The Centre on Friday cleared BP Plc's proposal to acquire 30 per cent stake in Reliance Industries Ltd (RIL)'s gas and oil blocks for $7.2 billion. “The Cabinet Committee on Economic Affairs (CCEA) approved the proposal to grant consent for transfer of 30 per cent participating interest of RIL to BP Exploration (Alpha) Ltd. (a unit of the U.K.-based oil major),” Petroleum and Natural Gas Minister S. Jaipal Reddy told journalists here.

While stake sale in KG-D6 gas and discovery area NEC-25 was approved, nod for inconsequential two blocks — one a deep sea area off the Orissa coast and other an on-land block in Assam — would be given by the ministry after technical issues like exploration status were sorted out, Mr. Reddy said. It took the government over five months to clear the proposal.

“RIL wanted to transfer interest in 23 blocks…but our ministry recommended only 21 blocks. For technical reasons, we did not recommend two other blocks,” Mr. Reddy said. The U.K.-based oil firm will have to furnish a bank guarantee and performance guarantee as per the production sharing contract.

In a statement, BP Group Chief Executive Bob Dudley said: “We welcome the Indian Government's approval for our alliance with Reliance Industries, partnering India in its quest for energy security. This transaction is part of BP's strategy of creating long-term value through alliances with strong national partners, taking material positions in significant hydrocarbon basins and increasing our exposure to growing energy markets. We will now work to complete the commercial agreements for the deal in the next few weeks.” The deal will give Reliance access to BP's expertise in deep-water drilling and accelerate development and production at its fields, particularly the under-performing eastern offshore KG-D6, while BP will gain entry into the oil market where energy demand is growing at 5-8 per cent. The deal size is likely to increase to $20 billion from $7.2 billion currently with future performance payments and investment.

Reliance is the operator in all the 23 blocks while Canadian Niko Resources and U.K.'s Hardy Oil have minority 10 per cent interest in a few. After the deal, Reliance's holding in the blocks will come down to 60-70 per cent.