BP, the oil giant that was deeply wounded by the devastating Gulf of Mexico oil spill, has followed up on its recently announced foray into Russia's Arctic region by unveiling a $7.2bn deal to explore for deepwater oil and gas with India's Reliance Industries.
The deal, among the biggest foreign direct investments into India, will see BP pay Reliance $7.2bn, plus performance-related payments of up to $1.8bn, for a minority stake in 23 oil and gas blocks in India.
It will also lead to the creation of a new 50:50 joint venture between the two companies for the sourcing and marketing of gas in India.
The performance-related payments, which will be linked to the development of commercial discoveries, and the combined investment "could amount to $20bn", BP said.
The oil and gas blocks lie in water depths ranging from 400 to more than 3,000 metres and currently produce about 1.8 billion cubic feet of gas per day, accounting for more than 30 per cent of India's total consumption and more than 40 per cent of total production.
The key production asset is Reliance's KG-D6 block in the resource-rich Krishna-Godavari basin, off the country's eastern coast.
"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 Carl-Henric Svanberg, BP's chairman.
The agreement comes just over a month after BP agreed a share swap with Russia's state-controlled Rosneft under which the two will explore for oil and gas in the Arctic shelf. The deal, which led one US lawmaker to suggest that BP had gone from being British Petroleum to "Bolshoi Petroleum", was the first major transaction since the Deepwater Horizon disaster in the Gulf of Mexico led to the departure of Tony Hayward as chief executive.
Yesterday, Bob Dudley, the man who replaced Mr Hayward and led BP through the Rosneft deal, said the Reliance Industries pact would give the group access to the "most prolific gas basin in India and secure a place in the fast-growing Indian gas markets".
"BP looks forward to a long and successful working partnership with Reliance," he said.
The two companies are well acquainted, with BP having worked with Reliance on the D-17 deepwater block in the Krishna-Godavari basin since December 2008.
The tie-up will need the approval of Indian authorities, who are yet to approve Cairn Energy's plans to sell a controlling stake in oilfields in the western state of Rajasthan to the London-listed mining group Vedanta Resources. Unlike the Cairn deal, however, the BP-Reliance pact does not constitute a change of control.
Oswald Clint, an analyst at Sanford Bernstein, said the deal was similar to the Russian agreement in that "it's getting access to longer term positions, which could be material". "But we've got a key risk here," he explained. "The gas price is regulated, it's not rising as quickly as people expected."
Sandip Sabharwal, at the financial services group Prabhudas Lilladher in Mumbai, India, said the deal could be "the first of many more to follow" in the country's oil and gas sector.
"It is a big positive in terms of getting foreign direct investment into India," he said.