BP, Reliance In $7.

2 Bn Oil Deal
BP is to make one of the biggest foreign direct investments in India through an oil and
gas tie-up with Reliance Industries, which involves the oil major paying $7.2 billion to
the Indian company.

Under the terms of the deal, BP will take a 30 per cent stake in 23 oil and gas blocks and
form a 50:50 joint venture between the two companies for the sourcing and marketing of
gas, the companies said in a statement on Monday.

The 23 oil and gas blocks together cover approximately 270,000 square kilometres.

Reliance will continue to be operator of the blocks.

The joint venture will also endeavour to accelerate the creation of infrastructure for
receiving, transporting and marketing of natural gas in India.

"This partnership combines the skills of both companies and will be focused on finding
more hydrocarbons in the deep water blocks of India and significantly contribute to
India's energy security," Mukesh Ambani, Chairman and Managing Director of Reliance
Industries Limited, said in the statement.

BP CEO Bob Dudley and Mukesh Ambani "signed the relationship framework and
transactional agreements in London," the statement said.

BP will pay Reliance Industries an aggregate consideration of $7.2 billion and future
performance payments of up to $1.8 billion could also be paid if exploration success
leads to the development of commercial discoveries.

"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," BP Chairman Carl-Henric Svanberg said in the statement.

The companies said the future performance payments and the combined investment could
amount to $20 billion in total.

Market Response
The market welcomed the deal, with analysts highlighting the importance of the tie-up as
a sign of investor confidence in India and the country's oil potential.

BP's shares were up 0.3 per cent at 494.4 pence at 1108 GMT. Reliance Industries shares
were up 2 per cent.

"It is a big positive in terms of getting foreign direct investment into India. It shows the
confidence in India at large and its oil and gas potential," Sandip Sabharwal, CEO of
portfolio management services at Prabhudas Lilladher in Mumbai said.

"This deal could be the first of many more to follow," he added.

BP already has a presence in India in addition to its interest in deepwater block called D-
17, which it has been working on with Reliance since late 2008.

Reliance Industries Limited and BP today announced a historic partnership between the
two companies. Mr. Mukesh Ambani, Chairman and Managing Director of Reliance
Industries Limited, and Mr. Robert Dudley, BP Group Chief Executive, signed the
relationship framework and transactional agreements in London.
The partnership across the full value chain comprises BP taking a 30 per cent stake in 23
oil and gas production sharing contracts that Reliance operates in India, including the
producing KG D6 block, and the formation of a 50:50 joint venture between the two
companies for the sourcing and marketing of gas in India. The joint venture will also
endeavour to accelerate the creation of infrastructure for receiving, transporting and
marketing of natural gas in India.
The partnership will combine BP’s world-class deepwater exploration and development
capabilities with Reliance’s project management and operations expertise.
Mukesh Ambani said: “We are delighted to partner with BP, one of the largest energy
majors and one of the finest deep water exploration companies in the world. This
partnership combines the skills of both companies and will be focused on finding more
hydrocarbons in the deep water blocks of India and significantly contribute to India’s
energy security.”
For BP, Reliance is a natural partner in India, given its strong position in the Indian
market.
“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,” said Mr. Carl-Henric Svanberg, Chairman of BP.
BP will pay Reliance Industries Limited an aggregate consideration of US$7.2 billion,
and completion adjustments, for the interests to be acquired in the 23 production sharing
contracts.
Future performance payments of up to US$1.8 billion could be paid based on exploration
success that results in development of commercial discoveries. These payments and
combined investment could amount to US$20 billion.

BP’s confidence in India is evident from the fact that the transaction constitutes one of
the largest foreign direct investments into India.
The 23 oil and gas blocks together cover approximately 270,000 square kilometres. This
will make the partnership India’s largest private sector holder of exploration acreage.
So that the joint venture can capitalise on Reliance’s outstanding project management
track record and operations expertise, Reliance will continue to be the operator under the
production sharing contracts, whose blocks lie in water depths ranging from 400 to over
3,000 metres. These currently produce about 1.8 billion cubic feet of gas per day (bcf/d),
over 30 per cent of India’s total consumption, and over 40 per cent of India’s total
production.
“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,” said Bob
Dudley. “BP looks forward to a long and successful working partnership with Reliance.”
Completion of the transactions is subject to Indian regulatory approvals and other
customary conditions.
Notes to editors:
• BP has been working with Reliance since December 2008 on the D-17 deepwater block
in the Krishna Godavari (KG) basin on the east coast of India. BP, with a 50 per cent
interest, operates the block and Reliance holds the remaining interest.
• Reliance Industries Limited (RIL) is India’s largest private sector company on all major
financial parameters with a turnover of Rs 2,00,400 crore (US$44.6 billion), cash profit
of `Rs 27,933 crore (US$6.2 billion), net profit of Rs 16,236 crore (US$3.6 billion) and
net worth of Rs 1,37,171 crore (US$30.6 billion) as of March 31, 2010.
• RIL is the first private sector company from India to feature in the Fortune Global 500
list of 'World's Largest Corporations' and ranks 100th amongst the world's Top 200
companies in terms of profits. RIL ranks 68th in the Financial Times FT Global 500 list
of the world's largest companies. RIL is rated as the 15th ‘Most Innovative Company' in
the World in a survey conducted by the US financial publication - Business Week in
collaboration with the Boston Consulting Group. For more details go to www.ril.com.
• BP has a strong presence in India in addition to its interest in block D-17. Castrol India
Limited is a market leader in the retail automotive lubricant business, including car
engine
oils, premium 4-stroke motorcycle oils and multi-grade diesel engine oils. Castrol India
also operates in the industrial and marine lubricants markets. Tata BP Solar, a joint
venture between BP Solar and the Tata Group, has been operating in India since 1989. It
is a leader in the Indian solar energy market, manufacturing solar cells, solar PV modules
and systems.
BP employs around 8,000 people (both direct and indirect staff) in India, with its main
centres of employment in Mumbai, Delhi, Bangalore, Calcutta and Chennai. For more
details
go to www.bp.com/India.
• According to BP’s Energy Outlook 2030, energy consumption in India has grown by
190% over the past 20 years and is likely to grow by 115% over the next 20 years, a rate
of over 4% per annum. Gas is expected to be the fastest growing fossil fuel, with demand
growing at a rate of nearly 5% a year between 2010 and 2030. India’s gas consumption
was 5.0 bcf/d in 2009 and is estimated to have been 6.1 bcf/d in 2010 (comprising 4.9
bcf/d production plus 1.2 bcf/d LNG imports). Total Indian gas consumption is projected
to grow to12.5 bcf/d in 2025, and exceed 15 bcf/d in 2030.
• The aggregate gross profits attributable to BP’s 30 per cent share of the 23 production
sharing contracts to be acquired is Rs. 1336 Crores (c. US$300 Million), as derived from
the aggregate EBIT under the production sharing contracts for the financial year ending
31March 2010.
Bridge To The Future
Reliance Industries’ multi-billion dollar deal with oil giant BP starts a
new phase in its oil exploration
Akash, the 19-year-old elder son of Mukesh Ambani, took a break from classes to learn
from the practical. On 21 February, his father signed the fortune-changing deal with the
brass of global oil behemoth BP Plc. Akash, a student at Brown University in the US,
clapped while Mukesh shook hands with Robert Dudley, BP’s group chief executive. The
deal opens a new chapter in the Ambani saga.

