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Shell may offer $6.7 b for 30% stake in RIL’s D-6 block
16 Apr, 2008, 0200 hrs IST,Piyush Pandey & Ashish Kumar Mishra, TNN
NEW DELHI/MUMBAI: Royal Dutch Shell is believed to be considering a bid to acquire up to 30% stake in Reliance Industries’ (RIL’s) discovered gas block in the Krishna-Godavari basin. Shell’s bid could be around $6.7 billion. This will value RIL’s D-6 block, with reserves of 14 trillion cubic feet (tcf) of gas, at over $22 billion. An RIL spokesperson strongly denied that any such development is in the offing, in response to an ET questionnaire. “We firmly deny that any such transaction is being planned. There is nothing of the kind in the pipeline,” the spokesperson said. Other valuations of the KG basin gas find have been much higher than $22 billion.
The time-frame for monetisation of RIL’s stake in the KG basin is not known, but may take at least one year. One factor to be considered is the ongoing litigation between RIL and ADAG over pricing of gas from the basin. Other global majors may also be interested. It is learnt that US majors like Exxon Mobile and Chevron and UK biggies like BP and BG Group have visited the company’s data room in New York. Total of France, ENI of Italy and Brazil’s Petrobras have also shown interest in the D-6 block, which is set to commence commercial operations in a couple of months. BG and Exxon officials declined to comment on any interest in the KG basin block.
Asked for comments, Shell’s official spokesperson in a text message said, “In line with our corporate strategy of “more upstream, profitable downstream”, we are always interested in good exploration and production options, but we do not comment upon speculation or rumour.” Shell is believed to have roped in BMR Advisors to advise it on legal and taxation issues. Goldman Sachs is reportedly advising RIL on finding a potential suitor.
But the RIL spokesperson said Goldman Sachs has not been hired for any particular transaction involving the KG basin assets. “We have been working with 2-3 big investment banks across all our businesses, including refining and exploration and production (E&P). We are looking at various alternatives to create additional shareholder value. However, at this stage, there is no specific transaction in sight.”
The stake sale, if it happens, may take place after the block is hived off into a special purpose vehicle. RIL is learnt to be keen on selling a stake to an international firm in lieu of deepwater technology. However, an analyst working with an international brokerage said this is unlikely. “It will not only be technology. RIL has managed to develop its block without selling a stake. It would be unlikely the company would do so now when the block is close to production. RIL may be getting something else also, may be stakes in foreign firms’ projects overseas.”
Speculation on a possible stake sale was sparked off when Shell’s head of exploration and production, Malcolm Brinded, last week said it was in talks with RIL about taking a stake in the D6 block in the KG basin, off India’s east coast. “They (Reliance) have 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,” Mr Brinded had said on the sidelines of an international oil summit in Paris.
RIL now holds 90% participating interest in the block while Canadian company Niko Resources has the remaining 10%. The two companies won the block in the first round of the government’s New Exploration and Licensing Policy in 2000. RIL is expected to pump gas from the D-6 block in the next couple of months. It is learnt that Shell has valued the block factoring in the government’s recent announcement during the budget to withdraw the tax holiday of seven years from exploration firms. RIL shares rose 2.3% to Rs 2,608.8 on Tuesday.