Aug. 5: Reliance Industries, India’s largest private sector firm, has made its fourth major acquisition this financial year. The company will spend $392 million to acquire further shale gas acreage in the US. RIL has already spent almost $3 billion to acquire substantial chunks in two other shale gas properties in the US.
RIL will pay $340 million in cash and will spend another $52 million to fund the capex of its partners to acquire a 60 per cent stake in this resource. The 104,400 acre field in Pennsylvania has an estimated reserve size of 3.4 trillion cubic feet (tcf). RIL will have rights over 60 per cent of this production — 2 tcf.
Counting the latest deal, RIL has already committed an investment of $3.4 billion in the US, and has acquired natural gas reserves adding up to 11.8 trillion cubic feet. In contrast, the company’s certified reserves from the KG-D6 field are 13.6 tcf.
“There are several companies in the US that sitting on shale gas acreage but which don’t have the funds to develop these fields which is where Reliance comes in,” says an analyst working with a major fund house. “Shale gas production is feasible if prices are $3-4/unit,” he adds.
Even if prices of natural gas drop below this limit, production from shale gas fields can be reduced – something not possible with regular gas fields such as the KG-D6.
The last fiscal — FY10, had seen RIL complete two major projects — getting gas from the KG basin and the new oil refinery at Jamnagar. The company is now generating a strong cash flow with few avenues to invest in existing businesses. This could be one reason for the company taking the inorganic route.