Reliance Industries has won a number of long-awaited permissions from India’s government relating to a major gasfield it co-owns with BP, raising hopes that the two companies may soon be able to stem falling production levels.
Billionaire Mukesh Ambani’s Mumbai-based conglomerate has been involved in a series of public disagreements over the future of the field, known as KG-D6, delaying capital expenditure and exploration decisions.
The decision on Tuesday, taken by a management committee that includes representatives from Reliance, BP and India’s government, gave permission to explore three new gas discoveries within the existing field.
The committee also approved budgets totalling about $1bn, relating to spending undertaken by Reliance on KG-D6 in recent years.
BP bought a 30 per cent stake in the field for $7.2bn in July 2011, although a mixture of declining production and bureaucratic difficulties have seen many analysts reduce their estimates of the value of their stake.
Rumours that the permissions were imminently to be granted prompted Reliance’s share price to rise more than 5 per cent on Tuesday, signalling hopes from investors that this could be the first in a series of further approvals.
The move could also signal a thaw in relations between Reliance and the government, as part of wider attempts in New Delhi to appease worried international investors, analysts said.
“To my mind there has been a shift,” said Arvind Mahajan, head of energy at KPMG India. “A slightly more sensible view seems to be prevailing in recent months, one which has realised that the government’s previous approach was having a negative impact on investment more generally. Stopping this investment was never in India’s interest.”
Tuesday’s move comes one day after Palaniappan Chidambaram, India’s newly appointed finance minister, cheered business leaders by promising to reduce barriers to international investment as part of a new push to restore his government’s battered reputation for economic competence.
Production from the field, located off India’s eastern coast in the Krishna Godavari basin, has fallen by nearly half since 2010, and now averages 31m standard cubic metres a day.
Estimates of the total reserves remaining in the field have also fallen sharply, with Niko Resources, a Canadian group that owns a 10 per cent stake, recently cutting its reserve estimate by nearly 80 per cent.
Wider concerns over possible investigations by government auditors have also seen investment decisions relating to the field stuck in bureaucratic limbo, often for years at a time, as worried officials avoided decisions that could be interpreted as unduly favouring Mr Ambani, India’s richest industrialist.
Tuesday’s decision clears one of the hurdles facing Reliance and BP as they develop a wider plan to increase production from KG-D6 and nearby “satellite” fields, due to be submitted to India’s government later this year.