Reliance-BP deal not on same footing as Cairn-Vedanta deal

Posted By: Pti
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New Delhi, Feb 21 (PTI) UK energy giant BP Plc buying 30per cent interest in Reliance Industries'' 23 blocks includingthe crown jewel KG-D6 will need government approval toconsummate the deal but the transaction is not on the samefooting as the Vedanta Resources buying out Cairn India.

BP is buying 30 per cent stake in its 23 out of 29exploration 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 customaryconditions," is nothing but 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 welllaid down framework for government approval. We will apply andget approval," he told reporters in London.

Farm-out of interest under New Exploration LicensingPolicy (NELP), the regime under which Reliance won the 23blocks, is allowed and company farming out (or in simple termsselling out) interest is required to make an application tothe regulator Directorate General of Hydrocarbons (DGH).

Oil Secretary S Sundareshan today said Reliance''s farm-out of stake in the NELP blocks will need government approval.

However the nature of the approval will be different fromVedanta Resources'' USD 9.6 billion acquisition of Cairn Indiaas the deal announced today is not transfer of control.

In Cairn-Vedanta deal, Cairn Energy Plc of UK istransferring control of its Indian unit to the London-listedmining group, which has no prior experience in oil and gas.

The BP-Reliance deal is similar to what Cairn India haddone way back in 2004 with ONGC when it farmed-out 90 per centof its interest and operatorship in gas discovery block ofKG-DWN-98/2 which sits next to Reliance''s prolific KG-D6fields off the Andhra coast.

Cairn-ONGC applied and DGH and oil ministry approved it.

Unlike the 2004 deal, Reliance is not transferringcontrol or operatorship of the blocks to BP. Reliance said itwill retain operatorship of all the 23 blocks including theKG-D6.

Also, the major difference lies in the fact that Cairnhas itself claimed that its deal with Vedanta is a corporatetransaction and not a transfer of stake in the blocks.

The corporate transaction, it stated, did not require thepermission of government but reluctantly agreed to it.

It made conditional application for approval on November23, more than three months after the deal with Vedanta wasannounced. The application did not recognise the rights ofpartner ONGC.

With ONGC asserting its rights as well as seekingresolution to the royalty it pays on behalf of Cairn India,Oil Minister S Jaipal Reddy is referring the deal to theCabinet for approval.

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