Executives from BP Plc will soon be joining 23 ‘management committees’ of Reliance Industries (RIL), set up to oversee oil block operations.
Analysts said this will help the two companies work better amid falling gas output.
BP, Europe’s second-biggest oil company, bought a 30% stake in 23 oil and gas blocks owned by RIL in a $7.2 billion deal announced on February 21.
This “close working relationship” will help RIL channel the expertise of BP more “resourcefully”, a person familiar with the development told DNA. He did not wish to be named.
BP’s representation would be restricted to the management committee, there will be no representation on the RIL board.
These management committees will be in place once the government approves of the transaction, billed as the largest foreign direct investment in the country in a year.
RIL expects to have all approvals in place by March 2012, and the new committees will be formed by “May 2012,” said people familiar with the developments.
A spokesperson for BP, confirming the development, said that “once approvals are received from the government, BP will have appropriate representation on the committees given its 30% performance interest in the 23 blocks.”
The spokesperson declined to share other details, saying that “the government approval process is currently underway and we will await a decision at the appropriate time”
Each oil and gas block auctioned under the National Exploration and Licensing Policy or Nelp has a management committee having two government-nominated members and one representative from the operator of the block.
All budgetary or development work to be carried out on a block needs to be approved by the committee before New Delhi approves of it.
This development comes at the back of the news that RIL has sought government approval for the budgetary expenditure planned for the KG D6 block in the Krishna Godavari basin, off country’s east coast, failing which the company fears output from the field would drop 28% from the current levels to 38 million metric standard cubic metres per day (mmscmd) next fiscal.
RIL is the operator of the sole gas producing KG D6 block, and has one representative in the Management Committee that met with the Director General of Hydrocarbons in New Delhi last week to discuss the “technical difficulties” that has led to a fall in a gas output. The current output of 53 mmscmd from the field is way below the recorded output of 58 mmscmd in July-September and 60 mmscmd in April-June last year.
RIL shares took a hit on Friday, crashing 3.71% to Rs993.15 per share on the Bombay Stock Exchange, its worst fall in the last 11 months on the news.
BP said it is “still too early to decide on individuals.” But people familiar with the development said BP India head Sashi Mukundan and other senior executives from BP India would be representing the oil major on these committees.
A spokesperson for RIL declined to comment.
Calls made to SK Srivastava, the director general of hydrocarbons, the upstream regulator, too, went unanswered.
An analyst at a foreign brokerage in Mumbai said BP’s representation on these oil and gas block committee will help RIL.
“They (RIL) probably are looking at presenting a new-design to the government to increase the output. Now this will require a huge expenditure. The costs can now be shared once they (BP) are on board,” said the analyst, who did not want to be identified.
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