Akash’s presence among Reliance Industries (RIL) veterans, including executive director
P.M.S. Prasad and chief financial officer Alok Agarwal, and BP chairman Carl Henric
Svanberg, shows how personal this deal is to Mukesh. Akash’s direct relation with RIL is
his shares worth Rs 330 crore in the $46-billion company. Also, he is the natural
successor to Mukesh.

In the agreement, RIL offered BP 30 per cent stake in its 23 hydrocarbon exploration and
production assets, including crown jewel KG D6, for $7.2 billion. If the tie-up leads to
successful commercial discoveries, BP would make performance payments of up to $1.8
billion. RIL and BP will also form a 50:50 joint venture that would source, transport and
market natural gas. The $7.2 billion will be disbursed in stages till March 2012, says BP
CEO Dudley. The partnership plans $20 billion of overall investment in India.

The deal, however, still needs regulators’ approval, and the two companies have to
formalise the structure of the agreement. BP will be signing 23 separate new joint
operating agreements and will be included as a party in the production sharing contracts
once the deal is approved by the government.

A New Chapter
BP’s interest in India began with Nelp V when it failed to win any blocks. It failed again
in Nelp VI after which it bid 50:50 with RIL for a block in Nelp VII, which it won. Since
then, BP has had increased interest in India’s eastern offshore. It took RIL and BP almost
two years to set a framework and transactional agreements. After the first round of talks,
the deal faded as BP got embroiled in the explosion at its deepwater rig in Gulf of
Mexico and the resultant oil spill, for which it set up a $20-billion fund towards claims.
Its market cap fell to $85 billion from $185 billion. In the meantime, RIL entered into
talks with other majors such as ExxonMobil and Shell, but no deal materialised.

Click here to view enlarged image

For RIL, taking on a major partner is a shift from the
conventional belief that it cannot accommodate a potential
strategic partner. Oil giant Chevron had sold its 5 per cent
stake in Reliance Petroleum, which earlier owned the
group’s second refinery at Jamnagar and later merged
with parent RIL. Though the reason was not disclosed, it was believed that Chevron was
unhappy, at least from the financial point of view — it sold the 5 per cent at the same
price it had bought it at. In the four years it was invested, Chevron did not exercise its
right to pick up another 25 per cent in Reliance Petroleum.

Now, Chevron could prove to be a stumbling block in RIL’s shale gas plans, especially in
the US — Chevron has bought RIL’s JV partner Atlas Energy. So, when BP agreed to
revive the talks about three months ago, the RIL team grabbed the opportunity. The talks
went well, and BP agreed upon the valuation despite some negative reviews on the
potential of the assets, says a banking source.

There are three evident advantages for RIL — one, BP’s technical expertise in
exploration and production (E&P); two, an upfront financial gain of $7.2 billion; and
three, a stronger reputation globally as BP’s partner.

Analysts from UBS Securities say, “BP’s expertise in deep water E&P is one of the key
reasons for the partnership because Reliance has been facing technical issues in the KG
basin.”

BP has the required expertise in deep water. Last year, it drilled its deepest well going
down to 35,000 ft (over 10 km deep), while most of RIL’s proven reserves are within 1.5
km. BP began deep water exploration in 1994 in the Gulf of Mexico where it invested
about $20 billion. More than 35 per cent of its production is now in deep water or subsea.
Its track record in Angola offshore and Egypt is also credible and RIL feels the same
could be replicated in the KG Basin.
BP-RIL deal to help develop domestic gas
market: Sashi K Mukundan, BP,
country head
BP and Reliance, which joined hands for the exploration and production business in
India, plan to import LNG into India to develop the gas market in the country and would
also consider a partnership in shale gas in India. BP's vast LNG resources around the
world can be shipped in via existing terminals of Petronet LNG or Shell but BP would
also consider using a modern, floating LNG terminal, that gives it more flexibility. BP
group companies' country head Sashi K Mukundan has kept a low profile so far as BP
had only limited presence in India. But the deal with Reliance has changed that. In an
interview with Rajeev Jayaswal & Himangshu Watts, he spoke about his business plans.
Excerpts:

BP and RIL have announced the mega partnership in London on Monday. But you
need several approvals and no objection certificates (NoCs). When will the deal be
operational?

