Indian billionaire Mukesh Ambani, who heads Reliance Industries Ltd, on Monday afternoon announced his company’s partnership with oil giant BP, which over time will be worth over $20 billion.
“This by far is the single largest foreign direct investment in the history of India and to my mind probably one of the single largest FDIs in any emerging market in a single financial year,” Mr Ambani said at the BP office in central London on Monday afternoon after announcing a historic partnership between the two companies along with BP chairman Carl-Henric Svanberg and BP Group chief executive Robert Dudley.
The partnership, described by Mr Ambani as “transformational,” will see 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.
BP will pay Reliance $7.2 billion for its 30 per cent stake in the 23 production sharing contracts. Future performance payments of up to $1.8 billion could be paid based on exploration success that results in development of commercial discoveries. Future investments of more than $11 billion would push the total BP investment in India to $20 billion, Mr Ambani said.
The two firms have signed a schedule of payments and RIL will get $7.2 billion as between April this year and March 2012.
The second part of the partnership involves a 50:50 joint venture, for the sourcing and marketing of gas in India. The partnership is subject to necessary regulatory approvals from both the governments, Mr Ambani and Mr Dudley said, adding that they were meeting Britain’s chancellor of the exchequer at Downing Street to sign the agreement in his presence. “We expect to apply and get the approvals soon,” Mr Ambani said.
The 23 oil and gas blocks together cover approximately 270,000 sq. km. This will make the partnership India’s largest private sector holder of exploration acreage.
The two firms have been in talks for the last five years on exploring partnership, Mr Dudley said, adding that BP and Reliance have been working together since December 2008 on the D-17 deepwater block in the Krishna Godavari basin on the Indian east coast.
Energy consumption in India has grown by 190 per cent over the past 20 years and is likely to grow by 115 per cent over the next 20 years, a rate of over four per cent per annum. Gas is expected to be the fastest growing fossil fuel, with demand growing at a rate of nearly five per cent a year between 2010 and 2030.
Both BP and RIL are keen to work together long-term and have “aspirational and aggressive goals,” Mr Ambani said. The intention, Mr Dudley said, “is to have a long-term multi-decade partnership.”
“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 Mr Dudley. “BP looks forward to a long and successful working partnership with Reliance.”
BP, which earlier this month reported a $3.7 billion loss for 2010 due to the Deepwater Horizon disaster, said it had enough cash reserves to make the payment of $7.2 billion to RIL.