Did BP Pay Reliance Industries a Bit Too Much?

We are a bit surprised to see BP pay so much for exploration rights as a minority partner in offshore Indian gas blocks, although the move could turn out to be quite savvy

Jason Stevens 23 February, 2011 | 10:04AM
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Over the weekend, BP (BP.) announced a deal to pay as much as $9 billion for a 30% stake in Reliance Industries' oil and gas assets. Initially, BP will pay the Indian firm $7.2 billion for interests in 23 oil and gas blocks, mostly offshore. BP will pay up to an additional $1.8 billion depending on exploration success. The two companies will create a joint venture to market natural gas.

This is the second large deal we've seen BP pursue since the Deepwater Horizon incident, intended to demonstrate that BP can continue to grow despite significant asset sales. We are a bit surprised to see BP pay so much for exploration rights as a minority partner in offshore Indian gas blocks, but also think the move could turn out to be quite savvy. India's energy demand is growing at a very rapid rate, and the country lacks significant domestic oil and gas production. If BP and Reliance find success in their exploration efforts, there's a very large local market for hydrocarbons. The deal gives Reliance access to BP's technology and expertise in deep-water exploration and production, plus a large cash infusion.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BP PLC391.45 GBX0.73Rating

About Author

Jason Stevens  Jason Stevens is an associate director of equity research at Morningstar.

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