Monday, February 21, 2011

BP changes gears from survival to growth!! BP and Reliance in $7.2 billion alliance...

After tying up with Rosneft in Jan 2011, BP is acquiring a 30% stake in 23 oil and gas blocks that Reliance operates in India, including the producing KG D6 block and forming a 50:50 joint venture between the two companies for the sourcing and marketing of gas in India. The joint venture will also endeavour to accelerate the creation of infrastructure for receiving, transporting and marketing of natural gas in India. This will make the partnership India’s largest private sector holder of exploration acreage.

BP will pay Reliance an aggregate consideration of US$7.2 billion, and completion adjustments, for the interests to be acquired in the 23 blocks (~270,000 sq km). Future performance payments of up to US$1.8 billion could be paid based on exploration success that results in development of commercial discoveries. These payments and combined investment could amount to US$20 billion
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Reliance will continue to be the operator under the production sharing contracts, whose blocks lie in water depths ranging from 400 to over 3,000 metres. These currently produce about 1.8 bcf/d, over 30% of India’s total consumption, and over 40% of India’s total production.

BP has been working with Reliance since December 2008 on the D-17 deepwater block in the KG basin on the east coast of India. BP, with a 50% interest, operates the block and Reliance holds the remaining interest. However, Oil Secretary S Sundareshan said that the deal will require the government's approval as New Exploration and Licensing Policy blocks are involved.

ONGC says Jai ho!
Commenting on the deal former chairman of ONGC RS Sharma said, “This is positive news for the entire E&P sector for India. The deal covers the entire value chain - upstream and downstream." Referring to the Cairn-Vedanta deal that has failed to take off, Sharma said "the sentiments have been negatively impacted because of one deal...this deal shows confidence in the Indian oil sector."

What are the financing options of BP?
BP's recent deal with Rosneft did not involve any cash payment which is in line with BP's need to raise cash after the Macondo oil spill. This current Indian alliance involves upfront payment of $7.2 billion. How is BP planning to make the payment??

6 comments:

  1. Mukesh Ambani and Bob Dudley discuss the new $7.2 billion partnership.. Watch the video here: http://clients.world-television.com/bp_media_coverage/GB3928/index.html

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  2. Reuters reported that the brokerage CLSA raised its rating on Reliance Industries to "buy" from "outperform" after this $7.2 billion alliance with BP is established.

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  3. Peter, British bank, Royal Bank of Scotland also said it had raised the target price on Reliance Industries to 966 rupees from 900, based on the higher value of the Indian energy major's exploration and production assets following a deal with BP.

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  4. For readers'interest:
    “This $7.2 billion alliance is the single largest FDI in the history of India,” Ambani told reporters in London hoping the world’s “best finder of hydrocarbon in deepwater” will help his firm reverse the sagging output from Krishna Godavari-D6 gas fields.

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  5. Not only BP is changing their gears but also Morgan Stanley and Goldman Sachs, who are the advisors for this $7.2 billion alliance.

    Morgan Stanley, the world's second-largest securities firm, is poised to re-emerge on top of the league tables for driving mergers and acquisitions in India this quarter with a role in the deal between UK's BP Plc and Reliance Industries.

    Click this for more info: http://economictimes.indiatimes.com/news/news-by-industry/energy/oil-gas/morgan-stanley-poised-to-re-emerge-on-top-after-ril-bp-exploration-pact/articleshow/7543983.cms

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  6. This is interesting news. For a company like BP to make such a big commitment in the Indian oil and gas sectors shows the confidence they have in the exploration potential of these blocks. Maybe this will invite bring some humming birds in the Bay of Bengal and revive the oil and gas sector in the country.

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