6:52 PM
LONDON/NEW DELHI |
LONDON/NEW DELHI (Reuters) - BP lined up one of the biggest foreign direct investments in India to date with a $7.2 billion tie-up with the country's Reliance Industries to explore for deepwater oil and gas.
This marks the second major deal under BP's new chief executive Bob Dudley, who last month agreed a share swap with Russia's state-controlled Rosneft to jointly explore the Arctic for offshore oil and gas.
BP said on Monday it would pay Reliance Industries $7.2 billion and performance payments of up to $1.8 billion if the tie-up leads to the development of commercial discoveries.
"BP is the best finder of hydrocarbons in deepwater in the world," Mukesh Ambani, Chairman and Managing Director of Reliance Industries, said at a press conference.
BP wants to put last year's Gulf of Mexico oil spill disaster behind it, and said earlier this month it would look for long term growth through a fresh focus on discovering oil and gas via exploration partnerships.
The oil spill prompted a $30 billion asset disposal program to help cover BP's costs. But Dudley said BP still had plenty of cash to fund the investment in Reliance assets at a price equivalent to $7.50 per barrel.
"We've been divesting assets at around $12 per barrel so for us this is a sensible transaction," Dudley said.
BP will take a 30 percent stake in 23 oil and gas blocks and form a 50:50 joint venture for sourcing and marketing gas.
"It's kind of similar to the Russian deal - it's getting access to longer term positions which could be material," Oswald Clint from Sanford Bernstein said. "But we've got a key risk here. The gas price is regulated, it's not rising as quickly as people expected,"
Dudley shrugged off concerns about the gas price and said the deal would help BP gain from rising energy demand in India.
"The whole world's looking for gas, particularly in Asia... we believe it is going to be a very, very valuable fuel," he said, adding that the blocks involved had indicated resources of around 15 trillion cubic feet.
The companies said the future performance payments and the combined investment could amount to $20 billion in total.
CONFIDENCE BOOST
The market welcomed the deal as a sign of confidence in India and the country's oil potential.
BP's shares closed 0.3 percent lower at 495.2 pence.
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