BP completes $7.2-b deal with Reliance

British oil major BP has completed the acquisition of 30 per cent stake in 21 oil and gas production sharing contracts operated by Reliance Industries Ltd. Despite the fact that stake sale in two more blocks is still awaiting government approval, the valuation will not be adjusted and will amount to $7.2 billion.

This is because the value of the two blocks — on-land block AS-ONN-2000/1 in Assam and NEC-DWN-2002/1 in the North-East Basin — in the agreement stands at around $2.2 million, a London-based spokesperson for BP confirmed on Tuesday, describing it as a ‘very small' part of the contract. “They are the subject of ongoing discussions between the Indian Government and Reliance,” said the spokesperson. The company did not say when the approval would be obtained.

On July 22, the Cabinet Committee on Economic Affairs cleared the stake sale in the 21 blocks. For the remaining two blocks, the Directorate-General of Hydrocarbons and the contractor, Reliance Industries, hold divergent views on the exploration phase.

BP paid an initial $2 billion when the contract was first agreed and paid a second cash instalment of $2.2 billion (subject to final adjustments) on Tuesday. The final cash instalment of $3 billion (also subject to final adjustments) will be made on October 3.

“Future performance payments of up to $1.8 billion could also be made. This is the beginning of what we expect to be a long and successful working partnership with Reliance, building on the strengths of each company,” said Mr Bob Dudley, BP Chief Executive.

Shoring up D6 Output

Meanwhile, to arrest the drop in output at Reliance Industries' premium asset D6 gas fields, technical experts of the two companies have already initiated work. The output from D6 block, India's biggest gas fields, dropped by almost 26 per cent in July from the peak 60 mscmd in end-2009. Output from the East Coast fields in July averaged 44 mscmd and is expected to drop further until workovers are completed and/or additional wells are tied-in.

The deal will give BP an opportunity to fully enter India's exploration and production segment. Reliance Industries will gain from BP's experience and expertise in hard-to-exploit deep-water reserves. The oil and gas blocks cover approximately 220,000 square km and some lie in water depths of over 3,000 metres. RIL has already spent over $5.5 billion in the development of the D-6 block

Reliance Industries and BP are also forming a 50:50 joint venture for sourcing and marketing in India, which will speed up the building of infrastructure to receive, transport and market natural gas.

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