Government Approves $7.2bn Reliance-BP Deal

22 July 2011 - Which Way To Pay India

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Government Approves $7.2bn Reliance-BP Deal

NEW DELHI: After a near five month wait and 7.2 billion USD later, Uk’s BP Plc have been granted clearance by the government to buy a 30% stake in most of Reliance Industries’ oil and gas blocks. The contract, which has brought BP stakes in 21 blocks, is said to include the showpiece KG-D6 gas fields located in the Bay of Bengal.

The deal was approved on Friday 22 July by the Cabinet Committee on Economic Affairs (CCEA), held by Prime Minister Manmohan Singh.

As India’s most valuable company, Reliance Industries had first started negotiations with BP back in February where agreements were laid out to sell a 30% stake in 23 out of its 29 oil and gas blocks. Alongside this was the possibility of a further USD 1.8 billion deal should the two explores find more hydrocarbons. In Friday’s CCEA meeting, the sale of only 21 blocks was approved due to the exploration status of the two remaining blocks being in dispute.

The deal could be set to reach USD 20 billion in the future due to performance payments and investment, subject to BP having to furnish a bank guarantee and performance guarantee under the production sharing contract.

The investment in Reliance by BP gives them the opportunity to enter a market where energy demand is growing at 5-8%. Not least to mention a chance to battle back from the disastrous Gulf of Mexico oil-spill disaster last year. For Reliance, they can be sure to benefit from the access to BP’s expertise in deep-water drilling as well as see an acceleration in the development and production at its fields – especially at KG-D6 an under-performing eastern offshore.

 

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