After nearly a 5-month wait,the government on Friday cleared UK's BP Plc buying 30 per cent stake in most of Reliance Industries' oil and gas blocks,including the showpiece KG-D6 gas fields,for $7.2 billion. The Cabinet Committee on Economic Affairs (CCEA),headed by Prime Minister Manmohan Singh,on Friday approved BP buying staking in RIL's 21 blocks,sources said. The CCEA could not meet on its scheduled day Thursday as the oil ministry had not circulated the agenda in time. RIL,India's most valuable company,had on February 21 agreed to sell 30 per cent stake in 23 out of its 29 oil and gas blocks to London-based BP Plc for $7.2 billion,and may get an additional $1.8 billion if the two explorers find more hydrocarbons. The CCEA approved sale of stake only 21 blocks as exploration status in the two remaining blocks was in dispute. BP will have to furnish a bank guarantee and performance guarantee as has been prescribed under the production sharing contract.The deal,that may increase to $20 billion with future performance payments and investment,will give Reliance access to BP's expertise in deep-water drilling and accelerate development and production at its fields particularly the under-performing eastern offshore KG-D6. For BP,which has been struggling to battle back from the disastrous Gulf of Mexico oil-spill disaster last year,the transaction is a chance to enter a market where energy demand is growing at 5-8 per cent. Officials said Reliance had on February 25 applied for government nod for the stake sale. New Exploration Licencing Policy,under which Reliance had won the oil and gas blocks,allowed for sale or assignment of participating interest (farm-out),which is routinely approved by the oil ministry. But the ministry,even though competent to approve the deal,decided to refer it to the CCEA.Reliance may use BP's deepwater expertise to tackle the technical issues in the sub-surface of KG-D6 block. Dhirubhai-1 and -3 gas fields in the KG-D6 block have seen output falling to 39 million cubic meters per day from 50 mmscmd achieved in March last year. Reliance has been forced to restrict oil production from the MA field,in the same area,to about 15,000 barrels per day due to high water and gas cut. Together with 8 mmscmd of gas produced from MA field,KG-D6 block in the week ended July 10 produced 46.8 mmscmd as against 61.5 msmcmd in March last year. As per projections,the output should have risen to 69 mmscmd by now. Besides addressing the reservoir issues in KG-D6,BP is expected to help Reliance quickly put into production 9 satellite gas discoveries,for which Reliance has been struggling to piece together a viable development plan. While the Europe's second biggest oil firm will pay $7.2 billion in three tranches in FY12,some analysts said Reliance will not be liable to any income tax on the receipts. The $7.2 billion deal is seen as the biggest FDI into India. Other proposed big transaction - Posco's $12 billion investment announced years ago for a steel plant in Orissa - is yet to take off. Reliance is the operator in all the 23 blocks while Canadian Niko Resources and UK's Hardy Oil have minority 10 per cent interest in a few. After the deal,Reliance holding in the blocks will come down to 60-70 per cent. 19 out of 23 blocks lie off the east coast while two blocks are onland in Assam and Gujarat. Reliance currently produces about 47.5 mmscmd of natural gas from its mainstay KG-D6 fields off the Andhra coast. Niko Resources of Canada has 10 per cent interest in the block and after the BP deal,Reliance's stake would fall to 60 per cent. Besides KG-D6,Reliance's second biggest discovery block is NEC-25 in the Mahanadi basis off the Orissa coast. It has so far made 15 exploratory success in the block,where Niko holds 10 per cent stake. Post BP deal,Reliance stake in this block too will fall to 60 per cent. Reliance has potential resource of 9.5 Tcf in KG-D3 block. Hardy has 10 per cent in the block and Reliance 90 per cent. Besides,it has made oil discoveries in Cambay onland block.In KG-D6 block,Reliance has so far made 19 oil and gas discoveries,of which it has put two gas - Dhirubhai-1 and 3,and one oil find - MA - into production. It had in 2008 submitted development plan for nine satellite gas discoveries around Dhirubhai-1 and 3. It in 2009 withdrew this and submitted an optimised development plan for prioritising four satellite gas finds to oil regulator DGH. An integrated development plan for all gas discoveries in the block KG-D6 is being conceptualised to maximise capital efficiency and accelerate monetisation. The BP deal is a clear breakthrough for Mukesh Ambani in terms of getting access to BP's expertise as well as de-risking its exploration and production (E&P) portfolio. Reliance and BP will also form a 50:50 joint venture for the sourcing and marketing of gas in India. The JV will also work towards creation of infrastructure for receiving,transporting and marketing of natural gas in India which could be in the form of an LNG terminal. BP acquires 30 per cent stake in 23 of the 29 blocks that Reliance has in India (excluding the older Panna/Mukta and Tapti (PMT) fields and the domestic coal-bed methane (CBM) blocks). It will take stake in 19 blocks (18 deepwater and 1 shallow water) in the eastern offshore. This include the deepwater KG-D6 and NEC-25 blocks,in which commercial discoveries have been made; 2 deep water Kerala-Konkan blocks and 2 onland blocks including the Cambay blocks in which Reliance has made several oil discoveries. Reliance was awarded a total of 43 blocks to date from the pre-NELP and eight NELP rounds. 14 of these blocks have been relinquished by 1QFY11. Out of the 29 blocks remaining,there have been discoveries in nine blocks. The firm names its discoveries in numerical order. The first was called D1 (after its founder Dhirubhai Ambani) and 52 discoveries have been made to date.Of these,four have been made in the overseas Yemen block (which is producing small quantities) and one in a block that has since been relinquished. So,47 discoveries have been made in nine NELP blocks. 19 of these discoveries related to KG-D6. New deepwater gas discoveries will be expensive to develop relative to the D1/D3 field reserves within KG-D6,which are already producing. Hence,new discoveries would need a higher gas price than is currently being charged for the D6 gas ($4.2 per million British thermal unit). Reliance also has 30 per cent interest in the producing pre-NELP blocks PMT. It also has 5 CBM blocks in India including two,with gas resource of 3.5 Tcf. Reliance has also recently formed three US Shale gas JVs. BP will not take interest in any of these E&P assets of Reliance. Reliance is the largest integrated oil and gas company in India. Its three main business are exploration and production,refining and petrochemicals. Its two refineries in Jamnagar,Gujarat have among the highest complexity globally and a combined capacity of 1 million barrels per day.
