By-Prashant Chauhan A-06Pritesh Gianchandani B-17

British Petroleum Completed $ 7.2 billion alliance with Reliance in India

Carl-Henric Svanberg with Mukesh Ambani and Bob Dudley

Global oil major British Petroleum entered a historic oil and gas transformational partnership with India’s Reliance Industries valued at $ 7.2 billion. As per the agreement, the British oil firm would have a thirty percent stake in 23 oil and gas production

contracts that Reliance operates in the country. What is more, the two firms have also established a 50:50 joint venture for both sourcing as well as marketing of gas in the country.

Quote- “With this partnership, we can not only draw synergies that includes skills of both the companies, but also stay focused on finding more hydrocarbons in the deep water blocks of India. With our mutual expertise and marketing skills the partnership

can contribute in a big way to India's ever growing energy security needs".

Benefits of Alliance to Reliance :-

*The joint venture will also accelerate the creation of infrastructure for receiving, transporting and marketing of natural gas in India. *The transformational partnership will combine BP’s world-class deepwater exploration and development capabilities with Reliance’s project management and operations expertise

Benefits of Alliance to BP:-

*This partnership meets BP’s strategy of forming alliances with strong national partners, taking material positions in significant hydrocarbon basins and increasing our exposure to growing energy markets,” Carl-Henric Svanberg, Chairman of BP.

*The firm would pay Reliance $ 7 .2 billion for the interests to be acquired in the 23 production sharing contracts. An additional $ 1.8 billion could be paid based on

exploration success that results in development of commercial discoveries. The total combined investment could amount to $ 20 billion.

BP Positioning about Alliance:-

* This transaction represents one of the largest foreign direct investments into India. The 23 oil and

gas blocks cover an estimated 270,000 square kilometres, making this partnership India’s largest

private sector holder of exploration acreage.

* “India is one of the fastest growing economies in the world. By allying ourselves with Reliance, we will access the most prolific gas basin in India and secure

a place in the fast growing Indian gas markets, creating a genuinely distinctive BP position,” Robert

Dudley, BP Group Chief Executive.

FACTS OF ALLIANCE:-*Reliance Industries and BP have completed the $7.2-billion deal in which the British company will pick up 30% in 21 blocks, including D-6, where technical

expertise of the oil major is expected to reverse the decline in output from India's biggest gas field.

*BP, the first global oil major to make a significant investment in India, will form a 50:50 joint venture with Reliance Industries for sourcing and marketing of gas in India which will also

accelerate the development of infrastructure in the sector.

*Technical experts from both companies are expected to quickly work out ways to address the problems at the D-6 block in the Bay of Bengal. Reliance's gas output has dipped below 50 million metric standard cubic metres a day instead of rising to 80 mmscmd as the deep-sea

reservoir turned out to be structurally different from what was imagined during surveys.

* "This major investment is directly aligned with our strategy of creating long-term value by forming alliances with strong national partners, gaining material positions in significant

hydrocarbon basins and increasing our exposure to growing energy markets.“

* In addition to the $7.2 billion initial investment, BP may pay another $1.8 billion to Reliance depending on commercial discoveries in the exploration blocks in which it is buying stake.

ACTUAL PLAN – KG D6 BLOCK EXPLORATION

BP and Reliance to spend $1 billion into KG-D6 BlockReliance and BP in upstream and midstream Alliance

On August 7th, 2012, BP and Reliance Industries Ltd (RIL) received from the India Oil Ministry the conditional approval for the production compensation of the declining offshore KG-D6 gas field.

AREA OF DEAL

Map of deal interests – BP and Reliance entered a strategic alliance to join their forces on India's oil and gas markets in summer 2011. Furthermore, BP acquired a 30 percent stake in 21 oil and gas production sharing contracts of Reliance in India, including the producing KG

D6 block. (Picture: PROCESS India)

*This decision was accelerated after three years of discussions in front of the depletion speed the matured KG-D6 natural gas field.

*To compensate this loss, RIL and BP had in the meantime performed a drilling campaign in the KG-D6 Block to explore potential satellites fields and made three gas

discoveries in D29, D30 and D31.

*But the development of these discoveries which was stocked since then is now becoming possible.

*On August 30th 2012, BP completed the acquisition of 30% interest in 21 oil and gas production sharing contracts (PSC), including the KG-D6 Block, operated by RIL.

*As a result, the KG-D6 Block has working interest shared between:

 - Reliance 60%, is the operator

 - BP 30%

 - Niko Resources from Canada 10%

These 21 blocks lie between shallow water of 400 meter depth and deep water exceeding 3,000 meters depth

*As part of these 21 blocks, the KG-D6 Block is producing 1.6 billion cf/d of natural gas representing 40% of total India production and 30% of its consumption.

*To support the production sharing contracts, RIL and BP defined a strategic alliance where:

- Reliance will maintain its large project management and operator experience

- BP will provide the partnership with its global subsea expertise in deep - ultra deep water, and in exploration and production enhancement.

*For the acquisition of 30% of the 21 production sharing contracts, BP will pay Reliance $7.2 billion.

*BP justifies this capital expenditure because gas is expected to be the fastest growing fossil fuel in India, with demand growing at a rate of nearly 5% per year between 2010 and

2030.

*The total Indian gas consumption is projected to grow to12.5 billion cf/d in 2025, and to exceed 15 billion cf/d in 2030.

* RIL-BP’s KG-D6 project to secure 30% of India natural gas consumption

*In order to restore the expected plateau production of the KG-D6 Block, BP and Reliance are working on an integrated development scheme which would include the three

discoveries as soon as commercially available, together with 13 other discoveries lying in the 21 production sharing contracts.

*This integrated development scheme will include to drill additional appraisal and test wells to confirm the long term sustainability of the discoveries and the capacity of their

reserves to compensate the natural depletion of the KG-D6 Block.

*BP and Reliance estimated the capital expenditure to complete the exploration and development of the new finds and to add all the corresponding infrastructures for a

commercial production to $1 billion.

*The success of this giant upstream KG-D6 project is critical for India as well as for the partners since BP and Reliance had signed in parallel a partnership for the storage, transportation and

distribution of natural gas in India.*In November 2011, BP and Reliance established the India Gas Solutions Pvt. Ltd. (India Gas), to

develop the global sourcing and local marketing of the natural gas in India.India Gas‘s mission also includes the import of Liquefied Natural Gas (LNG).

*India Gas is 50/50 owned by Reliance and BP where the two companies will bring their competence and resources to revamp, upgrade and expand the infrastructures for the storage,

transportation and distribution of natural gas in India including the administration of the existing gas contracts to KG-D6 customers.

*So the partnership between Reliance Industries Ltd (RIL) and BP is not limited to a punctual production sharing contracts for a specific project but to a long term integrated upstream-

midstream alliance to secure the production and distribution of natural gas in India representing 30% of the local demand.

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