Three months after Chevron Corporation acquired US natural gas producer Atlas Energy in a $4.3-billion deal, Reliance Holdings USA, a subsidiary of Reliance Industries (RIL), has sent a strongly-worded letter to Atlas Energy asking why it was not informed of the deal.
Wvan de Vijver, president & CEO of Reliance Holding, in a filing with the US Securities & Exchange Commission on January 10, asked Atlas: “We do not understand why at no time during the seven months of discussions involving Chevron, during which time we were in regular dialogue as your joint venture partner, did Atlas Energy reach out to Reliance to gauge our interest in a possible company-level transaction.”
Industry experts consider this letter a veiled threat of a potential pullout from the Marcellus Shale joint venture that RIL had formed with Atlas Energy in April 2010 for $1.7 billion.
Therefore, in that context, Reliance’s note to the Atlas board of directors becomes significant. “We would like to evaluate our options, including whether, as a significant partner for most of the value of Atlas Energy’s assets, we may be able to create incremental value for Atlas Energy and its constituencies,” the note stated.
With Chevron buying Atlas, it will take over Atlas’s role as the operator of the joint venture. However, following the Chevron-Atlas deal, RIL had reiterated its commitment and said it would continue to fund 75 per cent of the operator’s drilling costs, up to $1.4 billion.
RIL and Atlas Energy had agreed to a five-year development plan. RIL had also agreed to pay an added $1.36 billion in the form of drilling carry in April 2010.
“We believe Reliance, as Atlas Energy’s joint venture partner and a company with substantial financial resources, would have been the most natural and obvious potential transaction partner for Atlas Energy. This is especially true in light of the many assurances that were conveyed by Atlas Energy management to Reliance during the joint venture negotiations about Reliance being the preferred partner should Atlas Energy choose to pursue a whole-company transaction,” Vijver’s letter added.
Expressing concern over the company’s rights under the joint venture and the expected value, Vijver has requested access to Atlas’ board, management and documents as soon as possible “so that we can ensure that we are not adversely affected as a result of the proposed Chevron transaction”.
Edward E Cohen, chairman, CEO & president of Atlas America, in his reply to Vijver’s letter, stated: “Atlas Energy is committed fully to its ongoing joint venture with you, and we look forward to continuing collaboration with you in that context, in accordance with the terms of the applicable agreements.”
RIL and Chevron are fierce competitors in the global energy market. RIL in 2009 had bought back Chevron Corp’s 5 per cent stake in Reliance Petroleum for Rs 1,350 crore. Chevron, however, had the option to increase its stake in RPL to 29 per cent within three months of commissioning the only-for-export refinery at Jamnagar or exit the company completely.
