Reliance Industries (RIL), which has struck three shale gas joint ventures with US firms this year, may go for a full buyout next as the cash-rich firm builds the knowledge it needs to run such operations. Reliance has received about 20 to 25 pitches from investment bankers for shale assets, Reliance chief financial officer Alok Agarwal said recently.
Bankers say potential targets include Fort Worth, Texas-headquartered Quicksilver Resources, Colorado-based Enduring Resources and companies with assets in the Horn River shale formation in Canada.
Another firm on Reliance?s radar may be Texas-based EOG Resources, which said in early August it plans to sell about 1,80,000 acre of underground rock formations that hold reserves of oil and natural gas.
In early August, RIL entered into a joint venture with US-based Carrizo Oil & Gas to acquire a 60% stake in Marcellus shale acreage in Central and Northeast Pennsylvania, in what was its third acquisition of shale gas assets in the US since April this year. RIL said it would pay $392 million, comprising $340 million in cash and $52 million of drilling carry obligations, for the proposed transaction. The first announcement from RIL in this regard came in April, when it bought 40% stake in Atlas Energy and said it will invest $1.7 billion in Atlas?s core Marcellus Shale acreage position.
In June, RIL?s subsidiary, Reliance Eagleford Upstream LP, entered into a joint venture with US-based Pioneer Natural Resources Company to acquire a 45% interest in Pioneer?s core Eagle Ford Shale acreage position in two separate transactions. Reliance said it will invest $1.3 billion in that JV.
Shale gas is becoming an increasingly important source of natural gas across the globe. Over the next decade, shale gas is expected to contribute to over 20% of the overall gas production in the US.
RIL had cash and cash equivalents of Rs 26,407 crore as on June 30 this year. The company also has an outstanding debt of Rs 73,422 crore. RIL chairman Mukesh Ambani has made no secret of Reliance?s overseas ambitions.
He could face competition from other firms, including Royal Dutch Shell, Total and Mitsui, who have done shale gas deals previously, and those that have not bought a shale asset yet such as Chevron and Encana.
Reliance is expected to generate free cash flow of $18 billion between this year and the fiscal year that ends in March 2014, giving it plenty of firepower for investment. The company has raised a war chest of $2 billion by selling stock over the past year.