Great potential
''BP can offer technology that Reliance lacks.''
The $ 7.2 billion deal between British Petroleum (BP) and India’s oil major Reliance Industries is important not only for the two companies but also for India’s energy security and economy. Reliance has not been known for equity partnerships but it has now offered a 30 per cent stake in 23 oil and gas fields, including its biggest field, K-G D6, to BP. If exploration results go well another $1.8 billion might be brought in by BP. Both companies are planning to make a 50:50 joint venture to import gas and create a marketing network and this could take BP’s investment to $20 billion (over Rs 90,000 crore). Though India has allowed oil exploration by overseas companies, none has till now offered or committed so much investment in the country till now.
Reliance has been hampered in its exploration efforts by the lack of latest technological knowhow and expertise. The extraction and output from its fields, especially K-G D6, has been declining because of this. BP’s technology can boost extraction by working the fields to their maximum potential, leading even to a doubling of output. The cash infusion can also help Reliance to increase its capex and investment in energy business. More offshore hydrocarbon blocks can be explored with greater success with the help of the technologies BP can offer.
The deal has come at a time when there is a shadow over foreign direct investment in the country. At present it is smaller than the $11.2 billion Vodafone-Hutch deal but when the full potential is realised it might turn out to be the largest FDI deal. FDI has been falling in the recent past with an inflow of only $19 billion this year as against $37 billion last year. If foreign investors have of late found the milieu in India uncertain and discouraging the multi-billion dollar BP deal might mark a change in perceptions. It is also significant that the investment offer is in the petroleum sector where foreign companies have found government policies restrictive. They had withdrawn from India since the nationalisation of oil business. With BP coming round to recognise the potential of business in India, there is bound to be greater interest among other companies.
