Cabinet clears 21/23 blocks of the RIL-BP stake deal

The Cabinet Committee on Economic Affairs (CCEA) on Friday approved BP’s purchase of 30% stake in 21 oil blocks belonging to Reliance Industries in the Krishna Godavari basin, two less than what was sought.

“For technical reasons, we did not approve sale of stake in two other blocks,” said Jaipal Reddy, Union minister for petroleum.
The $7.2 billion transaction between the two companies is the largest foreign direct investment in India.

Will there be a change in valuation since two less blocks have been cleared?

“RIL is in dialogue with the Director General of Hydrocarbons. The issues will be sorted out,” said a source close to the matter.

“There would be no change in the deal size,” he said. In a statement, BP welcomed the approval.

“BP is keen to be a long-term partner with India in its quest for energy security. We will now work to complete the commercial agreements with Reliance and move forward with this exciting venture,” the British oil giant said.

The government has also sought to implement the conditions that are part of the original productin sharing contract (PSC) between RIL and itself.

“We are proposing to enforce all provisions of PSC. We will give approval after the parent company (BP) gives financial guarantee,” added Reddy.

In February, RIL had signed an agreement with BP to sell the 30% stake in 23 out of its 29 oil and gas blocks for $7.2 billion.
BP has made a provision of pumping in additional $1.8 billion if the two explorers find more hydrocarbons.

The deal is expected to help RIL ramp up its natural gas production from the KGD6 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.

In the week ended July 10 KG-D6 block produced 46.8 mmscmd of natural gas. RIL was expected to produce 69 mmscmd of gas by this time of the financial year according to initial projections.
BP will be helping RIL to put in production 9 satellite gas discoveries in the KGD6 block.

The government has made it clear that, the alliance would not be able to export any gas from these 23 blocks and the pricing and allocation power would be with the government.