Part of what keeps the world of energy interesting is that new oil and gas discoveries are constantly being made. Most recently, London-based oil giant BP (NYSE: BP) and its joint venture partners announced what could be a major new gas discovery off the eastern coast of India. Let's take a closer look.
Reliance and BP's new gas discovery
Last month, Reliance Industries, India's largest publicly traded company by revenue and BP's joint venture partner, announced what it called a "significant" discovery in an offshore gas field it owns jointly with the British oil major.
Investors greeted the announcement enthusiastically, responding by sending Reliance shares sharply higher. The new find, dubbed D-55, marks a promising new chapter in the two companies' efforts to explore the "KG-D6" deepwater gas block located off India's eastern coast.
Since BP bought a 30% stake in the acreage for $7.2 billion back in 2011, major technical difficulties and regulatory hurdles had beset exploration in KG-D6. But new regulations enacted by India's government earlier this year cleared the path for Reliance and its joint-venture partners to move forward with exploring the promising new prospect.
Future development plans
Along with partners BP and Canada's Niko Resources, Reliance plans to spend more than $5 billion over the next three to five years to develop the KG-D6 block. The new discovery could help reverse the three-year decline in production from the block, which fell 39% to 336 billion cubic feet in the 12 months through March 31, because of reservoir complexity and natural production declines.
The new field, located some 15,000 feet below sea level, of which roughly 11,500 feet is underneath the sea floor, may also prove crucial in helping Reliance's oil and gas business reverse the trend of falling profits, which have declined in four of the past six quarters. Production from D-55, however, is unlikely to begin for at least another four years.
Potential impact on BP
Though the announcement had little impact on BP shares, it could offer an incremental boost to BP's gas output once production at D-55 commences in a few years. The company is currently focused on its upstream business, with plans to allocate as much as 75% to 80% of its capital expenditures toward oil and gas exploration and production projects over the next decade.
BP's four core areas of upstream interest will be Angola, Azerbaijan, the North Sea, and the U.S. Gulf of Mexico, where it has more than 40 "megaprojects" -- each requiring gross investment in excess of $10 billion -- planned through the next decade. Supported by its 10-point plan, the company is hopeful that its strategy of focusing on its upstream business should help it meet major performance milestones and return to material operating cash flow growth by 2014.
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