GAIL India Buys Carrizo Asset Stake in First U.S. Shale Purchase

GAIL India Ltd. (GAIL), the nation’s biggest natural gas distributor, will buy a 20 percent stake in shale gas areas from Carrizo Oil & Gas Inc. (CRZO) for $95 million, its first acquisition of a U.S. energy asset.

GAIL will pay $63.7 million in cash to Houston-based Carrizo and bear $31.3 million of Carrizo’s future costs to develop the area in the Eagle Ford deposits in Texas, according to statements from both companies. The Indian company will invest $300 million over the next five years, GAIL said.

GAIL, controlled by the federal government, joins companies including Exxon Mobil Corp. (XOM), Royal Dutch Shell Plc and Reliance Industries Ltd. (RIL) in getting access to U.S. shale assets, which have the potential to more than double the world’s gas reserves, according to the U.S. Energy Information Agency. The New Delhi- based company will borrow 70 percent of the purchase cost in the U.S., Finance Director P.K. Jain said by telephone today.

“We have been looking for acquisitions for a while and this sets us off in a place where the prospects are big,” Jain said. “The area is already producing and cash flow has started and will help us quickly recover costs.”

GAIL fell 0.6 percent to 421 rupees at 9:20 a.m. in Mumbai trading. The stock has declined 18 percent this year. Carrizo slumped 11 percent in New York trading yesterday.

The Indian gas utility had 27.95 billion rupees ($573 million) in cash, near cash and short-term investments and 69 billion rupees in long-term borrowings in the year ended March 31, according to data compiled by Bloomberg.

GAIL will get a net 4,040 acres (1,635 hectares) in La Salle County, according to Carrizo’s statement. The agreement includes a 20 percent share in eight wells that produce about 2,350 barrels of oil equivalent a day, GAIL said.

To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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