BP cuts book value of its RIL holding by over 10%

BP Plc has reduced the net fair value of its investment in the joint venture with Reliance Industries by $785 million or more than 10 per cent, the British energy giant said in its earnings statement this week

Mukesh Ambani's RIL had on 30 August 2011 sold a 30-per cent stake in 21 of the oil and gas blocks it operates to BP for for $7.026 billion, with an eye to increasing the dwindling production from the wells with BP's expertise.

Within five months BP has reduced the net fair value of this investment based on ''new information obtained, including further understanding of the acquired assets and potential development options''.

The fair value of an asset is an accounting concept defined as a rational and unbiased estimate of the potential market price of a good, service, or asset taking into account factors including acquisition, production and distribution costs; actual utility; risks; and cost of and return on capital, among other things.

According to the BP earnings statement, the estimated fair value of BP's assets and liabilities arising out of its deal with RIL was $4.5 billion at the end of the December quarter, down from the estimated $5.28 billion in the September quarter.

''Our view on the value proposition (of investing in RIL's assets) has not changed. It is consistent with our judgement earlier and we have not overpaid,'' Mark Salt, BP's press officer based in London, said in a phone interview on Wednesday.