RIL's talks with BG & Exxon

RELIANCE'S reported talks with Exxon-Mobil and British Gas for partnering in the KG Basin are understood to have hit a rough patch with the global oil majors questioning the valuation of RIL's offshore assets. This is because Reliance has already committed substantial quantities of gas to NTPC at very low prices over the long term. It has also committed supplies to Anil Ambani's proposed power plants on similar terms.
Investment bankers say, "RIL has locked up a significant proportion of its gas at less than $3 per mmbtu at a time when prices are well above $10 per mmbtu. This brings down the value of the asset." This probably explains RIL's reluctance to sign the gas supply agreement with NTPC under existing terms. RIL is estimated to have established gas reserves of around 12 TCF in the KG Basin.
Sources in investment banking circles say the major point of difference is the actual valuation of assets. They say, "RIL's proposed gas supply contracts with NTPC and Anil Ambani's power plants have impacted the valuation of the assets. RIL is committed to supplying almost 40 mmscmd of gas at such low prices over a long period. This would impact the returns on investment."
Other issues such as operatorship of the block and marketing of gas have also cropped up. Industry sources confirm that the deal was "unable to make the expected progress" as Reliance and its potential partners were unable to reach a consensus. Although "informal presentations" have been made by these companies expressing interest in picking up a stake, there are huge differences on what should be the actual price of this asset.
This, sources say, has resulted in RIL's reluctance to sign the gas supply agreement with NTPC on current terms. They also say it now makes sense for RIL to walk out of the NTPC deal by paying a penalty as this could help the company seek a revaluation of its assets. What's more, RIL has to commit supplies to Anil Ambani's power plants on the same terms as with NTPC. Scuttling the deal with the state-owned power giant would also free Reliance to negotiate fresh terms with Anil Ambani. When contacted a Reliance spokesman said, "No comments."
The NTPC deal apart, the foreign oil majors have also been reportedly insisting on joint operatorship of the KG basin fields. RIL may not be agreeable to this. The operatorship issue often becomes sticky as most foreign oil companies want to have a say in managing oil assets in which they partner. British Petroleum, for instance, was keen to take up equity in ONGC's blocks only if it was given their operatorship. "Operatorship of the assets is important as it gives them a say over the development of the block. Decisions on whether to frontload drilling activities linked to price expectations could determine the returns to investments," sources in the know said.