Monday, February 21, 2011

BP - RIL marriage, a new dawn in Indian Oil and Gas Industry?

American Senator John Kerry once said "No young American should be held hostage to America's dependence on oil". The same case is applicable for us also. One of the most important item in our import basket is oil. Its not only running the vehicles, but also a key factor in many political decisions across the world.

There is no doubt that our dependence on oil will continue for many more decades to come. Ralph Nader once said "The use of solar energy has not been opened up because the oil industry does not own the sun." Well, this may seems to be an over stretched statement, but the fact is that,if governments are ready to promote alternate energy, in the way US promoted the research for Atom Bomb or the legendary space race against Russia, we may already have more than one answer for 'Successful' alternative energy sources.

This situation makes RIL-BP deal more important. There is no doubt that this deal will boost the confidence of investors in Indian industry. But the attractive factor in this deal is not limited to the investment of $7.2bn or performance payments in the tune of $1.8bn, but technology. According to the deal, BP will take a 30% interest stake in 23 oil and gas blocks and form a joint venture with RIL for sourcing and marketing of gas.

Mukesh Ambani and BP CEO Bob Dudley 
Ninth round of NELP (New Exploration Licensing Policy) offered 34 bocks for exploration; out of which 7 are in deep sea and 2 in shallow waters. In the recycled blocks one is in deep water and five are in shallow waters. Oil excavation is a highly costly business and the chances of striking a commercially exploitable oil reserves are not so high in unproven terrains. In the case of deep water and ultra deep water drilling, even the usage of the best technology and decades of experience may not be enough. Only companies with a deep war chest can go for deep water drilling even with a limited confidence.

In such a situation a deal with BP will be helpful for both RIL and India. BP have the technological know-how and the experience of deep water drilling along with a war chest for exploration. But how much time it will take the government to approve the deal? Please don't put this in rad tapes, at least this time.


Photo Courtesy : British Petroleum

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