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The drop in crude oil and natural gas prices has led Reliance Industries' (RIL) three shale gas joint ventures (JVs) in America to pare operating and capital expenditure.
Shale gas, a business RIL expected would begin contributing significantly to its revenue by 2015, has been hit with a sharp downturn in commodity prices, especially in the case of crude oil.
"Activity levels across the JVs are being optimised, with all three JVs actively pursuing operating expenditure and capital expenditure reduction initiatives in the current commodity price downturn. A challenged market outlook is likely to curtail near-term growth," RIL said in its earnings statement for the quarter ending December 2014.
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Reliance's shale gas business in America comprises three upstream JVs. These are with Chevron, Pioneer Natural Resource and Carrizo Oil & Gas, and a midstream joint venture with Pioneer. Aggregate investments since the inception of these JVs is $7.9 billion, with the December quarter's capital expenditure at $264 million.
During the quarter, the price of crude oil dropped from $90 a barrel to $53. Natural gas spot prices dropped 24 per cent to 3.14 per million British thermal units (mBtu).
RIL said, operationally, the business continued its strong performance, with production at record levels, especially at the Pioneer and Chevron JVs. Gross JV production averaged 1.25 bn cubic ft equivalent (bcfe) a day, growth of five per cent over a quarter and 21 per cent over the same quarter a year before.
Pioneer JV's gross production was 725 million cubic ft equivalent (mcfe) a day, including 69,300 barrels a day of condensate, a three per cent growth over the previous quarter. Production at the Chevron JV was 366 mcfe a day, sequentially a six per cent growth.
"At Carrizo JV, market conditions forced temporary curtailment in production early in the quarter but supportive weather and the decision to flow wells at an operationally optimal level led to a 10 per cent sequential increase in production rates to 157 mcfe a day during the quarter," RIL said.
Adding, "With the impact of stronger volumes offset by sharply lower realisation, overall revenues and Ebitda (operating earnings) for the quarter were sequentially lower by 16 per cent and 14 per cent, respectively."
Its Eagle Ford Shale Midstream business remains one of the most competitive liquid shale ventures in America and is better positioned to remain so even in a volatile price environment, said RIL. During the quarter, RIL announced it planned to sell its share in Eagle Ford, which it partners with Pioneer. Reliance Holding USA owns 49.9 per cent here and Pioneer the rest.
EFS Midstream was formed in 2010 to construct facilities for providing gathering and handling services for condensate and natural gas produced from wells in Eagle Ford Shale. These services are provided for the Eagle Ford Shale upstream JV operated by Pioneer (Pioneer 46 per cent, Reliance 45 per cent and Newpek LLC nine per cent) and for various third parties.
