment and tech that can result in more discovery, higher recovery rate and enhance production. This will unlock the huge potential. This also mark's BP's largest ever investment in any single basin anywhere in the world. This partnership will enable Reliance to create unprecedented value for its shareholders and enhance energy security," Ambani said. Reliance, which has seen gas output from its D-6 block dip, will get access to sophisticated technology from the oil major. BP, which sold assets last year to pay for the Gulf of Mexico spill, will get a significant footprint in India, which along with China has fueled the global growth in energy demand and is seen by many analysts as a key factor in crude oil's assent to over $100 per barrel. For the energy-hungry country, BP's turn to its exploration sector is also the first serious investment by a global oil major, which will bring frontier technology and exploration skills to the country and boost prospects of Reliance, which has found vast gas reserves in the past decades but located in technologically challenging deepsea regions off the eastern coast. BP sees enormous opportunities in the Indian market, which has continued to expand even when Western economies slowed down. "India is one of the fastest-growing economies in the world. By allying ourselves with Reliance, we will access the most prolific gas basin in India and secure a place in the fast-growing Indian gas market, creating a genuinely distinctive BP position," BP Chief Executive Robert Dudley said in a statement. Reliance will continue to be the operator under the production-sharing contracts, whose blocks lie in water depths ranging from 400 metres to over 3,000 metres, currently produce about 1.8 billion cubic feet of gas per day (bcf/d), over 30% of India's total consumption, and over 40% of India's total production, the joint statement from the companies said. BP will buy 30% in 23 blocks running along almost the entire eastern coast of the country from Tamil Nadu to West Bengal for $7.2 billion. "Future performance payments of up to $1. 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 companies said in a joint statement. company official said a part of the proceeds from the deal would be used to retire debt and the rest would be used for capex in other sectors. For BP, India is an important 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 growing energy markets," said Chairman Carl-Henric Svanberg. The two companies have already won block off India's southeast coast and hope to discover more hydrocarbons using their partnership. According to BP's Energy Outlook 2030, energy consumption in India has grown by 190% over the past 20 years and is likely to grow by 115% over the next 20 years, a rate of over 4% per an num. Gas is expected to be the fastest growing fossil fuel, with demand growing at nearly 5% a year between 2010 and 2030.
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