RIL to invest $5.1 bn in US shale gas biz

Near-doubling of investment over 3 years; company expects close to 10% contribution to consolidated earnings by FY 15

Don't want to miss the best from Business Standard?

Reliance Industries Ltd (RIL) will invest $5.1 billion (Rs 30,290 crore) in the next three years in its US shale gas business, taking the total investment in the business to $10.8 billion.

The Mukesh Ambani-promoted conglomerate 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 the June 2013 quarter.

Shale gas is natural gas found trapped within shale 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 wells during the life of the project against 514 drilled till 2012-end,” said Niraj Mansingka and Kiran Tulasi of Edelweiss Securities in a report.

The company, which reported its June quarter earnings last week, posted an 84 per cent rise in revenue from its shale gas venture in the US on rising production.

RIL’s shale gas business in the US comprises three upstream joint ventures with Chevron Corp, Pioneer Natural Resources and Carrizo Oil and Gas Inc, and a midstream joint venture with Pioneer.

RIL holds a 40 per cent stake in Atlas Energy; 45 per cent in Pioneer Natural Resources and 60 per cent in Carrizo Oil.

It also holds a 49.9 per cent stake in its midstream project with Pioneer.

The Mumbai-based company has invested in these ventures through its subsidiary, Reliance Holdings USA.

While low natural gas prices post acquisition has dented RIL’s business returns, higher earnings from liquid-rich assets and enhanced capital expenditure efficiency have offset most of the impact, Edelweiss added in its report released after the company announced its results. “RIL is pursuing a high leverage strategy to enhance equity returns in the shale business.”  

RIL expects shale gas to contribute 8-10 per cent to consolidated earnings before interest, tax, depreciation and amortisation in 2014-15.

On the domestic front, the company has told analysts it will commence development on coalbed methane (CBM) blocks and the R-series in the eastern offshore KG Basin block after a final approval on the gas price hike.

Though the government has decided to adopt the Rangarajan committee proposal on raising the gas price, companies like RIL are waiting for an official notification on the matter. Indicative pricing has suggested that domestic gas could rise to around $8.4-8.5 a unit with the new mechanism from the current $4.2 unit now.

Batlivala and Karani in their report said RIL expected approval for the R-series to come in three week. “With the satellite field approval already in place, the company plans to commence the development post the final approval on gas price hike. Production from CBM is expected to peak at 5-7 million standard cubic metres per day and will take three years from commencement but will be taken up only after the gas price hike.”