Reliance Agrees to Buy 60% Stake in Carrizo's Shale Asset for $392 Million
Reliance Industries Ltd., India’s biggest company by market value, agreed to buy its third shale- gas asset in the U.S. this year, acquiring a 60 percent stake in acreages held by Carrizo Oil & Gas Inc. and its partner.
The company controlled by billionaire Mukesh Ambani will pay $392 million for the stake in the Marcellus shale-gas areas of central and northeast Pennsylvania, according to an e-mailed statement today. Reliance, based in Mumbai, will pay $340 million in cash and cover part of Carrizo’s drilling costs over two years.
The Indian energy explorer and oil refiner agreed in April and June to pay a total of $3 billion to buy shale-gas assets from Atlas Energy Inc. and Pioneer Natural Resources Co. Reliance joins Royal Dutch Shell Plc, BP Plc and Exxon Mobil Corp. in acquiring unconventional gas reserves in the U.S., where shale-gas accounted for about 10 percent of the country’s total output in 2008.
“This is a consolidation of its shale-gas positions in the U.S., where the market is huge and shale resources are plenty,” said Deepak Pareek, a Mumbai-based analyst with Angel Broking Ltd., who recommends investors buy Reliance stock. “The success depends on how quickly they can produce and ramp up and capture a share of the market.”
Reliance shares climbed as much as 1.2 percent and declined 0.9 percent to 1,007.05 rupees at the close in Mumbai trading, the lowest level since June 9. The benchmark Sensitive Index fell 0.2 percent. Carrizo added 0.1 percent to $20.13 yesterday in New York.
Cheaper Acreage
The purchase of Carrizo assets is as much as 56 percent cheaper than other acquisitions in the Marcellus area this year.
Reliance will pay $6,258 an acre for the Carrizo deal compared with $14,167 an acre it paid for Atlas assets in the Marcellus area, Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein Ltd., said in a report today. Japan’s Mitsui & Co. paid $11,100 per acre for a stake in the same area in February, according to Bernstein.
Carrizo is selling a 20 percent interest in a venture with ACP II Marcellus LLC, an affiliate of Avista Capital Partners, Reliance said. The Indian company will also buy Avista’s entire stake in the venture.
Reliance will have a net share of 62,600 acres of Carrizo’s 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.
Learning Curve
“This is a smallish acquisition as Reliance is on the learning curve on the shale-gas business,” said Rohit Ahuja, a Mumbai-based analyst with Centrum Broking Ltd., who advises investors buy Reliance shares. “Once they establish the potential and succeed, they can go for big-ticket acquisitions and bring that technology and expertise back to India.”
India plans to offer shale-gas areas for exploration for the first time in about a year, after assessing reserves and creating rules to tap unconventional energy sources.
The U.S. overtook Russia last year as the world’s largest gas producer as output from shale rose. Gas trapped in shale formations will provide 24 percent of all U.S. natural gas consumption in 2035, according to the Department of Energy.
Shell, Europe’s largest energy producer, said May 28 it agreed to buy most of closely held East Resources Inc. for $4.7 billion, expanding its holdings of U.S. shale-gas deposits and giving it acreage in the Marcellus and Eagle Ford formations.
Exxon Mobil agreed in December to acquire XTO Energy Inc. for about $30 billion. Total SA accelerated its expansion into gas with the $2.25 billion purchase of U.S. assets from Chesapeake Energy Corp. in January.
Jefferies & Co., Vinson & Elkins LLP, BNP Paribas and Credit Agricole Corporate and Investment Bank advised Reliance on the Carrizo transaction, which may close by mid-September, according to the statement.
To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net
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