Reliance Industries (RIL) will make its second investment in two months in a large shale gas field in the US, as it tries to cash in on a boom in a vast new energy resource that is threatening to change the global energy balance.
The company is close to buying a sizeable minority stake in a shale gas field in Texas from US-based Pioneer Natural Resources, people close to the development said.
India’s largest company will buy 45% in the Eagle Ford shale gas field for about Rs 6,500 crore. It will make an up-front payment of nearly Rs 1,400 crore and the balance in the next four years, said a person close to the matter.
In April, RIL had acquired a 40% stake in Atlas Energy’s Marcellus share acreage in the US, gaining access to approximately 343,000 acres of undeveloped land with estimated gross resources of over 13 trillion cubic feet of gas.
“We will continue to pursue such joint development opportunities with the best operators as well as on our own to build a substantial upstream business in North America,” RIL chairman and India’s richest man, Mukesh Ambani, had told shareholders at the company’s annual general meeting on Friday.
Shale gas is extracted from a common rock formation found in most parts of the world by pumping water and sand. Till recently, it was not considered economically viable to extra gas from shale formations but the emergence of new drilling technologies has changed the game.
The sudden increase in the production of shale gas in the US has changed the dynamics of the US gas industry. Gas prices have dropped with companies such as ExxonMobil and Royal/Dutch Shell joining in the rush.
According to the website of Pioneer, the Eagle Ford gas field has around 310,000 gross acres of prospective gas.
Pioneer has another shale gas field in Barnett, near Fort Worth in Texas.
“RIL wants to consolidate its position in gas as it will be tomorrow’s fuel,” said Deven Choksey, managing director of KR Choksey Securities.” RIL will create such assets in the US, the best destination for alternate energy, by utilising part of its cash flow so that its balance sheet remains unstretched.”
RIL, which owns the world’s biggest refinery complex and India’s largest gas field in the KG basin, has cash and cash equivalent of more than $6 billion, and a projected annual cash flow of $7-8 billion.
The expansion of RIL’s footprint in shale gas is in line with the investors’ expectations, said Ambarish Baliga vice-president of Karvy Stock Broking. “The acquisition cost of such assets is cheap, making more sense for the company.”
UBS is learnt to be RIL’s advisor for the deal. The RIL spokesman declined to comment while the Pioneer spokeswoman could not be reached.
Led by ExxonMobil, which bought shale gas specialist XTO for $41 billion in December last year, any big energy company worth its salt is getting into the unconventional energy space in the US. The list includes BP, Statoil and Total.
“Shale Gas is the most promising development in the energy area in North America,” Mr Ambani had said in its AGM speech. “It is likely to overtake both conventional gas as well as liquid fuels as a source of energy within the next decade. Shale gas development represents a low level of geological risk as the gas is trapped in rock across a wide geographical region in excess of tens of millions of acres.”
Reliance aspires to build a significant position in the shale gas business, Mr Ambani had said at the AGM. “ We will enhance efficiencies across the chain by drawing on our experience in drilling and project management. We will commit capital alongside proven low-cost operators to accelerate the development of this resource.” RIL has been looking for assets in a range of areas. It made an abortive attempt to buy bankrupt petrochemical company LyondellBasell early this year.
Earlier this month, RIL acquired a 95% stake in Infotel for Rs 4,800 crore after the HFCL Group firm bagged the national licence for broadband wireless access (BWA) radio waves. International rating agency Moody’s Investor Service on Monday said the risk profile of RIL has increased following its entry into telecom with the acquisition of Infotel Broadband Services, but has retained the stable outlook of the company.
Source: Economic Times
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