Shale gas fuels GAIL's US energy market entry

GAIL India, the country’s largest marketer and transporter of natural gas,  has become the first government-owned energy company to get a foothold in the US market. It has entered into a deal with Carrizo Oil and Gas Inc for acquiring 20 per cent stake in Eagle Ford shale acreage. The GAIL’s entry into the shale business comes within a year of Reliance Industries Ltd  marking its presence in the US through the acquisition of shale assets in three assets, that are yet to start production.

GAIL already has a significant international presence with a CNG and City Gas network in Egypt, a stake in China Gas Holdings and a participating interest in two oil and gas blocks in Myanmar.

GAIL will pay a total of $95 million to Houston-based Carrizo, which includes $63.7 million in cash and another $31.3 million for developing the area in the Eagle Ford deposits in Texas. GAIL, through it recently formed subsidiary GAIL Global (USA) Inc, will invest $205 million over the next five years in the assets. “The subsidiary company today executed definitive agreements with Carrizo, a Nasdaq-listed company, to enter into an unincorporated joint venture,” GAIL said in a statement.

The joint venture will have 20,200 gross acres, of which the GAIL subsidiary will have 4,040 net acres spread over four counties in Texas. The JV is expected to drill an additional 139 wells in the acreage. Carrizo will continue to function as the operator for the joint venture. The agreement includes a 20 per cent share in eight wells that produce about 2,350 barrels of oil-equivalent a day. GAIL “will consider expanding its business portfolio in the North American market by pursuing various upstream and midstream opportunities, including LNG exports to India,” chairman and managing director B C Tripathi said.     

Keeping in view the prospect of Indian shale gas bidding rounds opening within a couple of years, this experience will help GAIL develop the necessary skill-sets for shale gas exploitation. This will come in handy when India launches its own shale gas round.  Experts, however, see this as a small beginning by GAIL. “It is a small deal (considering the size of GAIL) to ascertain how investment in unconventional gas resource will pan out. GAIL appears to have put a small seed capital. It is like a large company starting a pilot to evaluate future prospects,” said Niraj Mansingka, associate director (research) at Edelweiss Capital. 

The Mukesh Ambani-promoted RIL too has a tie-up with Carrizo. In 2010, it acquired a stake in three US shale gas projects — ventures with the US-based Chevron, Carrizo and Pioneer — with a commitment of investing up to $4 billion.

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