Oil India eyes shale gas assets abroad

State-run Oil India said today it was eying overseas shale gas assets in a possible consortium with Indian Oil Corporation and GAIL India. The government-controlled exploration company has hired seven banks to facilitate completion of at least one overseas acquisition this financial year.

The banks — Citigroup, Morgan Stanley, Deutsche Bank, BNP Paribas, Nomura Bank International and Merrill Lynch — were appointed over a month before. The banks would provide the company a status report on the shale gas assets available for potential bidding in the US.

“We are looking at acquiring international shale gas assets in the US and Australia. We want to make at least one acquisition in this fiscal,” T K Ananth Kumar, director, finance, Oil India, told reporters on the sidelines of a conference in Mumbai.

Shale gas refers to underground rock formations that hold reserves of oil and natural gas. The US is increasingly attractive for companies across the globe for investment in shale acreages. Shale gas accounts for around 20 per cent of US gas production.

Kumar said the company may tie up with two other state-run companies, GAIL India and IndianOil Corporation, for possible acquisition of shale assets. Oil India has planned a capital expenditure of over Rs 4,400 crore for this financial year. This would include acquisitions.

Private sector Reliance Industries (RIL) has over the past five months made three shale gas acreage acquisitions in the US. In April this year, RIL bought a 40 per cent stake in Atlas Energy Inc’s Marcellus Shale acreage for $1.7 billion. In June, it agreed to buy a 45 per cent stake in Pioneer Natural Resources’ Eagle Ford shale natural gas asset in Texas for about $1.36 billion. This month, it acquired a 60 per cent stake in the Marcellus shale-gas acreages of Carrizo Oil and Gas Inc in the US for $392 million.

Last week, Bharat PetroResources Ltd (BPRL), the overseas upstream arm of state-run Bharat Petroleum Corporation Ltd (BPCL), bought two exploration acreages of shale gas operated by Norwest Energy at Perth, Australia.

The company signed a letter of intent with Norwest Energy to acquire a 50 per cent stake in block TP-15 and 27.8 per cent stake in block EP-413. This is BPCL’s first international shale gas acquisition, where it would invest Rs 63 crore for exploration and drilling of the blocks.

Domestic auction next year
Within the country, the government is looking to launch the first-ever auction of shale gas areas in August 2011. Identification of the areas will be done by early next year. This will be followed by carving out suitable blocks.

Shale gas auction will be the second unconventional natural gas source in India after coal bed methane. Several basins — Cambay (in Gujarat), Assam-Arakan (in the North-East) and Gondwana (in central India) — are known to hold shale gas resources.

In March this year, the board of Oil and Natural Gas Corporation (ONGC) approved a pilot project for exploration of shale gas in the Damodar Basin at an expenditure of Rs 128 crore.

The Directorate General of Hydrocarbons and the ministry would study worldwide fiscal and contractual regimes before framing a shale gas policy. It is being worked out and is likely to be in place by the end of the current financial year.

The Petroleum and Natural Gas Rules, which govern oil and gas exploration activity, will be amended prior to the floating of the first round of auction. India is also likely to sign a cooperation agreement with the US Geological Survey later this year for knowledge sharing on shale gas.