The first step is to get the government's approval. We are in the process of submitting
papers. As farming-out and farming-in are globally accepted practice in the E&P
(exploration and production) business and with several such examples in the country, it
would not be difficult. So far NoCs from RIL's partners are concerned, out of 23 blocks,
RIL has partners in only six blocks. Niko is partner in three and Hardy in three. Hardy
chief Yogesh Sharma was in London at the time of signing of the deal and the company
approved the transaction by signing a joint operating agreement. Niko sent its consent by
fax.

What is your view of the Indian gas market?

This deal will help in developing a domestic market for gas. We will be looking at
bringing in LNG to enhance the gas market. We are a large global LNG player with our
own facilities in Australia, Indonesia, Egypt, Trinidad & Tobago, Angola, Algeria and so
on. We can also source LNG from spot markets. We can use the LNG infrastructure of
the existing players.

Are you interested in picking stake in LNG terminals developed by other companies
or taking over them, like Dabhol LNG terminal?

Yes, if there is any opportunity. We are interested even to book any capacity, if available.

Does the current deal allow BP to join hands with RIL in shale gas venture?
Yes, we are one of the large global players in shale gas with acreage in Texas area with
reserves of 20 trillion cubic feet. India has some potential but a policy is yet to be
announced. This relationship allows us to do that. This is an exclusive relationship. Both
of us will look at it. We have not looked at this opportunity as yet. But shale gas requires
infrastructure, plenty of water and right kind of rocks.

BP deal with Reliance is another Bric in

the wall for oil firm
That's now a Bric full-house for BP – India was the only remaining gap in the oil group's
portfolio of assets in major developing economies. The $7.2bn deal with Reliance
Industries, rising to a possible $20bn when success payments and spending on
infrastructure are added, also looks more straightforward than last month's alliance with
Rosneft in Russia.

For a start, there are no fancy cross-shareholdings; BP is simply buying a 30% stake in 23
oil and gas blocks off the east coast of India. Unlike the Arctic expedition, which could
take a decade to produce any hydrocarbons, one of Reliance's fields already accounts for
40% of India's gas production. And the politics also appear simpler: the deal requires the
approval of the Indian government but at least there should be no distracting sideshows in
the form of court battles with aggrieved oligarchs.

After the disaster with the Macondo well in the Gulf of Mexico, it sounds bizarre to hear
BP hailed without qualification by a partner as "one of the finest deep-water exploration
companies in the world". But, if one can ignore Macondo (as Reliance's billionaire backer
Mukesh Ambani seems to be doing), the deal almost has a traditional feel: asset-rich but
inexperienced national operator seeks helping hand from international oil major with
greater technical capabilities.

A return to traditional ways may turn out to be seen as a great advance for Bob Dudley's
attempts to reinvent BP. After all, the new chief executive is taking a leaf out of BG
Group's much-praised book by going where demand for energy can be virtually
guaranteed to rise. India, say the forecasters, will have the greatest rise of any country in
demand for gas over the next two decades.

But these are early days for the Indian offshore gas industry and BP's returns on the
$20bn investment are tricky to estimate. Worries will remain that Dudley is overpaying
for growth and diversification. Besides, BP's suspension of drilling in Libya is a reminder
that a step forward in India could soon be followed by two steps backwards in north
Africa and the Middle East.
-------------------------------------------------------------------------------------------------------
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Going The Extra Mile

If Reliance revels in getting into the news, the company that would
prefer to stay out of the limelight is Chinese telecom giant
Huawei. A look at Huawei’s business plans and why India plays
such a crucial role

Reliance Industries doesn’t do things half heartedly. And it doesn’t believe in the “small
is beautiful” philosophy. True to form, on Monday, 21 February, Reliance announced the
signing of a mega deal with global oil giant BP. The deal would see BP taking a 30 per
cent stake in the 23 fields where Reliance has won licences to explore oil and gas. This
includes the D6 field in the Krishna-Godavari Basin, which is already producing 54.5
million standard cubic meters a day of gas. BP would initially pay $7.2 billion, and an
additional $1.8 billion after further discoveries. And there would also be a separate joint
venture for sourcing and marketing of gas. According to figures sent out by Reliance, the
separate deals with BP could amount to as much as $20 billion in value over the years.

In terms of “in-bound” deals — that is, where a global company is investing in India as
opposed to an Indian company investing abroad — this would rank among the biggest.
Senior assistant editor Nevin John analyses the deal and its contours on page 28. As is
usual with most Reliance deals, there are many questions unanswered, and
it will take some time for them to be clarified.

If Reliance revels in getting into the news, the company that would prefer to stay out of
the limelight is Chinese telecom giant Huawei. Publicity has always been something of a
mixed blessing for Huawei. It is looked upon with suspicion in many markets —
especially in the US — because it is seen to be too close to the Chinese government.
Even in India, there is a certain distrust it faces, especially from government agencies.
Last year, it found itself unable to bid properly for many of the big tenders, especially
those floated by PSU companies. On the other hand, some of the biggest private service
providers in the telecom space love Huawei and its equipment because of its lower costs.

