RIL in talks to sell Iraq assets to Chevron

Reliance Industries (RIL) is in talks with Chevron Corp, the US oil behemoth, to sell its assets in war-ravaged Iraq at a valuation of close to $200 million.

The deal is likely to give RIL a 15 times return to what it paid in 2007.

An RIL spokesman declined to comment.

Analysts, however, are doubtful whether a sale will be easy considering the political environment in that country.

Reliance Exploration and Production DMCC, the overseas conventional oil and gas subsidiary of RIL, had bought a 100% stake in the Rovi and Sarta blocks in Kurdistan (north of Iraq) in 2007 for a signing amount of $15.5-17.5 million.

This was bought from the autonomous Kurdish Regional Government and the contract had an option for a 15% interest to be exercised by the local Kurdish oil company. Unless exercised, RIL was allowed to hold complete interest in the two blocks.

Later in May 2010, RIL’s stake in the block reduced to 80% when the self-ruled Kurdish government arbitrarily assigned a 20% stake to Austrian oil firm OMV Petroleum Exploration GmbH.

While it was not immediately known whether RIL was compensated later for the 20% stake given to OMV, at $200 million deal for the two blocks, RIL would see an appreciation of 11-13% to the original signing amount it paid five years ago.

This could turn out to be even higher at more than 15 times if only 80% of the originally paid value of the block is considered, if RIL was compensated for the 20% stake assigned to OMV.

A senior analyst with a reputed international brokerage said it is good if a RIL walk out of Iraq but the question is whether it will be able to do so or not.

“Iraq is a politically disturbed region and there is no clarity on the accuracy of the reserve projections for the two blocks. Therefore, the Kurd asset acts more like a distraction than value addition for RIL,” he said.

He said the company’s current focus should be to restore D6 gas field in India and US shale gas venture.

The Rovi and Sarta blocks in Kurdistan are spread over an area of 517 and 607 sq km, respectively, and estimated to hold around one billion barrels of oil reserves. They are said to have almost 80% oil bearing structure and RIL had planned to drill four wells to a target depth of 4,500 metres, say reports from international media.

DNA could not independently verify these details as RIL declined to comment on the nitty-gritties of the blocks.

According to the company’s 2011-12 annual report, the company’s overseas subsidiary had undertaken well testing in the Sarta block during the last financial year, but it did not mention anything about the Rovi block.

Currently, RIL has interests in 10 blocks under the conventional oil and gas portfolio overseas, including three in Yemen (one producing and two exploratory), two each in Kurdistan, Peru and Colombia and one in Australia. This cumulatively stands at total hydrocarbon acreage of 51,000 sq km.

In the last fiscal, the company relinquished its interest in Oman -Block 18, Oman - Block 41 and East Timor Block-K where REP DMCC had 70%, 75% and 75% participation interest respectively, said its annual report.