Photo: Srinivas Akella
The British oil giant BP has said it would pay $7.2 billion to buy into India’s fast-growing oil and gas industry.It is yet another big deal for BP, as it seeks to recover from the after-shocks of last year’s Gulf of Mexico oil spill.
BP will take a 30 per cent stake in 23 oil and gas fields operated by Reliance Industries, India’s largest private company. Reliance will receive an additional $1.8 billion if the companies find more oil and gas than expected.
The companies also said they would create a 50-50 joint venture to buy, transport and market natural gas,which is increasingly in demand in India as the country’s economy grows at nearly 9 per cent a year. Earlier this year, BP signed an agreement with Russia’s Rosneft to drill in the Arctic.
That deal, worth $7.8 billion, was the first big investment by BP after its oil spill in the Gulf of Mexico last year, which resulted in an estimated $40 billion in damage claims.
From a larger perspective, the current wave of unrest from North Africa to the Persian Gulf makes countries like Russia and India look even more attractive to multinational oil companies. Although India imports more than 70 per cent of its energy supplies, in recent years, it has opened large areas of territory to oil and gas development.
Reliance, which is led by India’s richest man, Mukesh Ambani, has become India’s largest producer of gas because of a rich offshore field in the Bay of Bengal near the state of Andhra Pradesh. BP’s chief executive, Robert Dudley, is eager to guide his company to new growth after it was forced to sell assets to pay for the accident in the Gulf of Mexico. Dudley has said he wants BP to be a “safer,” “smaller” and “more agile” company. He has sought to reverse a drop in production by increasing investment and lining up 32 projects, including in Russia and Canada, for the next six years.
The deal in the Russian Arctic with Rosneft was generally seen as a coup. It would give BP access to exploration licenses in one of the world’s last unexplored basins. A seal of approval from the Russian government for the deal also guaranteed some safety to operate in what has proved in the past to be a challenging country for BP and other oil majors.
For international oil companies like BP, forging cooperation agreements with national oil companies is one of the few ways to gain access to new exploration projects and meet growing energy demand, especially in fast-growing economies like India, Russia and China.
“Virtually all of the growth will come from emerging economies like India,” Carl-Henric Svanberg, BP’s chairman, said.
The Reliance deal will require approval from Indian regulators, which could take some time. Dudley visited India in October and met with the prime minister, Manmohan Singh, and other officials. BP already has a joint venture with Reliance on one exploratory offshore field, and it has a partnership to make solar panels with the Tata Group, a large Indian conglomerate.
In a show of symbolism meant to highlight the long history of relations between Britain and India, Dudley and Ambani signed their agreement at 11 Downing Street, the official residence of the British chancellor of the Exchequer, George Osborne, who witnessed the ceremony. For Reliance, the deal provides a large hoard of cash and, perhaps more important, oil and gas expertise that it needs as it explores and produces in fields that cover about 104,000 square miles.
The output from Reliance’s most productive gas field in the Bay of Bengal has declined in recent months, which has worried analysts and policy makers, who are counting on the field to fuel power plants and fertiliser factories. In addition to its interests in India, Reliance has been investing in shale gas fields in the United States, including a joint venture with Atlas Energy to drill in the Marcellus Shale. The Indian government estimates that it has large reserves of oil (8.8 billion barrels) and gas (50.7 trillion cubic feet).
That is only a small fraction of the oil and gas reserves of Russia — which has an estimated 1,680 trillion cubic feet of natural gas and 60 billion barrels of oil, according to the United States Energy Information Administration. But India’s estimated reserves are still significant, as global demand continues to rise. And the country has tapped but a small fraction of its potential supplies. A big chunk of those resources lie deep under the seabed around the Indian peninsula and would be hard to reach safely.
Ambani said in his company’s assessment, “BP is the best finder of hydrocarbons in deep water.” BP said that its earnings rose 30 per cent in the fourth quarter, to $5.6 billion, from $4.3 billion the period a year earlier, helped by higher oil prices.
The company lost $3.7 billion last year, compared with a profit of $16.6 billion in 2009. BP also restored its dividend in the fourth quarter, according to the New York Times.