Huawei has become the second- biggest global telecom equipment firm, just behind
Ericsson. It has surged ahead of such worthies as Nokia and Alcatel, in the global
telecom equipment market. Its goal is to become the No. 1 soon. And India is crucial to
that goal. Why is that so? Associate editor Snigdha Sengupta analyses Huawei’s business
plans and why India plays such a crucial role in our cover story this issue.
RIL-BP deal advantage for
oilmin
NEW DELHI: The oil ministry would leverage the $7-billion deal between Reliance
Industries and British energy major BP to have its say while securing Cabinet approval
for Vedanta Resources' $9.6-billion acquisition of Cairn Energy Plc's Indian arm.

The ministry is backing state-run ONGC on its demand for an equitable royalty regime in
the prolific Barmer fields, which account for 90% of Cairn India's valuation. Cairn and
Vedanta have disputed ONGC, which is a partner in Cairn India's fields, saying their
contract did not allow such a change.

The ministry's strong backing for ONGC had given rise to doubts that it could scare
foreign investors, especially in the oil sector. Top executives of Cairn Energy and
Vedanta too had publicly commented that "the world was watching" their deal and its
smooth passage was important to India's image as an investment destination.

That argument now appears to have fallen flat with the RIL-BP deal. "Investors will
come if there is a good opportunity... oil or gas to be found. Every contract has a role for
the government, the law of the land. Governments around the world treat oil and fields as
national property and companies factor that in," one investment banker said, requesting
neither he nor his agency be identified.

The RIL-BP deal, however, has cleared the air on the issue of the ministry vitiating
investment atmosphere. Ministry officials refused to be drawn into the issue due to the
sensitive nature of the Cairn-Vedanta deal. But off the record, they said the Cabinet
would be more receptive to the oil ministry's take on the Cairn-Vedanta deal.

"Do you think a company such as BP would invest here if the ministry is seen as unfair or
protectionist. We work under a robust and transparent legal and contractual framework,"
one official said.

BP's proposed investment for acquiring 30% interest in RIL's 23 acreages, including the
showcase Andhra offshore field, makes up the single-largest FDI. No wonder, petroleum
secretary S Sundareshan saw it as a move that would restore faith in India's prospectivity
and stoke better participation from other majors in the ongoing ninth round of acreage
auction.

Oil minister S Jaipal Reddy and his predecessor Murli Deora have maintained that the
government would play by the book on the Cairn-Vedanta deal but will also "address"
ONGC's concerns. Last week, Reddy promised he would take the matter to the Cabinet in
2-3 weeks.
Reliance, BP in $20bn oil-gas deal

Indian billionaire Mukesh Ambani, who heads Reliance Industries Ltd, on Monday
afternoon announced his company’s partnership with oil giant BP, which over time will
be worth over $20 billion.

“This by far is the single largest foreign direct investment in the history of India and to
my mind probably one of the single largest FDIs in any emerging market in a single
financial year,” Mr Ambani said at the BP office in central London on Monday afternoon
after announcing a historic partnership between the two companies along with BP
chairman Carl-Henric Svanberg and BP Group chief executive Robert Dudley.
The partnership, described by Mr Ambani as “transformational,” will see BP taking a 30
per cent stake in 23 oil and gas production sharing contracts that Reliance operates in
India, including the producing KG D6 block.
BP will pay Reliance $7.2 billion for its 30 per cent stake in the 23 production sharing
contracts. Future performance payments of up to $1.8 billion could be paid based on
exploration success that results in development of commercial discoveries. Future
investments of more than $11 billion would push the total BP investment in India to $20
billion, Mr Ambani said.
The two firms have signed a schedule of payments and RIL will get $7.2 billion as
between April this year and March 2012.
The second part of the partnership involves a 50:50 joint venture, for the sourcing and
marketing of gas in India. The partnership is subject to necessary regulatory approvals
from both the governments, Mr Ambani and Mr Dudley said, adding that they were
meeting Britain’s chancellor of the exchequer at Downing Street to sign the agreement in
his presence. “We expect to apply and get the approvals soon,” Mr Ambani said.
The 23 oil and gas blocks together cover approximately 270,000 sq. km. This will make
the partnership India’s largest private sector holder of exploration acreage.
The two firms have been in talks for the last five years on exploring partnership, Mr
Dudley said, adding that BP and Reliance have been working together since December
2008 on the D-17 deepwater block in the Krishna Godavari basin on the Indian east coast.
Energy consumption in India has grown by 190 per cent over the past 20 years and is
likely to grow by 115 per cent over the next 20 years, a rate of over four per cent per
annum. Gas is expected to be the fastest growing fossil fuel, with demand growing at a
rate of nearly five per cent a year between 2010 and 2030.
Both BP and RIL are keen to work together long-term and have “aspirational and
aggressive goals,” Mr Ambani said. The intention, Mr Dudley said, “is to have a long-
term multi-decade partnership.”
“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,” said Mr
Dudley. “BP looks forward to a long and successful working partnership with Reliance.”
BP, which earlier this month reported a $3.7 billion loss for 2010 due to the Deepwater
Horizon disaster, said it had enough cash reserves to make the payment of $7.2 billion to
RIL.

Analysts positive on RIL after

deal with BP
MUMBAI: Analysts tracking the oil & gas sector companies are positive on Reliance
Industries after the Indian petrochem and explorations major signed a $7.2-billion deal
with European giant BP.

Most of the leading broking houses have given a thumbs up to the RIL-BP deal, mainly
because this reduces the risks for RIL in its explorations & production (E&P) business.
For RIL, (the deal) de-risks its exploration portfolio and could accelerate the exploration
programme with the help of BP's deep water exploration expertise, a research note from
Deutsche Bank said. The broking house, however, has cut its target price for RIL by 4%
to Rs 1,150. Although most broking houses are positive on the basic contours of the RIL-
BP deal, at the same time, analysts are looking for two more things from RIL: A clearer
picture about tax implications of the deal on the Indian company, and how it plans to
deploy the cash it will get from BP.

