Mukesh Ambani led Reliance Industries Limited (RIL) has planned to invest $5.1 billion (approximately Rs 30,290 crore) in its US Shale gas business in the coming three years. With this huge investment, the total amount pouring into this sector from the bag of RIL is about $10.8 billion. Shale gas is natural gas found trapped within stale formations.
“RIL has emerged as a serious shale gas player. We expect RIL to spend another $5.1 billion during calendar years 2013-2016 and the joint ventures will drill 3,846 well during the life of the project against 514 drilled till 2012-end,” said Niraj Mansingka and Kiran Tulasi of Edelweiss Securities in a report.
Previously, Reliance had acquired shale gas assets in the US in 2010 for $3.45 billion and has invested $5.7 billion in shale gas joint ventures till date. Mumbai-based Executive Director P.M.S Prasad said the company bought the US Shale assets in 2010. “Earnings from oil and gas sales in the U.S will be sustained. In the next two years, we may not be able to raise gas production in India, while in the U.S output will continue to gain.” Prasad said in an interview.
In total, there are three upstream joint ventures in RIL’s shale gas business in the US- Chevron Corp, Pioneer Natural Resources and Carrizo Oil and Gas Inc. It also holds a 40 percent stake in Atlas Energy, 45 percent in Pioneer Natural Resources and 60 percent in Carrizo Oil. The company has a stake of 49.9 percent stake in its midstream project with Pioneer. Reliance Holdings USA, a subsidiary of RIL looks after these stakes.
RIL stated in its quarterly earnings, released last week that an increase of 84 percent in revenue has been earned from its shale gas venture in US as a result of rising production. Better earnings from liquid-rich assets and upgraded capital expenditure efficiency have triggered this positive impact. “RIL is pursuing a high leverage strategy to enhance equity returns in the shale business,” said an Edelweiss report.
“US Shale will become a significant contributor to Reliance’s profit in the next five years because higher prices there will lead to higher output,” said Neelabh Sharma, a Mumbai based analyst at BOB Capital Markets Ltd.
The energy giant has charted out that shale gas will contribute 8-10 percent to consolidated earnings before interest, tax, depreciation and amortization in the upcoming financial year. In the country, the company will soon start its development on coal-bed methane (CBM) blocks and the R-series in the KG-D6 basins located in the eastern side after it gets the final nod of gas price hike. Production from CBM is expected to peak at 5-7 million standard cubic metres per day after the development commences.