NEW DELHI (Dow Jones Newswires), July 22, 2011
India approved Reliance's proposed $7.2 billion asset sale to BP, paving the way for the U.K. oil giant's largest venture in the South Asian nation.
The companies have been waiting for approval from the federal government since February when Reliance, controlled by billionaire Mukesh Ambani, agreed to sell a 30% stake to BP in 23 oil and gas blocks for $7.2 billion plus another $1.8 billion linked to exploration success. The deal includes the D6 block in the Krishna-Godavari basin, India's richest gas find so far, and Reliance has already received $2 billion from BP.
Oil Minister Jaipal Reddy said his ministry recommended the Cabinet Committee on Economic Affairs to approve the deal for 21 blocks as there were some technical issues over two non-producing blocks. The ministry may in future grant or refuse consent on the two blocks, he added.
"This is one of the major foreign investments in the history of India," Reddy said. "This transaction will not only mean investment of $7.2 billion by a foreign company in India, it will also mean induction of vast technical expertise to India's hydrocarbon sector."
Under the February agreement, BP and Reliance will also establish an equally owned joint venture for the sourcing and marketing of natural gas in India. That venture doesn't require government approval.
BP's chief executive, Robert Dudley, said the energy giant hopes to complete the deal in a matter of weeks.
Reliance didn't immediately comment on the announcement.
Future investments to develop Indian assets could bring its total payments to $20 billion, BP had said previously.
The deal gives BP access to new hydrocarbon resources and markets, in line with its strategy of continuing to increase exploration and access new exploration acreage, especially as it is yet to resume drilling operations in the Gulf of Mexico following last year's oil spill there.
Reliance is expected to gain from BP's deepwater drilling expertise to increase gas production. The company's D6 block is expected to boost India's gas supply, but several technical and geological issues have resulted in output from the field off the eastern coast falling below 50 million metric standard cubic meter per day from 60 MMSCMD last year.
Reliance's market valuation has taken a hit due to issued including the decline in gas production. Its shares closed 1.5% up at INR873.60 ahead of the announcement on the Bombay Stock Exchange, where the benchmark index closed up 1.6%.
Copyright (c) 2011 Dow Jones & Company, Inc.
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