Reliance may divest 10% of KG Basin block

Looking at the level of complex operational expertise needed for deep water drilling at the KG basin D6 block, Reliance Industries may get into a strategic partnership with a foreign company. The company might bring in a foreign partner for deepwater exploration in the D-6 block Industry sources said that RIL might make this long-term strategic move and is expected to be talking to several players for divesting up to 10 per cent stake in the block. The partners could be among the global energy giants like ExxonMobil, Shell, BP, Total and Petrobras, as these are the companies with required expertise, sources said. The talks are on with most of the big global energy exploration and production players, they added. RIL was recently in talks with global investment banking giant Goldman Sachs which is one of the key consultants for the deal. RIL is also sharing data with the prospective partners to reach a valuation for the deal.

In Paris, Royal Dutch Shell Plc said it was in talks with Reliance about taking a stake in that company’s D6 block in the Krishna Godavari basin. “They’ve been remarkably successful in the development of the block so far and I think the growth of the Indian gas market is obviously going to be important for the future,” Malcolm Brinded, SHELL’S head of exploration and production, told Reuters. When contacted, an RIL spokesperson, however, declined to comment on the matter. Currently, RIL holds 90 per cent stake in this block, while another 10 per cent is with Nikko Resources. Sources said the level of divestment has not been finalised as yet, but it could be for up to 10 per cent, adding that the valuation figure was yet to be arrived for the deal. Reliance and its 10 per cent Canadian partner Niko Resources in the country’s first round of international bidding of oil and gas blocks in 1999.

RIL is believed to have reached up to 1,500-2,000 meters of drilling so far and there is scope for 7,000 to 8,000 meters, for which it would need some foreign partners with expertise in this area. RIL is to begin gas production from KG-D6 later this year. “As per the estimates submitted by the operator (RIL), the development plan for MA discovery is expected to increase the government revenues from the earlier approved development plan for KG-D6 by about $1.6 billion from the revenue generated after recovery of contract costs,” the government had informed Parliament last month.

However, these revenues are dependent upon variation in the projected parameters such as quantum of production, capital costs, operating costs and prevailing oil and gas prices.