BP has agreed to buy a 30% stake in offshore oil and gas fields owned by India’s Reliance Industries for $7.2bn. It will also pay up to $1.8bn more if exploration of these 23 fields, which cover a total area around the size of the North Sea, is successful. BP’s future investment to help develop the area could take the final bill to $20bn. Meanwhile, the firm announced it would sell $1bn of ageing North Sea assets. That means it has now made disposals of $23bn to help pay for the Gulf of Mexico oil spill.
What the commentators said
“India is a place where oil majors want to be,” said Lex in the FT. BP’s figures suggest that its energy consumption could grow by an annual 4% over the next 20 years. The deal also shows that BP “still has strong credentials” in deepwater exploration, an area in which Reliance lacks expertise, noted Ivor Pether of Royal London Asset Management.
This “looks more straightforward” than the recent tie-up with Russia’s Rosneft to explore the Arctic, said Nils Pratley in The Guardian. The latter deal could take ten years to produce anything. But one of Reliance’s fields already comprises 40% of the country’s gas production. The politics are also easier. The Indian government still needs to approve the deal. But “at least there should be no distracting sideshows in the form of court battles with aggrieved oligarchs”.
Still, it’s hardly risk-free. As the Beyond Brics blog on FT.com points out, doing business in India can be “plagued” with “uncertainty” – witness a recent dispute over royalties involving Cairn Energy, Vedanta and the Indian government. Then there’s uncertainty over the regulation of the gas market, said Lex. And the chance that “the economics of producing in the Indian Ocean will prove unattractive”. Throw in Russian risks, and it’s no wonder shares have struggled this year.