Chevron-Atlas deal irks Reliance Ind

RIL is upset over its JV partner Altas not keeping it in loop regarding a sell out to Chevron in Nov.

Although Reliance Industries (RIL) is upset over its joint venture partner Altas Energy not keeping the former in the loop regarding a sell out to Chevron Corporation in November,experts feel its still premature to say RIL will exit the joint venture,since the new buyer and RIL would examine the scope of a business continuity before ending such a key deal.

Unless there is a serious difference between Chevron and RIL on the vision regarding the shale assets,they would try to come to a common alignment and develop and monetise the assets, said Dilip Khanna,a partner with Ernst & Young. It is also necessary to examine what is constituted in the legal and contractual agreement between the parties. If some clauses envisaged in the contract has been breached,then there is a case for examining the relationship, Khanna added.

In January,Reliance Holdings USA,a subsidiary of Reliance Industries (RIL),wrote to Atlas Energy expressing its discomfort over a deal where Chevron Corporation acquired Atlas Energy for $4.3-billion. RIL had bought 40% stake in Atlas Energy in April last year,and had said it will invest $1.7 billion in Atlass core Marcellus Shale acreage position.

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Wvan de Vijver,president and CEO of Reliance Holding,in a filing with the US Securities and Exchange Commission on January 10,asked Atlas,We do not understand why at no time during the seven months of discussions involving Chevron,during which time we were in regular dialogue as your joint venture partner,did Atlas Energy reach out to Reliance to gauge our interest in a possible company-level transaction. We would like to evaluate our options,including whether,as a significant partner for most of the value of Atlas Energys assets,we may be able to create incremental value for Atlas Energy and its constituencies, the note stated.

RIL had done a spate of shale gas acquisitions last year. Following the Atlas Energy JV,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.

In August,RIL entered into a joint venture with US-based Carrizo Oil & Gas Inc 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 (around Rs 1,800 cr),comprising $340 million of cash and $52 million of drilling carry obligations,for the proposed transaction.

Shale gas,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.

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Expressing concern over the companys rights under the joint venture and the expected value,Vijver has requested access to Atlas board,management and documents as soon as possible so that we can ensure that we are not adversely affected as a result of the proposed Chevron transaction. Edward E Cohen,chairman,CEO and president of Atlas America,in his reply to Vijvers letter,stated: Atlas Energy is committed fully to its ongoing joint venture with you,and we look forward to continuing collaboration with you in that context,in accordance with the terms of the applicable agreements.