Reliance-BP gets clearance from Home Ministry

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Reliance-BP gets clearance from Home Ministry
The home ministry cleared the proposal for UK's BP to buy a 30% stake in Reliance Industries' oil and gas blocks for US Dollars 7.2 billion.

Though the ministry gave an unconditional no-objection certificate, it did however ask if the company could have offered the stake to one of the state owned companies.

According to a source within the ministry, Reliance responded with, "Our PSUs do not have the expertise Reliance has been looking for. It wanted an expert in deep-sea technology and GAIL, which is a gas marketing and transportation company, hardly fits the description."

Experts reckon that Reliance wants a partner who could help resolve the sub-surface technical issues at its KG-D6 gas fields. The production has fallen from 61.5 million standard cubic meters per day (mmscmd) to about 48 mmscmd, instead of rising to the planned 69 mmscmd.

Reliance Industries, led by Mukesh Ambani, would expect BP to solve its reservoir issues at the Dhirubhai-1 and then at the three gas fields in the KG-D6 block, to rapidly raise output to the planned peak of 80 mmscmd. It would also expect BP to help in prepare a viable plan to bring in to production other finds in the block and in other areas.

Industry observers questioned the Oil Ministry's rationale of seeking security clearance for BP since the company is already operating oil and gas blocks in the country, it even has a huge lubricant business and a flourishing solar venture with Tata.

Meanwhile ONGC, the largest state explorer in India is also struggling to put together a viable development plan for discoveries it has made in a block adjacent to KG-D6 in the Krishna-Godavari basin. Though ONGC itself has been seeking partners for that block and had shortlisted BP as a potential ally. So it is to be seen if ONGC will approach another company since Reliance has formed a partnership with BP.

After the NOC from the Home Ministry, now the Petroleum Ministry needs to accord in-principle approval to the transaction. After this there will be amendments to the Production Sharing Contracts (PSCs) of the 23 blocks that will induct BP as a partner. The company, Reliance Industries, will retain operatorship of all 23 blocks.

Reliance is the operator in all the 23 blocks, while Canadian Niko Resources and UK's Hardy Oil have minority stake at 10% interest in few of them. After the deal, Reliance' holding in the blocks will come down to 60-70%. Nineteen out of 23 blocks lie off the East Coast, while two blocks are on-land, in Assam and Gujarat.

The timing of the clearance has coincided with the news of RIL trying to exit Deccan and many media reports indicate that HSBC has downgraded RIL to 'nuetral'. The HSBC in its note on RIL said the investigation could result in a freezing of bureaucratic decision making, which would hamper RIL's ability to carry out exploration and production activities effectively in its blocks.

OneIndia Money

Read more about: reliance, bp, oil and gas, home ministry, crude, ongc
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