Reliance Industries (RIL) and Apollo Global Management LLC are among companies in talks to buy El Paso Corp (EP)’s oil and gas exploration and production unit, said people with knowledge of the matter.
Houston-based energy company Kinder Morgan Inc had agreed to acquire all of El Paso by later this year, and may decide this month whether to continue the sale talks, said people who spoke on condition of anonymity. Analysts estimated the business’s value at $8.1 billion.
Kinder Morgan Chief Executive Officer Richard Kinder is under pressure to raise cash from a sale of the production unit to help finance the $21 billion purchase of El Paso, a deal struck in October that would create the largest US natural-gas pipeline network. He aims to find a buyer for the unit by the time he’s ready to close the larger transaction, scheduled in the second quarter.
Buying the El Paso division would give RIL a US operating business after committing billions on exploration and production joint ventures with US companies. The Mumbai-based company has yet to decide whether to make a bid for the unit, one person with knowledge of the matter said.
“Reliance is looking into the future,” said Deven Choksey, managing director at Mumbai-based brokerage K R Choksey Shares & Securities Pvt.
“The US shale gas assets may be the best place where it can deploy its large cash pile.”
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Atlas Venture
Reliance, which had Rs 614.9 crore ($115 million) of cash as of September 30, agreed to form a $1.7 billion venture in April with Atlas Energy Inc to develop gas fields in Pennsylvania. On January 10, Reliance wrote to Atlas’s directors it was surprised at not being apprised of the negotiations that led to Chevron Corp’s $3.6 billion offer for the company. Atlas shareholders approved Chevron’s takeover bid February 16.
Charles Zehren, a spokesman for Apollo, and Larry Pierce, a spokesman for Kinder Morgan, declined to comment. Tushar Pania, a spokesman for Reliance Industries, said the company doesn’t comment on speculation. Private-equity firms such as Apollo have been hunting for deals in the oil and gas industry KKR & Co agreed to the biggest-ever buyout of an oil and gas producer in November, with a $7.2 billion deal for Samson Investment Co.
The biggest buyout firms, including Apollo, KKR, and Blackstone Group LP, have been seeking to raise dedicated funds to invest in acquisitions of natural resources companies.
Spinoff
El Paso, which gets most of its revenue from pipelines, had been planning to spin off the exploration and production unit to shareholders before Kinder Morgan’s takeover offer. The company owned drilling rights to 46,000 acres in Louisiana’s Haynesville Shale at the end of 2010, according to a regulatory filing, and 500,000 acres in the Eagle Ford Shale, Permian Basin and other fields in Texas. It also has 605,000 acres in the Raton Basin coal-bed methane field in New Mexico and Colorado.
US shale assets have the potential to more than double the world’s gas reserves according to the US Energy Information Agency. In the past decade, the country’s gas output jumped 11 percent, outpacing a 3.2 percent rise in consumption during the same period.