RIL buys stake in US gas field

India’s largest private sector firm Reliance Industries has announced a $1.7 bn investment in a natural gas field in the US. RIL will pick up a 40 per cent stake in a field known as Marcellus Shale, which is currently owned by a firm called Atlas Energy.

The company will pay $339 mn for the stake and an additional $1.36 billion to cover capital expenditure of Atlas Energy. In a statement, RIL’s chief financial officer, Mr Alok Agarwal said that RIL will invest an additional $3.4 billion in the field for its share of the development costs.

In return, RIL will get a 40 per cent stake in a gas field that contains an estimated 13.3 trillion cubic feet of gas — which works out to 5.3 tcf. In comparison, RIL has invested close to $10 billion in KG-D6, which has estimated reserves of 13.6 trillion cubic feet. RIL will also have the option of buying 40 per cent of any additional acreage that Atlas acquires.

Market watchers have been saying for some time that it was a matter of time before RIL took the acquisition route. As of now, all the major capex plans of the company — which include the new 29 million ton refinery at Jamnagar and the gas production facility in KG basin, are over.

It is expected to generate $15-20 billion of cash over the next few years with no avenues for deploying it in-house. RIL has always enjoyed a better valuation compared to its peers partly because of its growth record, so it would look at other avenues for growth.

The company was earlier in the race to acquire petrochem giant LyondellBasell, but the deal fell through because of price.

The current transaction will take care of only a part of RIL’s expected cash flows so it is likely to be scouting for further acquisitions as well, say analysts.

The reserves that RIL is currently acquiring are so called “uncoventional hydrocarbon”, which require more effort and cost to produce.

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