New Delhi: More than four months after UK’s BP agreed to buy stake in 23 oil and gas blocks of Reliance Industries for $7.2 billion, the government may next week give unconditional approval for stake sale in only 21 blocks.
Approval for sale of 30% interest in deepwater block NEC-DWN-2002/1 in Bay of Bengal and Assam onland block AS-ONN-2000/1 may be conditional as oil regulator DGH has not agreed on the status of exploration in two acreages, sources privy to the development said.
BP had in February announced buying 30% stake in 23 blocks of Reliance, including prolific KG Basin block D6 and gas discovery block NEC-25. While Reliance made an application for transfer of interest on 25 February, oil ministry earlier this month sent the proposal to the Cabinet Committee on Economic Affairs (CCEA) for approval.
Sources said law ministry in its comments on Cabinet note raised the issue of the two blocks, where the Directorate General of Hydrocarbon (DGH) and Reliance are in disagreement over exploration status.
In NEC-DWN-2002/1, Reliance had taken an extension of Phase-I of its exploration campaign. In the meanwhile, the government recently announced rig moratorium, allowing firm more time to fulfill their drilling commitments which they had previously not met due to global shortage of drilling rigs.
Since NEC-DWN-2002/1 was covered by rig moratorium, Reliance sought to withdraw the exploration extension it had availed as per the exploration extension policy of the government but DGH and oil ministry said no to it, sources said adding it is not clear if the block in now under Phase-1 or Phase-II of the exploration phase.
In Assam block AS-ONN-2000/1, there is disagreement if Reliance had completed its Phase-I work programme and entered Phase-II.
While Reliance had drilled a well on NEC-DWN-2002/1, it was planning to do so on Assam block shortly. The well on NEC-DWN-2002/1 was dry i.e. did not lead to any oil or gas find.
Sources said finance ministry has opined that approval to the Reliance-BP deal may be given unconditionally while the comments of the home ministry are awaited.
If home ministry responds by Monday, the oil ministry will the following day send a detailed cabinet note complying view of ministries of finance, law and home. The deal may then come up for deliberation of the CCEA on 21 July, they said.
Home ministry had previously given a security clearance to the $7.2 billion deal.
Sources said the two blocks on which CCEA may give some kind of a conditional approval, are inconsequential in the whole transaction as there has not been any hydrocarbon discovery so far.
Although the oil ministry has the authority to decide on Reliance selling 30% interest to BP in 23 exploration blocks, including the prize eastern offshore KG-D6 gas fields, the ministry earlier this month decided to refer the deal to the CCEA, sources said.
The decision to refer the deal to CCEA came more than a month after the Ministry of Home Affairs gave security clearance to the BP stake acquisition. The $7.2 billion deal is the single largest foreign direct investment in the country.
At present, 100% foreign direct investment (FDI) is permitted in the oil and gas exploration and production (E&P) sector under the automatic route (without going through the Foreign Investment Promotion Board or CCEA).
Reliance wants to leverage the worldwide experience of BP to resolve sub-surface technical issues at its KG-D6 gas fields, where production has fallen from 61.5 million standard cubic metres per day (mmscmd) to about 48 mmscmd, instead of rising to the planned 69 mmscmd.
The Mukesh Ambani-led firm hopes BP will be able to fix reservoir issues at the Dhirubhai-1 and 3 gas fields in the KG-D6 block to rapidly raise output to the planned peak of 80 mmscmd and also to help formulate viable plans to bring other finds in the block and in other areas on to production.
BP will pay $7.2 billion for a 30% stake in 23 exploration blocks held by Reliance and a performance payment of up to $1.8 billion if the tie-up leads to the development of commercial discoveries.
Reliance and BP will also form an equal joint venture for the import, marketing and transportation of natural gas.
Sources said after the CCEA nod, amendments to the Production Sharing Contracts (PSCs) of the 23 blocks would be effected to induct BP as a partner.
Reliance will retain operatorship of all 23 blocks.