UK energy giant BP Plc picking up a 30% stake in Reliance Industries' 23 blocks, including the crown jewel KG-D6, will need government approval to consummate the deal, but the transaction is not on the same footing as Vedanta Resources buying out Cairn India.
BP is buying a 30 % stake in 23 out of 29 exploration blocks held by Reliance, for USD 7.2 billion. The transaction, which BP and Reliance said will be "subject to Indian regulatory approvals and other customary conditions," is nothing but a farm out of interest.
Reliance Chairman Mukesh Ambani said the deal is "of course subject to necessary government approval". "All blocks (in the deal) are under NELP which has a well laid down framework for government approval. We will apply and get approval," he told reporters in London.
Farm out of interest, under the New Exploration Licensing Policy (NELP), the regime under which Reliance won the 23 blocks, is allowed and the company farming out (or in simple terms selling out) interest is required to make an application to the regulator, Directorate General of Hydrocarbons (DGH).
Oil secretary S Sundareshan on Monday said Reliance's farm out of stake in the NELP blocks will need government approval.
However, the nature of the approval will be different from Vedanta Resources' USD 9.6 billion acquisition of Cairn India as the current deal is not a transfer of control.
In the Cairn-Vedanta deal, Cairn Energy Plc of UK is transferring control of its Indian unit to the London listed mining group, which has no prior experience in oil and gas. The BP-Reliance deal is similar to what Cairn India had done way back in 2004 with ONGC when it farmed out 90% of its interest and operatorship in gas discovery block KG-DWN-98/2, which sits next to Reliance's prolific KG-D6 fields, off the Andhra coast.
Unlike the 2004 deal, Reliance is not transferring control or operatorship of the blocks to BP. Reliance said it will retain operatorship of all the 23 blocks including the KG-D6. Also, the major difference lies in the fact that Cairn has itself claimed that its deal with Vedanta is a corporate transaction and not a transfer of stake in the blocks.
The corporate transaction, it stated, did not require the permission of government but reluctantly agreed to it. It made conditional application for approval on November 23, more than three months after the deal with Vedanta was announced.
The application did not recognise the rights of partner ONGC. With ONGC asserting its rights, as well as, seeking resolution to the royalty it pays on behalf of Cairn India, Oil minister S Jaipal Reddy is referring the deal to the Cabinet for approval.