RIL to buy 3rd shale gas asset for $392 mn

Reliance Industries (RIL) has agreed to buy 60% stake in the Marcellus shale acreage in the US for $392 million, or around `1,810 crore, its third investment in four months in the promising new energy resource. 

RIL, India’s biggest company by market value, will immediately pay $340 million for the acquisition of the shale gas acreage in central and north-east Pennsylvania that is equally owned by Carrizo and its partner ACP II Marcellus, an affiliate of private equity firm Avista Capital Partners. It will pay $52 million more to cover part of the drilling costs in two years, the company said in a media statement. 

Carrizo will hold 40% of the gas acreage after the transaction is over, which is likely to happen by mid-September. The acquisition will provide RIL access to 104,400 acres of underdeveloped land with estimated net resources of 3.4 trillion cubic feet of gas. 

Houston-based Carrizo will be the so-called development operator of the venture, which means it gets to extract the gas. But RIL has the option to act as a development operator in some regions over the lifetime of the agreement, the statement added. 

The RIL stock closed flat at `1,006.95 in a weak Mumbai market. 

“Reliance will pay $6,258 an acre for the Carrizo deal, which will, in turn, add value of `8.3 a share,” said Deven Choksey, managing director of KR Choksey Securities. “The price paid by RIL for this deal is in line with the cost of other two (shale gas) acquisitions.” 

This is the cheapest of the three assets RIL has bought so far. 

In April, it 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. It paid $1.7 billion for this. In June, RIL bought a 45% stake in Pioneer Natural Resources for $1.15 billion, gaining access to 210,000 acres of land."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 in June. 

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. Its projected annual cash flow is pegged at $7-8 billion. Jefferies & Co was the financial advisor while BNP Paribas and Credit Agricole Corporate & Investment Bank was the strategic advisor to RIL. 

Shale gas is extracted from a common rock formation found in most parts of the world. The emergence of new drilling technologies has made the extraction of gas viable and has led to sudden an increase in the production of shale gas in the US, forcing gas prices to drop in that country. 

Led by ExxonMobil, which bought shale gas specialist XTO for $41 billion in December last year, big energy companies such as BP and Total are entering the shale gas business.

Source: Economic Times

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