Mumbai: Reliance Industries Ltd’s (RIL) Canadian partner, Niko Resources Ltd, has the option to raise its stakes in three oil and gas assets of the Indian explorer by up to 30%, the two companies said on Tuesday.
A day earlier, RIL announced that London’s BP Plc will pick up a 30% stake in its 23 oil and gas blocks for $7.2 billion (around Rs32,544 crore today).
“Niko was informed about our partnership with BP. As per the contractual provision, Niko can increase (its stakes) by 30% of their current holdings,” an RIL spokesperson said in an email statement.
Niko holds 10% stakes each in two RIL blocks, KG-D6 and NEC-25, which it can raise to 13%. In another block, MN-D4, Niko has a 15% stake that can be hiked to 19.5%, according to RIL.
Murray Hesje, Niko’s chief financial officer, said his company will take a decision on hiking its holdings in the RIL assets depending on their valuations.
“RIL has not communicated to us the value of the assets in which we hold a stake as yet. Depending on the value, we will look to either retain the stake at the same level or look to increase our stake. We are a debt-free company right now and will not sell our stake,” Hesje said over the phone from Canada.
The BP deal values RIL’s oil and gas assets at $24 billion. If this valuation is taken as a benchmark, Niko would have to pay around $1.8 billion to raise its stakes to the maximum level allowed in the contract.
“RIL needs a lot of cash by way of capex (capital expenditure) for its exploration and production activities. It is estimated at around $10 billion over the next three-four years,” said Alok Deshpande, oil and gas sector analyst at Elara Securities (India) Pvt. Ltd.
Niko also has interests in oil and gas assets in the Cauvery basin as well as in Hazira and Surat in Gujarat.
Jamie Somerville, an analyst with TD Newcrest, a division of Canadian financial services firm TD Securities Inc., wrote in a report that the BP deal was “negative” to their valuation of Niko’s three blocks with RIL due to what he said was a relatively low consideration for the assets in the short term.
“BP’s investment could have a positive impact on perception of long-term exploration potential in India and Niko’s potential to divest its Indian interests,” he added.