Delhi gives nod for Reliance Industries-BP $7.2bn deal

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The Indian government on Friday gave its go-ahead to global energy major BP buying 30 per cent stake in some of the oil and gas blocks held by Mukesh Ambani-led Reliance Industries. The deal is worth $7.2 billion and is one of the single largest foreign direct investments in the country.

"The CCEA has given approval for a stake in 21 of the 23 blocks. For technical reasons we did not approve two other blocks," Petroleum Minister Jaipal Reddy told reporters here after a meeting of the cabinet committee on economic affairs.

BP had announced in February that it would buy a 30 per cent stake in 23 of Reliance's oil and gas blocks, including India's largest gas field KG-D6, for $7.2 billion. It would also pay the Mukesh Ambani firm another $1.8 billion, based on successful exploration.

The deal size may increase to $20 billion, depending on future performance payments.

The remaining two blocks are not yet producing any oil or gas and once some issues are resolved, the government will take a call on these as well, Reddy added.

The two blocks are in Assam and the Northeast respectively.

"We are proposing to impose all the provisions of the production sharing contract. For example, BP Alpha's net worth is negative. We will give the approval formally once the parent company, BP, gives financial guarantees," said Reddy.

"BP Alpha is itself a major company because it is operating in 29 countries," he added.

The deal, which had been approved by the home, finance and petroleum ministries, is expected to bring in BP's oil deepwater exploration expertise to ramp up production in the oil blocks operated by Reliance Industries.

There have been concerns over sluggish output at one of the country's largest off-shore gas finds, Krishna Godavari (KG) D6 basin, on the east coast of India, which also is operated by the Mukesh Ambani company.

However, the petroleum minister said his ministry has given no specific instructions to ramp up production in the KG D6 basin.

"We welcome the participation of BP in Indian company. We do not give instructions to consortia. One hopes, one trusts that the consortium ramps up production, there is no need for instruction. It is part of their duty," said Reddy.

BP has been working with Reliance since December 2008 on another deep-water block in the KG basin, D-17. BP, with a 50 per cent interest operates the block and Reliance holds the remaining interest.