BP may buy into RIL gas field

BP may buy into RIL gas field

New Delhi: London-based BP Plc is in talks with Reliance Industries Ltd (RIL) to buy a significant stake in the D6 hydrocarbon block in the Krishna-Godavari (KG) basin.

“BP is in talks with RIL for acquiring between 30% to 45% stake in the D6 block," a person aware of the development said on condition of anonymity. “The technical teams have been in discussions for some time now."

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The Mukesh Ambani-owned firm, India’s biggest company by market value, holds a 90% stake in the KG D6 field off the eastern coast of India, which was hailed as the world’s largest natural gas discovery in 2002. Canadian hydrocarbon explorer Niko Resources Ltd owns the remaining 10% stake.

“From among the world majors, ultimately BP was short-listed. The talks have been on for some time now. BP is quite serious," said a senior executive at RIL, who also declined to be named. “It can also be a barter deal with some compensation in assets and some in cash."

Both the persons aware of the matter declined to elaborate on the valuation of the stake.

Rajeev Kumar, vice-president, BP India, declined to comment.

“We do not comment on market rumours or speculation," said a BP India spokesperson in response to questions emailed to BP’s offices in the US and the UK.

An external spokesperson for RIL?also declined to comment.

After the Deepwater Horizon spill in the Gulf of Mexico in the US in April, BP has been looking to invest in new locations. Last month, the oil and gas multinational and Russian oil producer OAO Rosneft announced a $7.8 billion (Rs35,568 crore) deal on a strategic equity-linked partnership.

BP’s new chief executive Robert Dudley had met Ambani when he visited India in October.

“Both are extremely stable players in their own right. If there was to be some sort of partnership between them, it will give BP a tremendous footprint in India," said Monish Chatrath, executive director at consultancy firm Mazars India. “As far as RIL is considered, in fields like these, any access to technological advancement is welcome. A lot of technological advances are taking place in this space."

That BP is in talks with RIL was first reported by the CNBC-TV18 news channel in January, according to Dow Jones Newswires.

The development comes at a time when gas output at the offshore block has fallen to 50-52 million standard cu. m per day (mscmd) from over 60 mscmd in mid-2010.

The explorer is currently pumping gas from 18 wells in the block.

“The plan was to produce 40 mscmd in the phase one of production and 80 mscmd in the second phase. The plan was to drill 44 wells for producing 80 mscmd. During testing it was observed that per well could produce 8-9 mscmd of gas. There was no pressure decline for some time but lately we have seen the pressure dropping," said the Reliance official cited earlier. “We are now drilling four new wells for sustaining production of 60 mscmd… the reservoir is not behaving in a manner that was expected."

The Indian government, which has allocated gas from the field to priority sectors such as fertilizer, liquefied petroleum gas, steel, petrochemical plants and city gas distribution companies and refineries, is not worried about the decline.

“These are small ups and downs. Once the 22 wells are operational, things will become normal and a production of 60 mscmd will be reached by March," said a senior official at Directorate General of Hydrocarbons, requesting anonymity.

According to the projections made by India’s oil ministry regarding gas availability from the D6 block, which were reviewed by Mint, the field is expected to produce 59.4 mscmd in 2010-11, with the production reaching a peak of 88.5 mscmd in 2012-13.