BP wrote off USD 770 million from its investment in the eastern offshore KG-D6 block of Reliance Industries, citing "uncertainty" over benefits flowing from the government's gas pricing policy.
     
The government earlier this month approved a new pricing formula that would provide a gas tariff of USD 5.61 per million British thermal unit from November 1 as against USD 4.2 currently. This hike was lower than USD 8.4 approved by the previous UPA government.
     
"This increases the gas price applicable for existing production and is a positive first step towards creating the more competitive economic landscape required to encourage the development of India’s gas resources," BP Chief Financial Officer Brian Gilvary said at an investor call after third quarter earnings.
     
In the earnings statement on Tuesday, BP wrote off USD 770 million saying "the charge arises as a result of uncertainty in the future long-term gas price outlook, following the introduction of a new formula for Indian gas prices, although we do see the commencement of a transition to market-based pricing as a step in the right direction."

In the investor call, Gilvary said the government announced a new domestic gas price formula as part of a package of oil and gas sector reforms.
     
"We expect further clarity on the new pricing policy and the premiums for future developments to emerge in due course," he said.
     
BP in 2011 bought 30 percent interest in RIL's eastern offshore KG-D6 as well as 20 other oil and gas exploration blocks for USD 7.2 billion. Bulk of this was for the producing block of KG-D6 and gas discovery area of NEC-25.
     
A BP India spokesperson had on October 28 stated that , "the gas price decision increases the gas price applicable for existing production and is a first step towards creating the more competitive economic landscape required to encourage the development of India's gas resources."
     
"The timing of this gas price decision just prior to our Q3 stock exchange announcement and the requirement to understand the long term price-outlook to support future developments has led to the write down. This is in compliance with standard accounting policies and Securities Exchange requirements," the spokesperson said.
     
Both BP and RIL have been advocating market-linked gas pricing and had initiated an arbitration against the government for not revising rates from the due date of April 1, 2014.
     
The USD 4.2 per mmBtu rate, fixed in 2007, was for the first five years of production from KG-D6 fields. KG-D6 fields started gas output from April 1, 2009.

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