New Delhi: Reliance Industries on Tuesday said it has received government approval for selling 30 percent stake in 21 out of a proposed 23 oil and gas blocks to UK's BP Plc for USD 7.2 billion.

The Cabinet Committee on Economic Affairs (CCEA) had on July 22 cleared the sale of stake by RIL to BP in 21 blocks, including the showpiece eastern offshore KG-D6 gas producing area and discovery area NEC-25. However, it held back the same for two inconsequential blocks -- one a deep sea area off the Orissa coast and the other an on land block in Assam – over technical issues.

"RIL has received the government of India's approval for its transformational deal with BP," the company said in a press statement. "RIL is grateful to the government of India for the approval, which will result in the largest foreign investment in the domestic hydrocarbon sector."

BP will have to furnish a bank guarantee and performance guarantee, as per the Production Sharing Contract.

The deal, which might increase in value to USD 20 billion on the basis of future performance payments and investment, will give Reliance access to BP's expertise in deepwater drilling and accelerate development and production from its fields, particularly the under-performing KG-D6 block in the eastern offshore.

For BP, which has been struggling to recover from the disastrous Gulf of Mexico oil spill disaster last year, the transaction is a chance to enter a market where energy demand is growing at 5-8 percent.

"BP will take a 30 percent stake in 21 oil and gas Production Sharing Contracts (PSCs) that RIL operates in India, including the producing KG-D6 block. Following the approval, RIL and BP will work together to conclude the deal expeditiously," the statement added.

RIL, India's most valuable company, had on February 21 agreed to sell a 30 percent stake in 23 out of its 29 oil and gas blocks to London-based BP Plc for USD 7.2 billion and may get an additional USD 1.8 billion if the two explorers find more hydrocarbons.

The Dhirubhai-1 and 3 gas fields in the KG-D6 block have seen output fall to 38.4 million cubic metres per day from 53 mmscmd in March last year. Reliance has been forced to restrict oil production from the MA field, in the same area, to 14,500 barrels per day due to high water and gas cut.

Approval for the sale of 30 percent interest in deepwater block NEC-DWN-2002/1 in the Bay of Bengal and Assam onland block AS-ONN-2000/1 would be decided later as oil regulator DGH and RIL were in disagreement over the status of exploration in the two acreages, sources said.

RIL had on February 25 applied for the government nod for the stake sale. The New Exploration Licencing Policy allowed for the sale or assignment of participating interest (farm-out), which is routinely approved by the Oil Ministry.

But the ministry, even though competent to approve the deal, decided to refer it to the CCEA.

Besides addressing the reservoir issues in KG-D6, BP is expected to help RIL quickly put into production nine satellite gas discoveries, for which the Mukesh Ambani firm has been struggling to piece together a viable development plan.

Europe's second biggest oil firm will pay USD 7.2 billion to RIL in three tranches during FY'12.

RIL is the operator in all 23 blocks, while Canadian firm Niko Resources and UK's Hardy Oil have minority 10 percent interest in a few. After the deal, RIL's holding in the blocks will come down to 60-70 percent. 19 out of the 23 blocks lie off the East Coast, while two blocks are in Assam and Gujarat.

Niko has 10 percent interest in the KG-D6 block and after the BP deal, RIL's stake would fall to 60 percent.

In the KG-D6 block, RIL has so far made 19 oil and gas discoveries, of which it has put two gas, Dhirubhai-1 and 3, and one oil find, MA, into production.

It had in 2008 submitted a development plan for nine satellite gas discoveries around Dhirubhai-1 and 3. In 2009, it withdrew this and submitted an optimised development plan for prioritising four satellite gas finds to oil regulator DGH.

An integrated development plan for all the gas discoveries in the KG-D6 block is being conceptualised to maximise capital efficiency and accelerate monetisation.

Industry observers have said the BP deal is a clear breakthrough for Mukesh Ambani, 53, in terms of getting access to BP's expertise as well as de-risking its exploration and production (E&P) portfolio.

RIL and BP will also form a 50:50 joint venture for the sourcing and marketing of gas in India. The JV will also work toward creation of infrastructure for receiving, transporting and marketing of natural gas in India, which could be in the form of an LNG terminal.

RIL has been awarded a total of 43 blocks till date from the pre-NELP and eight NELP rounds. 14 of these blocks have been relinquished. Out of the 29 blocks remaining, there have been discoveries in nine blocks.

RIL also has 30 percent interest in the producing pre-NELP blocks Panna/Mukta and Tapti. It also has 5 CBM blocks in India, including two with gas resources of 3.5 tcf. RIL recently also formed three US shale gas joint ventures.

BP will not take interest in any of these E&P assets of Reliance.