Mukesh Ambani led Reliance Industries Limited (RIL) has signed an agreement with oil major British Petroleum (BP) for 30 per cent stake in Reliance Industries' 23 oil and gas blocks including the KG-D6 gas fields. The deal is valued at $7.2 billion and is one of the biggest foreign direct investments (FDI) in the country.

The two companies will also form a 50:50 joint venture for sourcing and marketing of gas in India.

"BP will pay Reliance Industries Limited an aggregate consideration of US$7.2 billion, and completion adjustments, for the interests to be acquired in the 23 production sharing contracts. Future performance payments of up to US$1.8 billion could be paid based on exploration success that results in development of commercial discoveries. These payments and combined investment could amount to US$20 billion," RIL said in a statement.

While RIL will get $7.2 billion from BP for 30 per cent stake in its oil and gas blocks, "another $1.8 billion is contingent on finding more hydrocarbon resources. The balance $11 billion is an estimate for the investments over the next many years in building the joint venture," Mukesh Ambani said from London.

"We needed one major global energy partner. In Reliance's assessment BP is the best finder of deep water hydrocarbons in the world," Ambani added on the association with BP.

The 23 oil and gas blocks together cover approximately 270,000 square kilometres. This will make the partnership India's largest private sector holder of exploration acreage.

The deal is "subject to necessary government approvals. All blocks are under NELP and we expect to apply for government approval and expect to get them soon. We expect to close the deal in the April-March 2012 fiscal", Ambani added.

The deal is seen as a positive for Reliance. Ambareesh Baliga of Karvy Stock Broking said the rumour (about the deal) was in the market since the morning. This will play up tomorrow as it is extremely positive news. RIL has been an underperformer for the last 2 years. RIL rose 2.22 per cent on the NSE today though the deal was announced after market hours.

Commenting on the deal former chairman of ONGC RS Sharma said, “This is positive news for the entire E&P (exploration and production) sector for India. The deal covers the entire value chain - upstream and downstream." Referring to the Cairn-Vedanta deal that has failed to take off, Sharma said "the sentiments have been negatively impacted because of one deal...this deal shows confidence in the Indian oil sector."

"This partnership meets BP's strategy of forming alliances with strong national partners, taking material positions in significant hydrocarbon basins and increasing our exposure to growing energy markets," said Mr. Carl-Henric Svanberg, Chairman of BP.