Government approves $1.6 billion BPCL investment in Brazil

There seems to be a subtle shift happening in the BPCL story. Till about a couple of months back, the government went all out to exit its 52.98% stake in BPCL. However, with the plan not working out, it has decided to make fresh investments in the company to enhance its valuations. On these lines, the Union Cabinet has approved an investment of $1.6 billion by Bharat Petroleum Corporation Ltd (BPCL) in a Brazilian oil block. The oil block will  be jointly owned and operated by BPCL and Petrobras of Brazil, their largest oil company.

The additional resources were approved for Bharat Petro Resources Ltd (BPRL), which happens to be a wholly-owned subsidiary of BPCL. The investment outlay is for the development of the BM-SEAL-11 Concession Project in Brazil, where the block is expected to start production from 2026-27. There have been multiple oil discoveries in the block and these blocks are being developed now. It is likely to be value accretive for BPCL in the medium to long run in terms of stock market valuations.

It may be recollected that originally, BPCL had entered into a partnership with Videocon for taking the stake in the block in 2008. At that the ownership was split 60% for Petrobras and 40% for the joint venture between BPCL and Videocon. Subsequently, Videocon became bankrupt and was referred to the NCLT. Hence, BPCL also took over the stake owned by Videocon and ended up with 40% ownership of the joint venture with Petrobras. BPCL owns this stake in the Brazilian block through its subsidiary, BPRL.

The Cabinet Committed on Economic Affairs (CCEA) is headed by the Prime Minister and is the final approving authority for most of these large and significant projects. According to the government sources, with the approval of CCEA coming in, it is likely to strengthen India's energy security and also help diversify the country's crude oil supply. This is relevant for India since it relies on oil imports for nearly 85% of its daily needs and these kind of owned resources abroad would go a long way in ensuring energy security for India.

Traditionally, India has not been sourcing too much of oil from Brazil with the Middle East and Africa being our preferred oil suppliers. However, in the last few months, Russia has emerged as a major supplier of crude to India on account of the hefty discounts that it was offering amidst the stringent sanctions imposed by the US. Several Indian oil companies have expressed interest in sourcing more crude oil from Brazil and it allows to have a stronger foothold in Brazil, which is a part of the BRICS group of nations.