"We believe that through this deal RIL primarily would get access to BP's deepwater
expertise, which it needs for tackling the technical issues in the sub-surface of D-6
block," said a research note by Goldman Sachs. "RIL has also partially de-risked its E&P
portfolio, in our view, as the cash from the deal could partly fund RIL's future exploration
capex," the note added.

A note from Credit Suisse, which maintained an outperform rating on RIL, said that the
company's tax obligations on money received are still unclear. "We will update our
numbers as the deal closes and as we get clarity on taxation," the note added. The
research note also said that RIL has not specified any use for its now approximately $15
billion cash. The drag on returns can make the imperative for inorganic growth stronger,
it added.

Despite the lack of clarity on these fronts, of about a dozen research reports accessed by
TOI, all but one have a target price of over Rs 1,000 for the stock with RBS being the
exception which has set a target price of Rs 996.

What the BP deal does for

Reliance
Mumbai: BP said on Monday that it would pay $7.2 billion to buy into India's fast
growing oil and natural gas business, the company's second big deal in two months.

BP will take a 30 percent stake in 23 oil and natural gas fields operated by Reliance
Industries, India's largest private company. The two companies said they would also
create a 50-50 joint venture to buy, transport and market natural gas, which is
increasingly in demand in India as the country's economy grows at nearly 9 percent a
year.

Last month, BP signed an agreement with Rosneft of Russia to drill in the Arctic. That
deal, worth $7.8 billion, was the first big investment by BP after its oil spill in the Gulf of
Mexico last year.

In recent years, India, which imports most of its oil, has opened vast swathes of its
territory to oil and natural gas development. Reliance, which is led by India's richest man,
Mukesh Ambani, has become India's largest producer of natural gas because of a rich
offshore field in the Bay of Bengal near the state of Andhra Pradesh.

The deal must be approved by Indian regulators, which could take time. Indian officials
have yet to approve a deal announced in August by the London-based Vedanta Resources
to buy a controlling stake in Cairn India, an oil producing subsidiary of Cairn Energy,
which is based in Edinburgh. Officials say they want better terms for Cairn's Indian
partner, the state-owned ONGC, as a condition of approval.

Robert Dudley, who was appointed BP's chief executive after the Gulf of Mexico spill,
visited India in October and met with Prime Minister Manmohan Singh, as well as other
officials. BP already has a joint venture with Reliance on one offshore field, and it has a
partnership to make solar panels with the Tata Group, a large Indian conglomerate.

"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," BP's chairman, Carl-Henric Svanberg, said in a statement.

Mr. Dudley has tried to put the Gulf of Mexico disaster behind BP by focusing the
company on increasing its business and regaining investor trust. While improving BP's
safety record remained a priority, he said that he also wanted to double BP's exploration
spending by investing in projects in developing economies.

For Reliance, the deal provides cash and, perhaps more important, oil and natural gas
expertise that it needs as it explores and produces in fields that cover 270,000 square
kilometers, or about 104,000 square miles. The output on Reliance's most productive
natural gas field in the Bay of Bengal has declined in recent months, which has worried
analysts and policy makers who are counting on the field to fuel power plants and
fertilizer factories.
In addition to its interests in Indian exploration, Reliance has been investing in shale gas
fields in the United States, including a joint venture with Atlas Energy to drill in the
Marcellus Shale.

Mr. Dudley had pledged to rebuild the company's reputation after the oil spill in the Gulf
of Mexico. In his first step as chief executive, he reorganized the company's critical
exploration and production business, removing the unit's chief, and set out to establish a
global safety division.

To help cover the estimated $40 billion in damage claims resulting from the spill, BP has
moved to sell about $30 billion in assets, including its share of Pan American Energy, an
oil producer in Argentina, to the Bridas Corporation for $7.1 billion.

BP said this month that its earnings rose 30 percent in the fourth quarter, to $5.6 billion,
from $4.3 billion the period a year earlier, helped by higher oil prices. The company lost
$3.7 billion last year, compared with a profit of $16.6 billion in 2009. BP also restored its
dividend in the fourth quarter.

How BP deal gives Reliance a push to

expand overseas
Santanu Choudhury, Dow Jones Newswires in New Delhi

Reliance Industries Ltd's $7.2 billion asset sale to BP PLC has given it the firepower to
expand more aggressively overseas, potentially pitching it into competition with Asian
rivals for big oil and gas deals.

Reliance, India's biggest company by market value, is looking abroad for growth after a
string of domestic initiatives disappointed -- and the BP deal will swell its cash reserves
to more than $14 billion.

It has built up a position in US shale gas over the past year, but lacks the global footprint
of peers like PetroChina Co.

The Reliance-BP deal will also likely attract more global companies in future auctions of
oil and gas blocks in India, and improve investors' confidence in the South Asian country,
hurt by a recent string of corruption scandals.

2) In yet another example of the growing business ties between the United Kingdom and
its erstwhile colony, BP on Monday said it would pay $7.2 billion for a 30% stake in 23
oil and gas blocks of Reliance, plus another $1.8 billion, linked to future exploration
success.
It includes the D6 block in the Krishna-Godavari basin, India's richest gas find so far,
located off the country's east coast.

The two companies will also establish an equal joint venture for the sourcing and
marketing of gas in India.

BP said future investments to develop the assets could bring its total payments to $20
billion, which would make the deal the largest foreign direct investment in India to date.

3) The transaction will swell the coffers of Mumbai-based Reliance, which had cash
reserves of $7.18 billion as of end-December.

This could force the company to hunt for bigger assets or deploy the cash in its other
business ventures of retailing, power and telecommunications.

