Reliance Industries (RIL) has agreed to buy its third shale-gas asset in the US in less than four months, acquiring a 60 per cent stake in acreages held by Carrizo Oil & Gas and its partner.
The country’s largest company by market value today said it would pay $392 million for the stake in the Marcellus shale-gas areas of central and northeast Pennsylvania. RIL will pay $340 million in cash and cover part of Carrizo’s drilling costs over two years.
“RIL will pay a total consideration of $392 million, comprising $340 million of cash and $52 million of drilling carry obligations. The transaction is anticipated to close by mid-September this year,” the release said.
In April, RIL had bought a 40 per cent stake in Atlas Energy’s Marcellus Shale acreage for $1.7 billion, committing a capital expenditure of $3.5 billion over 10 years. In June, RIL picked up a 45 per cent stake in Pioneer Natural Resources’ Eagle Ford shale acreage for $1.3 billion.
The Marcellus Shale acreage is a 50:50 joint venture (JV) between Carrizo and ACP II Marcellus LLC, an affiliate of Avista Capital Partners. RIL will acquire 100 per cent of Avista’s interest and 20 per cent of Carrizo’s interest in the JV, following which RIL and Carrizo will own 60 and 40 per cent interests, respectively, through a newly-formed JV.
The JV will have 1,04,400 acres of undeveloped leasehold in the core area of the Marcellus Shale in central and northeast Pennsylvania, of which RIL’s 60 per cent interest will amount to 62,600 acres, smaller than 1,37,000 acres in the Atlas venture and 1,18,000 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.
The transaction allows for additional growth in the development of acreages, at pre-agreed terms. Carrizo will serve as the development operator for the JV and RIL has the option to act as a development operator in certain regions in the coming years.
Commenting on the JV, Walter Van de Vijver, president of international E&P business at RIL, said, “Reliance is excited about the opportunity to further expand presence in the Marcellus Shale in the US. We are pleased to establish a long-term partnership with Carrizo…the proposed JV will supplement strengths achieved through our recent JVs and further expand our footprint in North American shale gas operations.”
Shale gas is natural gas stored in organic-rich sedimentary rocks. It is considered an unconventional source, as the gas may be attached to organic matter. The gas is contained in difficult-to produce reservoirs that require special completion, stimulation or production techniques to achieve economic production. It accounts for 15-20 per cent of US gas production, but is expected to quadruple in coming years, triggering a scramble among producers, large and small, for access to resources.
