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Reliance arm sheds entire stake in Pennsylvania shale assets for $250 mn

Citigroup Global Markets acted as financial advisor to Reliance and Gibson, Dunn & Crutcher LLP served as its legal counsel

Topics
Reliance Industries | Citigroup

Twesh Mishra  |  New Delhi 

reliance industries, RIL
A Purchase and Sale Agreement was signed between Reliance Marcellus and NOG on Wednesday for this sale and the transaction is subject to customary terms and conditions of closing

Reliance Marcellus, a wholly owned subsidiary of Reliance Industries, will divest all of its interest in certain upstream assets in the Marcellus shale play of southwestern Pennsylvania.

“These assets, which are operated by various affiliates of EQT Corporation, have been agreed to be sold to Northern Oil and Gas (NOG), a Delaware corporation, for a consideration of $250 million cash and warrants that give entitlement to purchase 3.25 million common shares of NOG at an exercise price of $14.00 per common share in next seven years,” a RIL statement said.

A purchase and sale agreement was signed between Reliance Marcellus and NOG on February 3 for this sale, and the transaction is subject to customary terms and conditions of closing.

EQT had announced the acquisition of Chevr­on’s App­alachia interests in September 2020. Ac­c­o­rding to Northern Oil and Gas, their transaction with RIL compares favourably to other recent App­ala­chian deals and implies a 20 per cent discount rate by their estimates. Global Mar­kets acted as financial advisor to Reliance and Gibson, Dunn & Crutcher LLP served as its legal counsel. RIL is now left with an interest in one shale gas asset in the US, down from three earlier. This remaining one is the Eagle Ford, part of which was sold in March 2018 to Sundance Energy for about $100 million.

In April 2020, Business Standard had reported that the falling demand for crude oil in the US will adversely impact investments made by Indian in the shale business there. For RIL, its investment in US shale is providing its negative returns on equity. The average realisation for RIL’s shale investment had fallen to $2.71 for a thousand cubic feet equivalent of shale production. When crude oil prices drop, production of alternative fuels like shale oil and gas becomes unviable. RIL’s upst­ream joint ventures in US shale include a 45 per cent working interest (WI) partnership with Ensign Natural Resources in the Eagle Ford shale play, and a 40 per cent WI partnership with Chevron.

In October 2017, RIL had sold the first of its shale assets for $126 million, a third of the price it paid seven years earlier, amid a downturn in global oil prices.

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First Published: Thu, February 04 2021. 11:05 IST
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