In a bid to tap the growing world market for non-conventional energy, Reliance Industries Ltd (RIL) on Friday said it has picked up 40% stake in US major Atlas Energy Inc. Under the planned deal, RIL will invest $1.7 billion (around Rs 7,558 crore) in Atlas?s core Marcellus Shale acreage position. Analysts say, shale gas, which is a natural gas produced from shale?a fine-grained sedimentary rock?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.
Of the $1.7 billion, RIL will pay $339 million in cash at closing, and will fund $1.36 billion of capital costs under a carry arrangement for 75% of Atlas capital costs under an anticipated seven-and-a-half year development programme. Additionally, RIL will invest around $3.4 billion for its share of the development costs over the next ten years.
The transaction is expected to close this month. RIL shares were up 1.78% to close at Rs 1,123.95 on the Bombay Stock Exchange on Friday though the announcement came after market hours.
RIL, the country?s largest private sector firm, had cash and cash equivalents of Rs 15,960 crore as of December 31, 2009, and has raised about Rs 9,240 crore by selling treasury stocks in three tranches after September last year. Recently, it made an unsuccessful $14.5-billion bid for Dutch petrochemicals major LyondellBasell.
PMS Prasad, executive director, RIL, said, ?Reliance is very pleased to enter one of the fastest growing opportunities emerging in the US unconventional gas business and that too with one of the largest, most experienced energy producers in the Appalachian Basin as partner.?
He further said that the joint venture will materially increase Reliance?s resources base and provide the company with an entirely new platform from which to grow its exploration and production business while simultaneously enhancing its ability to operate unconventional projects in the future.
The opportunities in shale gas are exciting, according to analysts. Says Deepak Pareek from Angel Broking: ?Many oil and gas companies across the globe are acquiring shale gas assets. RIL, which is sitting on a huge cash pile, can deploy the funds to generate further income. Being the only Indian company taking this initiative, RIL will have a technological edge as it can replicate the new technology in its other ventures.?
RIL becomes a partner in approximately 300,000 net acres of undeveloped leasehold in the core area of the Marcellus Shale in southwestern Pennsylvania. Low operating costs and proximity to the US northeast gas markets combine to make the Marcellus one of the most economically attractive unconventional natural gas resource plays in North America, RIL said in a media release.
The acreage will support the drilling of over 3,000 wells with a net resource potential of about 13.3 tcfe (5.3 tcfe net to Reliance). While Atlas will serve as the development operator for the joint venture, RIL is expected to begin acting as development operator in certain regions in the coming years as part of the joint venture.
Under the framework of the joint venture, Atlas will continue acquiring leasehold in the Marcellus region and RIL will have the option to acquire 40% share in all new acreages. RIL also obtains the right of first offer with respect to potential future sales by Atlas of around 280,000 additional Appalachian acres currently controlled by Atlas. While Barclays Capital Inc acted as exclusive financial advisor to RIL for the transaction, Vinson & Elkins LLP acted as legal counsel. Bank of America Merrill Lynch provided strategic and financial advice to RIL.