RIL takes 40% stake of $1.7 bn in US project

Reliance will take 40 per cent stake in the about 300,000 acres Marcellus shale gas project,which spans parts of Pennsylvania,West Virginia and New York and could hold enough natural gas to satisfy US demand for a decade.

Nasdaq-listed Atlas will hold the remaining 60 per cent and also the operatorship. RIL had earlier unsuccessfully bid for acquiring controlling stake in bankrupt chemical maker LyondellBassel.

It bid USD 14.5 billion for Lyondell but the offer was vetoed by creditors who filed a rival revival plan.

Flush with revenues from its eastern offshore KG-D6 gas field back home,the Mukesh Ambani-run firm has been on the lookout of acquisitions in the United States. Separately,its twin refineries at Jamnagar in Gujarat are looking at directly selling fuel into the US.

“Reliance Marcellus LLC (a subsidiary of RIL) has executed definitive agreements to enter into a joint venture with US based Atlas Energy Inc… under which Reliance will acquire a 40 per cent interest in Atlas’ core Marcellus Shale acreage position,” the company said in a statement.

The Indian firm will pay USD 339 million in cash to close the deal and foot Atlas’ drilling cost of up to USD 1.36 billion.

“The (300,000 acres) acreage will support the drilling of over 3,000 wells with a net resource potential of about 13.3 trillion cubic feet gas equivalent,” the RIL statement said,adding that the deal is expected to be closed by the month end.

Shale gas is natural gas stored in organic-rich sedimentary rocks. It is considered an unconventional source as the gas may be attached to or “adsorbed” onto organic matter. The gas is contained in difficult-to-produce reservoirs that require special completion,stimulation and/or production techniques to achieve economic production.

In addition to funding its own 40 per cent of drilling obligations,Reliance has agreed to fund 75 per cent of Atlas’ respective portion of drilling and completion costs until the USD 1.36 billion drilling carry is fully utilized,Atlas said in a separate statement.

“Under the framework of the joint venture,Atlas will continue acquiring leasehold in the Marcellus region and Reliance will have the option to acquire 40 per cent share in all new acreages,” Reliance said. “Reliance 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 (not included in the present joint venture).” Atlas said if it decides to sell all or part of the 280,000 additional Appalachian acres,Reliance will have to pay a price of USD 8,000 per acre.

This acreage is located predominantly in Mercer,Crawford,and other Pennsylvanian counties not currently included in Atlas’ core Marcellus area of southwestern Pennsylvania.

Atlas had been looking for a partner for its operations in the booming Marcellus Shale in the eastern United States.

Reliance had raised USD 2 billion by selling stock in recent months,a warchest it could put to use for its ambitious overseas plans.

Barclays Capital Inc advised Reliance on the deal.

Atlas and Reliance have agreed upon a five-year development plan that calls for the drilling of 45 horizontal Marcellus Shale wells for the joint venture during the remainder of 2010,increasing to 108 wells in 2011,178 wells in 2012,and 300 wells in 2013 and 2014.

Commenting on the joint venture,Reliance Executive Director PMS Prasad said,“This joint venture will materially increase Reliance’s resource base and provide Reliance 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.” “This transaction will enable us to accelerate sharply our development of the Marcellus while further reducing our already low finding and development costs,” said Edward E Cohen,Chairman and Chief Executive Officer of Atlas Energy.