Reliance is expected to generate cash flows of $11.3 billion in the current financial year
through March, which will receive a boost with the receipts from BP for the stake sale.

"We believe that Reliance would have to look at more avenues with significant cash
deployment to effectively utilize its likely large cash flow generation," Sanjeev Prasad,
Gundeep Singh and Tarun Lakhotia, analysts at Kotak Securities said in a note.

4) They said Reliance has historically used its cash flows to fund new projects but the
company's "new initiatives in India haven't been very successful and it is looking at
overseas acquisitions to drive future growth."

At the same time, payment of higher dividends by Reliance would help to enhance
shareholders' value, they said.

Reliance is not new to overseas acquisitions, having made three investments in shale gas
business in the United States last year.

In April 2010, the company formed a joint venture with US-based Atlas Energy Inc. and
bought a 40% interest in Atlas' Marcellus shale acreage for $339 million and an
additional $1.36 billion in capital costs.

5) Reliance will invest another $4.4 billion to fund its share of the development plan
over ten years.

In June, Reliance acquired a 45% interest in Pioneer Natural Resources Co.'s Eagle Ford
shale for $1.315 billion and an additional $4 billion investment in development over ten
years.

And in August, it made a smaller $392 million investment for a 60% stake in a shale gas
joint venture with Houston-based Carrizo Oil & Gas Inc.
6) Reliance's billionaire chairman Mukesh Ambani said Monday that bulk of the money
from the BP deal will strengthen the balance sheet of the Indian company but declined to
elaborate.

Sanjay Mookhim and Saurabh Mishra, Mumbai-based analysts at Credit Suisse said the
lack of clarity from Reliance on the end-use of its cash reserves and an expected "drag on
returns can make the imperative for inorganic growth stronger."

Separately, Atul Rastogi and Nirmal Raghavan, analysts at Daiwa Securities said the deal
will help Reliance further reduce its estimated net debt of about $8 billion as of end-
December and also provide cash for future capital expenditure.

7) At the same time, Reliance will gain from BP's technical muscle in deep-water
exploration, crucial for the Indian company as it tries to lift production from the D6 block
and gets more exploration success in its other oil and gas blocks.

The deal, which was announced after market hours in India on Monday, saw investors
cheer the Reliance stock on Tuesday with the shares rising as much as 5.4% in a weak
Mumbai market.

They were 4.3% higher at INR997.10 in afternoon trade on the Bombay Stock Exchange,
outperforming a 0.57% decline in the benchmark index.

Rakesh Sharma in New Delhi contributed to this article.

Need to derisk, quest for tech led to RIL-BP deal

The $9-billion deal he signed with BP on Monday, giving the latter 30% participating
interest in 23 oil and gas exploration blocks owned by Reliance Industries, was originally
conceived almost a year ago. By April last year, Reliance and BP had negotiated the
terms of the alliance — even the due diligence had been completed and valuations agreed
upon. Both parties were gearing up to ink the deal by the end of that month.

But ten days before the alliance was closed, BP’s deep-water rig in the Gulf of Mexico
burst open — the accident spewed out almost 5 million barrels of oil into the sea over the
next few weeks.

The world’s largest oil spill only delayed Ambani’s deal with BP, it couldn’t deny him.
Battling for survival, BP put the alliance with Reliance on the back-burner. It committed
to pay into a $20-billion fund to be set up for the spill victims. Ambani waited.

But by December last, even as BP was slowly recovering from the catastrophe, Mukesh
Ambani and his team of deal-makers picked up the threads all over again. “It was not an
easy job. It was almost like renegotiating a new deal,” says a Reliance official involved in
crafting the transaction. “Industry and energy market variables — these had to be kept in
mind while structuring the deal — had changed.” Oil prices had moved from $62-70 a
barrel to over $100, BP’s market-cap had at one time plunged from $185 billion to $85
billion, though it has since recovered to $150 billion. Reliance’s mcap too was down
37%.

But Ambani still wanted to see the deal through. And he did.

But why does Ambani need BP? Reliance Industries has $7 billion cash on its books and
is likely to generate a cash profit of $8 billion next financial year. It needs only $7 billion
for capex in FY12. Ambani didn’t do the deal for the money. He has built a world-class
refinery, engineered a telecom rollout, and set up country-wide retail operations —
everybody knows that he has the skills to pull-off any project.

So, why let BP bite into 30% of his exploration assets, including the trophy D-6 block?

There are broad three reasons for this.

First, with this deal, Mukesh Ambani has emerged out of the shadows of his legendary
father, showing the world that he is prepared to strike a path that is remarkably different
from the strategy Dhirubhai favoured. The Reliance group founder wanted Reliance to do
everything on its own — from petrol to polyester. He preferred to take over a company,
rather than find a partner. Ambani Junior is now shedding that mindset — he is keen on
collaborating with global majors for maximum benefit.

BP is the most recent example. There are others before it. In shale gas, Reliance was
content with a 40% stake (less than majority) in Atlas’ assets — a clear sign of things to
come. In the earlier dispensation, Reliance would have wanted it all or nothing. In the
retail business too, Reliance has tied-up with Marks and Spencer.
But Ambani is yet to perfect the art of partnerships. The earlier alliance with Chevron for
Reliance Petroleum’s new refinery, forged to take advantage of the US retail markets,
didn’t go as planned. Chevron eventually exited, selling its 5% equity in the company.

The first clue to Mukesh Ambani’s new thinking came in his AGM speech in November
2009 when he spoke of transformational changes in Reliance, including new partnerships.

