Mukesh Ambani's RIL signs $20 billion deal with BP

[Singh]

Mukesh Ambani led Reliance Industries Limited (RIL) has signed an agreement with oil major British Petroleum (BP) for 30 per cent stake in Reliance Industries' 23 oil and gas blocks including the KG-D6 gas fields. The deal is valued at $7.2 billion and is one of the biggest foreign direct investments (FDI) in the country.

The two companies will also form a 50:50 joint venture for sourcing and marketing of gas in India.

While RIL will get $7.2 billion from BP for 30 per cent stake in its oil and gas blocks, "another $1.8 billion is contingent on finding more hydrocarbon resources. The balance $11 billion is an estimate for the investments over the next many years in building the joint venture," Mukesh Ambani said from London. (Read: BP to buy 30% stake in RIL's 23 oil and gas blocks)
"We needed one major global energy partner. In Reliance's assessment BP is the best finder of deep water hydrocarbons in the world," Ambani added on the association with BP.

The 23 oil and gas blocks together cover approximately 270,000 square kilometres. This will make the partnership India's largest private sector holder of exploration acreage.

The deal is "subject to necessary government approvals. All blocks are under NELP and we expect to apply for government approval and expect to get them soon. We expect to close the deal in the April-March 2012 fiscal", Ambani added. ((Watch: Mukesh Ambani on RIL-BP deal)

The deal is seen as a positive for Reliance. Ambareesh Baliga of Karvy Stock Broking said the rumour (about the deal) was in the market since the morning. This will play up tomorrow as it is extremely positive news. RIL has been an underperformer for the last 2 years. RIL rose 2.22 per cent on the NSE today though the deal was announced after market hours. (Watch: What analysts say on the deal)

Commenting on the deal former chairman of ONGC RS Sharma said, "This is positive news for the entire E&P (exploration and production) sector for India. The deal covers the entire value chain - upstream and downstream." Referring to the Cairn-Vedanta deal that has failed to take off, Sharma said "the sentiments have been negatively impacted because of one deal...this deal shows confidence in the Indian oil sector." (Read: Reliance-BP deal not same as Vedanta's Cairn buy)


"This partnership meets BP's strategy of forming alliances with strong national partners, taking material positions in significant hydrocarbon basins and increasing our exposure to growing energy markets," said Mr. Carl-Henric Svanberg, Chairman of BP.





Read more at: http://profit.ndtv.com/news/show/mukesh-ambani-s-ril-signs-20-billion-deal-with-bp-141816?cp

 

[Yusuf]

Actually surprising to me. Indian companies are on a buying spree all over. Here the case is the opposite. Wonder why reliance didn't try to pick up stake in a major global oil company?

 

[p2prada]

The reason is technology. Even if Reliance is doing well, it does not invest in R&D. So, what it did was raise $20Billion along with buying foreign technology at one go. It's a pretty profitable enterprise since RIL wants to refine and export petroleum products rather than sell govt subsidized products in India.

It will bring much needed technology into the hands of an Indian company and that is the field of deep sea drilling.

 

[Yusuf]

RIL would have got the tech even by buying out a major company. Now it has only got a partner and it will use what the partner provides. If it had bought out, it would have owned all the tech.

 

[p2prada]

You cannot buy oil companies from foreign soil that easily. It will take Billions of dollars and a lot of time to get govt approval from both countries.

If RIL buys a major foreign company, which in itself is not possible because of the sheer size of these companies, RIL will have to negotiate with foreign govts for approval to take over their oil wells that was previously owned by the bought company. You could say this will take years.

In case RIL does manage major holdings in foreign soil, the Govt of India must guarantee security to the holdings. As of today, US will declare war on any country that will target it's oil holdings in any part of the world. That kind of guarantee is not given by India to ONGC and the like, but there is a diplomatic assurance nonetheless.

RIL is a small company compared to global giants. The only ones with capable deep sea drilling tech outside of state owned companies are the supermajor oil companies and all of them dwarf RIL.

 

[thakur_ritesh]

RIL likes to operate in india more than overseas since they wield huge clout over any central/state government which is also a reason for their doing well over the years. with this deal RIL now is cash rich by 9b usd, which they will further use in exploration in india as a part of jv with bp, which if one looks at it was quite smart. they will be using bp's money in going ahead with the future projects with bp and still maintain a 50% stake.

this would also mean RIL would look to diversify further and even after the deal the management stake remains with RIL, where in the broader picture bp will be a minnow in existing projects and get equal share only is future oil fields.

 

[Yusuf]

Hmmm if Mukesh Ambani has done something it sure must be in his favor. Afterall he is Dhirubhai's son who was an expert manipulator to work deals in his favor.

 

[thakur_ritesh]

Hmmm if Mukesh Ambani has done something it sure must be in his favor. Afterall he is Dhirubhai's son who was an expert manipulator to work deals in his favor.

smart chap mate. maintains management control on ril. finances future projects with bp with bp's money, what better? will be sitting on a huge pile of dollars, a cash rich company, the stocks are going to zoom both for ril and bp , more so for ril. gets to take the credit for bringing in a huge amount of fdi in one go, the government is indebted, the finance minister is will be happy man! mukesh would be sleeping happy tonight!

 

[tarunraju]

Those who believe YSR's death was sabotage and not accident think that this is what YSR got killed for. YSR was going to be an obstruction to RIL's KG resale to foreign players.

 

[The Messiah]

Selling India's energy resources to foreign entities is never good in my book.

 

[Yusuf]

Tarun, india itself has such a huge requirement for gas, I don't think anything will go outside.

 

[nitesh]

RIL would have got the tech even by buying out a major company. Now it has only got a partner and it will use what the partner provides. If it had bought out, it would have owned all the tech.

Western powers, especially Europeans protect there crown jewels tooth and nail. It's not easy to get them, until there government don't find any strategic necessity to keep them.

 

[Rage]

There's another side to this. RIL has said it plans to buy energy assets overseas, with this huge payout. Most probably in Brazil or the Gulf of Mexico, alongwith investments in U.S. shale gas projects.

 

[tarunraju]

Tarun, india itself has such a huge requirement for gas, I don't think anything will go outside.

It's not about going outside. It's about outsiders selling our gas to us.

 

[Yusuf]

Now that depends on what kind of policy we have regarding oil and gas exploration. I think India allows foreign investment. Thats why Cairn energy did a lot of work in Rajasthan.

 

[sandeepdg]

Well, its actually 14.5 billion dollars and not 20 billion. 7.2 billion is for 30 % stake in RIL's oil and natural gas blocks, another 1.8 will be spent by BP if it finds oil in the Godavari basin, and the rest 10-11 billions dollars will be shared equally by Reliance and BP as part of their JV. Still, if it does materializes it will be the biggest FDI investment in India as yet.