Oil India, IndianOil buy US shale stake for Rs 427 cr

The deal entitles the two to a 30% share in daily production of 1,850 barrels of oil equivalent

Government-owned Oil India Limited (OIL) and Indian Oil Corporation (IOC) have together acquired 30 per cent stake in a producing US shale asset at an investment of $82.5 million (Rs 427 crore). This is the first shale acquisition by the two companies in the US. OIL will buy 20 per cent and IOC 10 per cent stake in the asset owned by Carrizo, a Nasdaq-listed company.

The deal entitles the two Indian firms to a 30 per cent stake in the daily production of 1,850 barrels of oil equivalent. The two companies, through their wholly-owned US subsidiaries, have acquired 30 per cent of Carrizo's interest in 61,500 acres in Colorado's Denver-Julesburg basin, a well-known producing one in the US.

 

The investment provides an early entry into a prolific unconventional oil play to the two companies.

DEAL COUNTER

• Oil India and IndianOil, through their wholly-owned US subsidiaries, have acquired 30 per cent of Carrizo's interest in 61,500 acres in Colorado's Denver-Julesburg basin
   
• The investment of Rs 427 crore comprises an upfront payment of Rs 213.5 crore, and bearing Rs 213.5 crore of Carrizo's future drilling and development costs
   
• This is expected to give Oil India and IndianOil an early entry into a prolific unconventional oil play
   
• Oil India expects the buy will give it a first-hand exposure in shale oil and gas, helping facilitate its domestic shale gas plans when government auctions acreages in future

This is not the first Indian investment in a US shale asset. Last September, Gail had acquired 20 per cent stake at Carrizo’s Eagle Ford shale acreage in south Texas for $95 million (Rs 492 crore). The acquisition was GAIL’s first shale gas asset in the US. Similarly, Mukesh Ambani-promoted Reliance Industries (RIL) holds 45 per cent in Eagle Ford and 60 per cent in a Marcellus Shale gasfield through a joint venture with Carrizo. RIL’s shale gas business in the US comprises three upstream joint ventures with Chevron, Pioneer Natural Resource and Carrizo Oil & Gas, and a midstream joint venture with Pioneer. Aggregate investments since the inception of these joint ventures stand at Rs 22,000 crore ($4 billion).

OIL Chairman S K Srivastava said the acquisition will give the company a first-hand exposure in shale oil and gas. This will facilitate the company’s domestic shale gas plans when the government auctions acreages in the near future.

The total consideration of Rs 427 crore comprises an upfront payment of Rs 213.5 crore, and an assumption of Rs 213.5 crore of Carrizo's future drilling and development costs. OIL Director (finance) T K Ananth Kumar said the company had set aside Rs 7,000 crore to fund acquisitions this year. “Many other opportunities are being discussed, and we are hopeful of sealing more deals in coming months,” he said.

“Our share of peak production, estimated to reach in three-four years, would be 3,700 barrels of oil-equivalent a day,” said N K Bharali, director (human resources and business development). The joint venture would spend $230 million (Rs 1,190 crore) over the next three-four years on the shale property. Current output from the field comprises 69 per cent of oil, 14 per cent of natural gas liquids and 17 per cent of dry gas, Bharali said.

OIL to pick bankers for FPO
OIL Director (finance) T K Ananth Kumar said the market condition is good for the follow on public offer and the company will select three bankers on October 17, after which finance ministry will decide on a road map. On September 14, the government decided to disinvest 10 per cent of its equity, meaning its stake would come down to 68.43 per cent.