Most partnerships in the earlier era at Reliance were merely token in nature. The
company tied up with Canadian Niko Resources and UK’s Hardy Oil to become eligible
for bidding in India’s exploration rounds. Reliance had no previous exploration
experience at that time. “These partners were mere goodluck charms,” says a Reliance
director.

Ambani’s senior board members and close associates, who have worked with the
company since the Dhirubhai days, say that the change in the business philosophy was
imminent as Reliance started looking globally.
That brings up the second reason why Ambani wants to partner with BP. He is keen on
de-risking Reliance by reducing its dependence on India and increase exposure to global
assets. Incidentally, BP is doing the opposite — increasing exposure in emerging
markets.

This is one area where other large Indian groups have raced ahead of Reliance. The Tata
and the AV Birla groups, for example, earn around 60% of their revenues from their
global operations; that number is around 20% for Reliance.

Reliance has already pumped in almost $10 billion in the oil exploration and production
business here and is today producing almost 40% of India’s total gas production. Rather
than invest more here, it has chosen to monetise a part of its India assets and may prefer
to invest it abroad. “It would not be surprising if Reliance reconsiders overseas
acquisitions, particularly in the petrochemical space,” HSBC says in a report released
hours after the BP deal was announced. RIL had recently made a pitch to acquire
LyondellBasell, the petrochemical biggie.

The partnership with BP will give Reliance an edge when it comes to negotiating asset
buys abroad. A senior Reliance board member says the deal with BP is about India, for
now. “This is not to say that the partnership will not pan out in other geographies,” he
adds. As the global energy sector enters a consolidation phase, Reliance’s partnership
with BP will give it an entry into the big league.

The third reason — Reliance needs BP technology to squeeze the most out of its
exploration assets. “Oil, they say, is found in the minds of the people,” says P M S
Prasad, executive director at Reliance. He has single-handedly spearheaded Reliance’s
E&P business. BP is expected to bring new ideas that would help Reliance make the best
of its exploration blocks. BP is a leader in reservoir engineering and sub-surface
operations, an expertise that will help Reliance optimise its performance in the existing
blocks.

The deal is structured to incentivise BP too. This is not a conventional equity transaction.
Instead, BP has a 30% participating interest. Effectively, this means that BP will get 30%
of every dollar earned from all the gas that comes out of the 23 blocks Reliance owns.
Reliance has not ramped up production from the KG basin as much as it wanted to (80
million standard cubic metres by 2010-end). The company has never acknowledged this,
but industry analysts say Reliance has encountered problems in its reservoir and is facing
some issues with its deep-water assets.

Reliance is also sitting on some rich hydrocarbon assets in the east coast, some of which
may even be bigger than D6. But the challenge going forward is about getting technology
as most of these blocks are in water depths of 2,500 metres and beyond.

This is where BP fits in. It brings technology that is not available off-the-shelf and
experience that Reliance needs at this point. It has done exploration at the deepest water
levels and has had the highest number of finds. Incidentally, state-run ONGC, too, was in
talks with BP for its deep-water blocks in the KG basin.

“For us, it was not about multiple partnerships across different blocks. We were
interested in a partnership for the entire business segment and BP provided just that,” an
RIL official close to the deal said.

A few days before Ambani signed the transaction at 11 Downing Street at the British
Chancellor’s office, he quietly took care of some essentials back home. He visited Shastri
Bhavan, the petroleum ministry headquarters in the capital last Thursday to meet the new
minister Jaipal Reddy. Many dismissed it as a courtesy visit. But Ambani kept political
bigwigs in the loop before announcing the BP deal, an omission by Bill Gammell of
Cairn who is still awaiting government nod for the proposed sale of Cairn’s India assets
to Vedanta. Ambani is unlikely to have any such problems. But then, that’s the way
Reliance runs its business.

RIL-BP deal: How are the valuations

looking?
British Petroleum is all set to take over 30% stake in 23 oil and gas blocks of Reliance
Industries Limited. The deal would fetch Reliance Industries an aggregate of USD 7.2
billion.

The petroleum majors have entered into a 50-50 joint venture for sourcing and marketing
of gas. The joint venture is also aimed to create infrastructure for gas transportation.

In an interview with CNBC-TV18’s Menaka Doshi, Sanjeev Prasad, ED and Co-Head,

Kotak Institutional Equities, speaks about the deal and gives his outlook going forward.

Here is a verbatim transcript of the exclusive interview with Sanjeev Prasad on CNBC-
TV18. Also watch the accompanying videos.

Q: What do you make of the valuation, specifically the USD 7.2 billion that BP will
be paying to acquire 30% participatory stake in 23 oil and gas production blocks of
Reliance Industries?

A: I don’t think it would be too different for what most of the analysts have assumed. If
you look at our own numbers for the five blocks, which we have valued separately for
Reliance, KG-D6, KG-D3, KG-D9 and NEC-25 and MN-D4, on 100% basis, we get a
value of USD 20.5 billion. The gross value for 23 blocks would come to about USD 24
billion based on the BP-Reliance transaction which was announced.
I think most of the street would be on similar number maybe about USD 25 billion. So
from valuation standpoint, I don’t think it should change number too much as far as the
analysts’ numbers are concern. But when I look the other aspects of deal, I see several
positives over there.

Q: If you are estimating a total value of about USD 20 billion for the five key blocks
and they are estimating total value of about 24 billion for 23 blocks, you are saying
that the rest of the blocks are worth only about USD 3-4 billion that does not
represent any substantial premium that BP has paid to Reliance to be able to enter
these blocks?

A: It is very hard to break this on block by block basis. As of now, D6 is the one which
will have a fair amount of value based on it is already a producing block. NEC-25, we
have some sense of the reserve numbers and now D3, D9 and MN-D4 are supposed to be
fairly prospective blocks. So, we have made some assessment of what could be the
recoverable reserves and given some value based on the DCF valuation.

