RIL, BP ink historic $ 9 bn deal

India’s Reliance Industries Limited and UK-based BP, one of the world’s largest energy companies, on Monday announced a historic partnership between the two companies under which BP will take a 30 per cent stake in 23 oil and gas production sharing contracts that Reliance operates in India.

At $ 9 billion, it is the third largest Indian deal ever, and can be the biggest ever FDI in India.

The payments and combined investment could amount to US$20 billion, the companies said in a joint press conference here.

Mukesh Ambani, Chairman and Managing Director of Reliance Industries Limited, and Robert Dudley, BP Group Chief Executive, signed the relationship framework and transactional agreements in London.

“It is a milestone and will enhance India’s image globally,” said Ambani at a press conference.

The partnership across the full value chain comprises BP taking a 30 per cent stake in 23 oil and gas production sharing contracts that Reliance operates in India, including the producing KG D6 block, and the formation of 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.

The partnership will combine BP?s world-class deepwater exploration and development capabilities with Reliance?s project management and operations expertise.

Mukesh Ambani said: ?We are delighted to partner with BP, one of the largest energy majors and one of the finest deep water exploration companies in the world. This partnership combines the skills of both companies and will be focused on finding more hydrocarbons in the deep water blocks of India and significantly contribute to India?s energy security.?

For BP, Reliance is a natural partner in India, given its strong position in the Indian market.

?This partnership meets BP?s strategy of forming alliances with strong national partners, taking material positions in significant hydrocarbon basins and increasing our exposure to growing energy markets,? said Carl-Henric Svanberg, Chairman of BP.

BP will pay Reliance Industries Limited an aggregate consideration of US$7.2 billion, and completion adjustments, for the interests to be acquired in the 23 production sharing contracts.

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.

BP?s confidence in India is evident from the fact that the transaction constitutes one of the largest foreign direct investments into India.

The 23 oil and gas blocks together cover approximately 270,000 square kilometres. This will make the partnership India?s largest private sector holder of exploration acreage.

So that the joint venture can capitalise on Reliance?s outstanding project management track record and operations expertise, 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 billion cubic feet of gas per day (bcf/d), over 30 per cent of India?s total consumption, and over 40 per cent of India?s total production.

?India is one of the fastest growing economies in the world. By allying ourselves with Reliance, we will access the most prolific gas basin in India and secure a place in the fast growing Indian gas markets, creating a genuinely distinctive BP position,? said Bob Dudley.

?BP looks forward to a long and successful working partnership with Reliance.?

“We had been talking for about five years. In the last three four months technical teams had been spending a lot of time in Mumbai and London,” said Robert Dudley.

Completion of the transactions is subject to Indian regulatory approvals and other customary conditions.

BP has been working with Reliance since December 2008 on the D-17 deepwater block in the Krishna Godavari (KG) basin on the east coast of India. BP, with a 50 per cent interest, operates the block and Reliance holds the remaining interest.

Reliance Industries Limited (RIL) is India?s largest private sector company on all major financial parameters with a turnover of Rs 2,00,400 crore (US$44.6 billion), cash profit of ` Rs 27,933 crore (US$6.2 billion), net profit of Rs 16,236 crore (US$3.6 billion) and net worth of Rs 1,37,171 crore (US$30.6 billion) as of March 31, 2010.

RIL is the first private sector company from India to feature in the Fortune Global 500 list of ‘World’s Largest Corporations’ and ranks 100th amongst the world’s Top 200 companies in terms of profits.

RIL ranks 68th in the Financial Times FT Global 500 list of the world’s largest companies.