5 years on, RIL to soften its fracking in the US

To reduce investment in 2 of 3 joint ventures

Five years after farming into three shale gas assets in the US, Reliance Industries will reduce investment in two of the joint ventures. 

Reliance's shale gas business in America comprises three upstream joint ventures with Chevron, Pioneer Natural Resource and Carrizo Oil & Gas, and a midstream joint venture with Pioneer. 

Till July 2012, Reliance expected its shale gas business to become a material contributor to the company's earnings. At the end of the June quarter, Reliance's capital expenditure in the three shale gas  ventures was $275 million, down 15 per cent from a year ago. 

"It was yet another challenging quarter for the business due to strong macro headwinds, characterised by weak benchmark prices and high differentials. Strong operational trends and successful capex management helped to some extent. Overall business performance was stable on a sequential basis, but lower on a year-on-year basis," Reliance said in its earnings statement. 

The company added its focus was on growing asset values and enhancing business resilience.

The shale gas business has seen a stable quarter-on-quarter performance, but realisations are sharply lower from a year ago. (See table) 

Activity at the Carrizo joint venture remained low and curtailments continued due to weak prices. Growth in earnings before interest, tax, depreciation and amortisation (EBITDA) was muted despite stable volumes. 

"All JVs have taken steps to renegotiate services contracts in the current price environment. Absolute and unit opex came out lower sequentially across all JVs," Reliance said. 

In its Chevron venture Reliance has lowered drilling and completion costs and lease operating expenses. Procurement contracts are being re-negotiated and the venture is conserving capital through moderated development. "Only one rig operation is planned for the rest of calendar year 2015," Reliance said. 

In the Carrizo venture, Reliance is making selective production curtailments at lower prices while ensuring cash from operations.

However, sequentially capex is marginally higher as the Chevron venture continued to work the legacy inventories during the quarter.

"No drilling is planned at the Carrizo JV while the Pioneer JV is to continue with scaled-down 6-rig operations even during 2HCY15," Reliance said.