Reliance Industries Limited’s chairman Mukesh Ambani signed a deal last week that may just tread enroute a promising path for not just the company but for all its relative associate stations. Just a few days after (RIL) and British Petroleum (BP) announced their $20 billion “transformational” deal; many of the future operational details are finally being inked in specificity.
The RIL-BP deal primarily focuses on an arrangement between the two parties whereby BP- world’s largest energy enterprise- will be shelling out $7.2 billion for a 30% stake in 23 exploration blocks of Reliance, plus an additional sum of $1.8 billion for future explorations, leaving RIL with a 60% stake in blocks.
This new JV between the two will be headed by a newly appointed CEO and selected team of associates from both enterprises who will form the core team that will head the operations hence forth. The companies together will also put in place a technical committee which will be the final technical authority that will monitor the 23 blocks that RIL and BP are partners in.
Analysts suggest that this deal is a win-win situation for both. For Reliance, this is an opportunity to take oneself and push the ante to an improvised process system that not only focuses on domestic resource furtherance but allows for globally collaborative inputs for sync in attaining coined purpose.
1. Accelerated Natural Gas Production: This collaboration will lead to substantially accelerated natural gas production, higher discoveries, and increase in gas recovery rates. Trade analysts report that market dynamics is fast changing. The price of shale gas is set to undergo a revision due to changing economic dynamics; and a balance in the demand-supply pattern is needed to be assured. A deal of such stature, which is positive and hopeful, will set the ball rolling for high level exploration, procurement and distribution of natural gas resources in an effort to fractionize the input to the global market collaboratively.
2. Reliance gets the tools: Problems with KG D6 ramp-up and KG D9 dry wells meant that RIL’s exploration & production valuation was lowered significantly. RIL’s E&P performance in India has been somewhat patchy with minor discoveries in Mahanadi and Cauvery Basin. Its blocks in Kerala offshore are yet to be drilled. With opportunities lurking at bay, Reliance needed to push the ante with some outside help in exploring and drilling. As BP stepped in to join hands with RIL, it was certain that BP will help the energy major technically and intellectually. BP will provide Reliance with its world renowned technology for deep-sea exploration which will ramp up the gas output from the Krishna-Godavari basin from the current 56-58 million cubic meters a day to 80 million cubic meters a day in a matter of weeks. Although Reliance has the capital, having BP’s technology and capabilities will not only free Reliance from added cost of purchase but allow it to tap the talent that knows the ends of the tactic that work at
bay; only to allow for better excavation of promising blocks.
3. BP finds a new ground: Indian market has for long been a matter of pursuit for BP; mainly because of the resource play and its sheer size. The deal with RIL enables BP access to both this valuation grounds. Almost like conquering new turfs, it will be an altogether new and exciting undertaking for BP as it tries to tap the Indian market completing its presence in all the BRIC nations. This deal will present them with a challenge to put in place their A game in a country where a lot still remains to be explored and developed.
4. Stock Up: Within days, the stocks of Reliance Industries Limited reached their two month high as the word hit the bull street. Popularity of both brands and the coming together of two of the world’s major are the buzz words on which stakes run high for tremendous returns, and this is exactly what this deal hopes to furnish.
5. Image Boost: Lately, RIL has shifted focus from domestic resource development to collaborative ventures that enable not only a good footing in associate’s market but allows for augmentation of the company from value adding corporation to a multi-faceted, globally resound enterprise. Mukesh Ambani has realized for some time now that it was time to amplify the processes in tune with changing global patterns on demand, supply, approach and production. This deal will not only prove to be cost effective in terms of tool procurement but will allow for Reliance to undertake knowledge from the best and become an enterprise of collaborative means.
RIL-BP deal validates India’s oil & gas reserves significantly. Analysts are appreciative of this single largest foreign direct investment (FDI) coming into the oil sector via this venture. Not only does Reliance get the technology it needs; BP the market it needs but the government will benefit from it just the same amount. They are flexible and accepting of the deal and are hopeful that it will further help attract other oil majors to the country.
A deal of such nature will ensure three major future outcomes- One that Indian energy reserves will be explored through superiors technical excellence, Two- the output in terms of resources employed to that of resources generated will be significantly marginalized and three, national economy will boom due to large FDI’s that will follow in future to come.
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