Ambani May Add Assets After BP Deal Doubles Reliance Cash

Reliance Industries Ltd., India’s biggest company by market value, may add overseas energy assets after doubling its cash to $14 billion through the sale of stakes in domestic oil blocks to BP Plc, investors said.

BP will pay the Mumbai-based energy explorer $7.2 billion for a 30 percent interest in 23 oil and gas areas in India, Reliance Chairman Mukesh Ambani said on a conference call yesterday. Reliance said Jan. 21 it had cash and equivalents of 318.3 billion rupees ($7.1 billion) as of Dec. 31.

Billionaire Ambani and BP Chief Executive Officer Robert Dudley sealed two years of talks with a deal that may increase in size to $20 billion with future performance payments and investment. Reliance committed $3.4 billion to U.S. shale gas projects last year and has said it may buy fields in the Gulf of Mexico and Brazil to hedge the risk of investing in India.

“Reliance will certainly acquire more assets now,” said Taina Erajuuri, who helps manage the equivalent of $1.2 billion of emerging-market stocks, including Reliance shares, at Helsinki-based FIM Asset Management Ltd. “All that cash will come into the balance sheet and give the company that much confidence.”
Shares Gain

Reliance gained 3 percent, the most since Dec. 10, to 984.85 rupees at the close in Mumbai. BP fell 1.1 percent at 10:21 a.m. in London, extending yesterday’s 0.3 percent decline. Reliance’s $1 billion in 4.5 percent bonds due in 2020 rose above 93 cents on the dollar today for the first time since Jan. 28, according to ING Groep NV. The yield fell to 5.427 percent from 5.48 percent, ING prices show.

The investment by BP will accelerate development and production from Reliance’s fields in India, Ambani, the country’s richest man, said yesterday. He didn’t say how the company plans to use the money from the stake sale.

Reliance may get an additional $1.8 billion from London- based BP if the two companies discover more oil or gas in some of the blocks covered by the agreement, according to yesterday’s statements.

The transaction includes a stake in India’s biggest natural gas deposit, the KG-D6 block in the Bay of Bengal, where reduced pressure at the reservoir has forced Reliance to cut production and delayed a plan to reach its peak output. A technical review of the field is under way, Ambani said.

“Reliance is cashing in on assets in India which have been partially explored and production is behind schedule,” said Walter Rossini, who manages $350 million of Indian assets, including Reliance shares, at Aletti Gestielle SGR SpA in Milan. “Maybe Reliance is de-risking its India business and will use the money it gets to buy fields in other parts of the world.”
Refining, Diversification

Declining gas production at the KG-D6 block resulted in Reliance shares rising 0.7 percent in the past year, trailing the 13 percent gain in the Bombay Stock Exchange’s benchmark Sensitive Index. Reliance has the highest weight in the 30-stock index.

Reliance, which operates the world’s largest oil-refining complex, is relying on profits from fuel production to boost earnings and is diversifying its business after delays in increasing gas production.

Crude oil in New York jumped to the highest in more than two years as violence intensified in Libya. Crude for April delivery rose as much as $8.77 to $98.48 a barrel in electronic trading on the New York Mercantile Exchange and was at $98.07 at 8:55 a.m. London time. Reliance is shielded from government controls on fuel prices in India because it exports gasoline and diesel.
Atlas Venture

The company agreed to form a $1.7 billion venture in April with Atlas Energy Inc. to develop gas fields in Pennsylvania. On Jan. 10, Reliance wrote to Atlas’s directors that it was surprised at not being apprised of the negotiations that led to Chevron Corp.’s $3.6 billion offer for the company. Atlas shareholders approved Chevron’s takeover bid Feb. 16.

In addition to acquiring U.S. shale-gas assets, Ambani plans investments in telecommunications and power generation. Reliance has said it wants to bid for 4,000 megawatt power projects the government plans to auction in India, each requiring investments of about 160 billion rupees.

Reliance plans to spend $30 billion on petrochemicals, oil and gas exploration and telecommunications in the five years ending March 2015, said Sandeep Randery, an analyst with Brics Securities Ltd. in Mumbai, citing estimates given by Reliance in an investor conference this month. As much as $4.7 billion may be spent on telecommunications, he said.