RIL to buy 3rd shale gas asset in the US

New Delhi: Mukesh Ambani-led Reliance Industries on Thursday said it will buy its third shale gas asset in the United States for USD 392 million.

Reliance will pay USD 340 million in cash to acquire a 60 per cent stake in the Marcellus shale-gas acreages held by Carrizo Oil and Gas Inc and its partner, the company said in a press statement.

The remainder USD 52 million would in Carrizo's drilling cost in the Marcellus shale-gas areas of central and northeast Pennsylvania.

The Mumbai-based firm in April had bought a 40 per cent stake in Atlas Energy Inc's Marcellus Shale acreage for USD 1.7 billion. In June, it had agreed to buy a 45 per cent stake in Pioneer Natural Resources Co's Eagle Ford shale natural gas asset in Texas for about USD 1.36 billion.

Reliance would have a net share of 62,600 acres of Carrizo's shale acreage, smaller than the 137,000 acres in the Atlas venture and 118,000 acres in Pioneer's assets.

The resource potential in the Carrizo areas is a gross 3.4 trillion cubic feet of gas compared with 10 trillion cubic feet in the Pioneer areas.

Reliance said its "subsidiary, Reliance Marcellus II, Llc, has signed definitive transaction agreements to enter into a Marcellus Shale joint venture with US-based Carrizo."

Under the proposed transaction, Reliance will acquire a 60 per cent interest in Marcellus Shale acreage in Central and Northeast Pennsylvania that is currently held in a 50:50 joint venture between Carrizo and ACP II Marcellus LLC, an affiliate of Avista Capital Partners.

"Pursuant to the transaction, Reliance will acquire 100 per cent of Avista's interest and 20 per cent of Carrizo's interests in the joint venture," it said. "Upon completion of the transaction, Reliance and Carrizo will own 60 per cent and 40 per cent interests respectively."

Shale gas is one of the hottest investment plays in the energy sector, with a string of multibillion dollar deals having been done over the past year prompted by technical advances which have unlocked huge and previously inaccessible natural gas reserves.

The Marcellus Shale is a giant rock formation underlying Pennsylvania, New York and other states. Shale has long been known to contain natural gas, but this was not worth extracting with conventional technology.

"Carrizo will serve as the development operator for the joint venture and RIL has the option to act as a development operator in certain regions in the coming years as part of the joint venture," the statement said.

The transaction is anticipated to close by mid-September 2010.

Reliance Chairman Mukesh Ambani in June had given a glimpse of his company's ambitions in shale gas space.

Reliance, he had told shareholders meet in Mumbai of June 18, aspires to build a significant position in the shale gas business as it presents a low-level of geological risk because the gas is trapped in rock across a wide geographical region.

Ambani, the world's fourth-richest man, also stated at that meeting that shale gas is likely to overtake conventional gas and liquid fuels as a source of energy in the next decade and Reliance will commit investments with low-cost operators to expedite the development of this resource.

Reliance President for International E&P Business Walter Van de Vijver said: "Reliance is excited about the opportunity to further expand resence in the Marcellus Shale in the US.

"The proposed joint venture (with Carrizo) will supplement strengths achieved through our recent joint ventures and further expand our footprint in North American shale gas operations."

The 104,400 acres of acreage with the joint venture is expected to support the drilling of about 1,000 wells over the next 10 years, with a net resource potential of about 3.4 Trillion cubic feet, the statement said.

For Reliance, Jefferies & Co acted as lead financial advisor and Vinson & Elkins LLP acted as legal counsel. BNP Paribas and Credit Agricole Corporate and Investment Bank provided strategic advise.