The new blocks honestly we have no sense of what value BP is ascribing over there. But
broadly speaking, looking at the math we have versus what BP seems to have done, I
don’t think there are too far as far as numbers are concerned.

Q: But based on that math that you are referring to, it is difficult to ascertain what
kind of premium if at all they are paying because like you pointed out we don’t have
full numbers for what the new blocks maybe worth.

A: That’s right.

Q: Interestingly in the payments, there is also future performance payment of up to

USD 1.8 billion. If there is any exploration success in what I am guessing are the
unexplored blocks or not the five blocks that you spoke of. What do you make of
this one number? I understand that while BP will be contributing to the investment
in maybe probably making the discovery, just a contingent payment of up to USD
1.8 billion, is that good enough on the face of it?

A: I am a bit surprised on that number. I am not very sure what exactly does it mean,
whether there any milestones attached to it, whether it is linked to production numbers.
USD 1.8 billion, in overall context of Reliance’s marketcap doesn’t make that much of a
difference now.

Q: I am talking about several unexplored blocks in the list that you drew up. So, the
discoveries could be nothing or substantially large. So just USD 1.8 as a contingent
payment, just seems like an odd figure to be there, right?

A: I agree, neither from BP perspective nor from Reliance perspective is that much of
difference. But I assume Reliance is trying to capture some upside, if there is some
discovery in some of the other blocks where maybe they have not done that much of
exploration work compared to at least five-six major blocks where they may has fairly
good sense of what is the reserve numbers and what could be the value of that blocks.

Q: The last bit on valuation, they said that the combined investment could add up to
20 billion. So that’s roughly USD 11 billion of investments maybe made through the
50-50 joint venture between Reliance and BP which is been created for the sourcing
and marketing of gas in India. Again that’s a substantially large number when it
comes to creating gas infrastructure, isn’t it?

A: I would agree with that. I am not very sure what exactly they want to do on the
marketing side and related infrastructure.

Q: They are behind the curve in the infrastructure. If I remember correctly, the
pipelines they are setting up, there were delays, unless my information is out of date.

A: That’s right. First of all, you have to make sure that you have sufficient amount of gas
tomorrow move around the country. Till the time you have confirmed reserves, there is
no point in building all these pipelines. For example, the Kakinada-Chennai pipeline, the
Kakinada-Haldia pipeline, all these pipelines are contingent on the sufficient amount of
gas reserves discovery on eastern offshore block side.

Q: Reliance is saying, if I recall correctly in that video conference call, that the USD
7.2 billion should come in between April this year and March next. That means if
they get government approvals in time all of it could accrue in FY12. That’s a big
bump up for the stock in the one year, right?

A: Keeping in mind the fact that at the same time we will also see some value reductions
for the stake that they are giving away. So, assuming our valuation is right, you take 30%
of that been knocked off, that goes away and instead of that you get USD 7.8 billion of
cash. But to some extent the fact that cash comes in is a much more solid number than the
reduction, which xyz analysts may have. So, in that sense it’s a positive. It gives Reliance
fair amount of visibility in terms of what it wants to do with this cash.

Q: What do you think it wants to do with that cash?

A: Anyway the company is going to be generating large amount of cash over the next
several years. So, I assume they can look at some overseas acquisitions which they have
been looking at for sometime. I remember they failed as far as Basell is concerned. So,
maybe they could again look at some of the acquisitions on both petrochemicals and
refining side.Also, maybe pursue shale assets in US more aggressively or it could be
anything, it could be anything which has strategic fit as far as their E&P, chemicals and
refining businesses are concerned.
SWOT analysis of British Petroleum (BP)

Strengths

BP is ranked at the world’s 3rd largest energy company and is positioned as a

multinational oil company headquartered in London that:

• Operates petrochemical businesses worldwide through the network of its

subsidiaries and retail brands(Amoco; ARCO; BP Express, BP Connect; BP
Travel Centre; ampm; Burmah Castrol etc)
• Participates in London Stock Exchange, IPO in New York Stock Exchange. and is
listed in the FTSE 100 Index;
• BP Amoco strong brand loyalty for oil;
• Strong brand management driven by the ‘Beyond Petroleum’ slogan.
• BO Q3 net profit increase by 83% due to record oil and gas prices. The indicator
amounts to $53.43 per share compared to $21.27 during the same period in 2007.

Weaknesses

• Launch of controversial business with the Baku-Tbilisi-Ceyhan pipeline;

• Increase in petrol prices in the UK;
• Explosion of BP refinery in Texas that caused 100 injuries and 15 deaths in 2005;
• Criminal charges due to the spread of 270.000 gallons of crude oil in the Alaskan
tundra in 2006;
• Toxic spill of 2,000 gallons of methanol in the oil field (Prudhoe Bay) managed
by BP.
• Closing of Alaskan oil wells.

Opportunities

• 8 b. USD investment in the research of alternative fuel methods, including

hydrogen, natural gas, wind and solar over the forthcoming decade;
• Expansion of frontier areas suitable for BP’s future reserves (post-Soviet Union
territories);
• Extension of strategic oil and gas acquisitions in North Sea area;
• Launch of more flexible price policy to compete main rivals;

Threats

• Environmentally unsound policies due to oil and toxic spills;

• Occasional refinery explosions;
• Corrosion in pipelines;
• Competition from Shell and Chevron
• Ceasing operations in a number of potential locations with their further re-
branding (Conoco);
• Sale of corporate-owned stations;
• More than 5.000 shortages within coming months;
• $66,71 per barrel creates considerable tensions for running oil business;
• Further lawsuits considering the company’s ecological activities;