Reliance Industries and BP to Invest USD 6 Billion in Three Projects

Reliance Industries Limited (RIL) and BP Plc. (BP) have announced that they are going to invest INR 40,000 crore or USD 6 billion in three projects over a three- to five-year period.

About the project

The project aims to develop discoveries in the deepwater gas fields in the Krishna-Godavari (KG) basin. The first project will be for the R-series (D34). This project is a dry gas development in water that is deeper than 2000 meters. It is around 70 kilometers off shore. The two companies will develop the fields as a subsea tieback to the present riser and control platform off block KG-D6.

It is expected that the project will produce 12 million cubic meters per day. Contracts for the development of the fields will be awarded soon.

The implementation of the other two projects in the KG-D6 block is subject to the necessary regulatory and government approvals. RIL and BP are planning to submit their plans to the government for approval before 2017 ends.

Mukesh Ambani, the Chairperson and Managing Director (MD) of RIL said that the companies have an arbitration pending with the government. He also said that they will follow the normal course of law. He is sure that this will not come in the way of their investment and will have a fair outcome.

All three projects together are expected to bring on-stream about 30 to 35 million cubic meters or one billion cubic feet of gas per day during the years between 2020 and 2022.

RIL and BP partnership

RIL and BP partnership began when BP acquired a 30 percent stake for USD 7.2 billion in 21 gas and oil production-sharing contracts controlled by RIL, in 2011. The companies are also working together to expand their partnership and develop unconventional mobility solutions to address the digitization, electrification, and disruptive mobility trends.

At present, RIL owns 60 percent stake and BP owns 30 percent stake; while Canada-based Niko Resources Limited owns the remaining 10 percent of the KG basin.

Impact on Indian fuel market

The production from this development is expected to reduce India’s import dependence on gas by over 10 percent in 2022. According to Mukesh Ambani, the demand for fuel in India is expected to grow by about five to seven percent every year over the next decade.

Effect of the projects on shares

Most experts feel that the above projects are better for long-term outcomes. According to AK Prabhakar, Head of Research at IDBI Capital, such projects take time to deliver a positive Return on Equity (RoE).

Ambareesh Baliga, an independent market analyst was of the opinion that while RIL’s shares will not shoot up as it has been doing during the market decline in the recent past, the shares of the company may touch INR 1,500 in the next one to two years.

On 15th June 2017, the shares of oil market companies slipped up to 5 percent due to the expectation of fierce competition.

Summary

Reliance Industries Limited (RIL) and BP Plc. will invest USD 6 billion in three projects for developing discoveries over a three- to five-year period.

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