RELIANCE Industries (RIL) has agreed to buy a 40% stake in a US shale gas venture of Atlas Energy for $1.7 billion, joining Exxon Mobil and Franceâ€™s Total in the race for a fuel that may change the global energy economics.
The nationâ€™s biggest company will invest $340 million in cash for the stake and pay Atlasâ€™ drilling expenses of up to $1.36 billion over the next five-and-ahalf years, said a statement from Atlas. The deal values per acre of shale at $14,167, compared with $14,000 an acre paid by Japanâ€™s Mitsui & Co in a similar deal.
â€œThis is the most lucrative deal weâ€™ve seen in the Marcellus,â€ Bloomberg quoted Scott Hanold, an analyst with RBC Capital Markets in Texas as saying. â€œItâ€™s a fair price. Itâ€™s a significant chunk of acreage in an area with some of the best well results.â€
The joint venture will hold 300,000 acres, of which Relianceâ€™s stake will be equivalent to 120,000 net acres, said Atlas.
For Reliance, the investment may be an experiment to benefit from what is potentially a game-changer in the US economy where oil & gas prices are key to economic and political decisions. The experience may also help Reliance imitate the process in this region where it is drilling for oil & gas. In the last few months, it lost out on bids to buy stakes in petrochemical company LyondellBasell and Canadaâ€™s Value Creation.
Shale gas represents a growing source of energy and is expected to constitute 20% of the overall gas production in the US over the next 10 years,â€ Alok Agarwal, chief financial officer at Reliance Industries told reporters. The transaction is expected to close this month.
Gas locked in shale formations is expected to account for 50% of US supply by 2035, up from 20%, Bloomberg quoted a report by IHS Cambridge Energy Research Associates as saying.
Extracting gas from shale rock formations is accelerating in the US, which is looking for ways to reduce the dependence on Middle-East oil and cut pollution by limiting coal-fired power plants. Hydraulic fracturing and horizontal drilling are the two methods used to release natural gas trapped in shale rock formations.
Under the fracturing method, chemicals and other materials are blasted into the rock to create cracks that lead to gas flowing to the well.
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