RIL buys 60% in US shale gas acreage for Rs 1,800 cr

India's largest listed company Reliance Industries (RELIANCE.NS : 973.3 -9.95 ) (RIL) said on Thursday it has entered into a joint venture with US-based Carrizo Oil & Gas to acquire a 60% stake in Marcellus shale acreage in Central and Northeast Pennsylvania. This is RIL's third acquisition of shale gas assets in the US since April this year.

Reliance will pay $392 million (about Rs 1,800 crore), including $340 million in cash and $52 million in drilling carry obligations for the proposed transaction.

The shale acreage is now held in a 50:50 joint venture between Carrizo and ACP II Marcellus, an affiliate of Avista Capital Partners. RIL is acquiring the 60% stake through Reliance Marcellus II LLC, an RIL subsidiary. With the latest acquisition, RIL which had ramped up gas production at the KG basin and is beefing up its global presence in global conventional as well as alternative energy play, has committed $3.4 billion (around Rs 15,600 crore) in US shale gas assets this year.

Probir Rao, country head, investment banking, Jefferies India, said shale gas is one of the hottest assets in the oil & gas sector. "This is a highly technology driven business, and initial investments by companies like Reliance will help them explore such operations in India, where the potential is very high"

Shale gas, a natural gas produced from shale - a fine-grained sedimentary rock - is becoming an increasingly important source of natural gas across the globe. Over the next decade, shale gas is expected to contribute to over 20% of the overall gas production in the US.

Experts said such deals will help boost Indian companies' technological acumen in shale gas exploration. Said Dilip Khanna, partner, transaction advisory services, Ernst & Young: "While shale gas exploration on such a scale by an Indian company like RIL would hopefully add to India's energy security, it also helps companies gain access to cutting-edge technology in this segment. This would aid them in developing certain skills that can be applied in exploring the vast shale resources in India as well."

RIL had cash and cash equivalents of Rs 26,407 crore as on June 30 this year. The company also has an outstanding debt of Rs 73,422 crore. The company's shares fell marginally on the BSE (^BSESN : 17984.68 -85.51 ) on Thursday to close at Rs 1,006.95.
The first move from RIL on shale gas came in April, when it bought 40% stake in Atlas Energy and said it would invest $1.7 billion in Atlas's core Marcellus Shale acreage position. In June, RIL subsidiary, Reliance Eagleford Upstream LP, entered into a joint venture with US-based Pioneer Natural Resources Company to acquire a 45% interest in Pioneer's core Eagle Ford Shale acreage position in two separate transactions. Reliance said it will invest $1.3 billion in that JV.

As per the transaction announced Thursday, Reliance will acquire 100% of Avista's interest and 20% of Carrizo's interests in the joint venture. Upon completion of the transaction, Reliance and Carrizo will own 60% and 40% interests respectively in a newly formed joint venture between the two. The drilling carry obligations will provide for 75% of Carrizo's share of development costs over an anticipated two-year development programme.

The new joint venture will have around 104,400 net acres of undeveloped leasehold in the area covered under the deal, of which Reliance's 60% will represent around 62,600 net acres. This acreage is expected to support the drilling of around 1,000 wells over the next 10 years, with a net resource potential of about 3.4 Tcfe (2.0 Tcfe net to Reliance). The transaction allows for additional growth in the development acreage, at pre-agreed terms.

Carrizo will serve as the development operator for the joint venture and Reliance has the option to act as a development operator in certain regions in the coming years as part of the joint venture. The transaction is expected to close by mid-September 2010.
Commenting on the joint venture, Walter Van de Vijver, president, international E&P business, RIL said: "We are pleased to establish a long-term partnership with Carrizo, which has demonstrated operating expertise in the shale plays. The proposed joint venture will supplement strengths achieved through our recent joint ventures and further expands our footprint in North American shale gas operations."

Source: The Financial Express, Delhi, Friday, 6th August 2
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