RIL sells US shale asset at $126 mn after buying it for $392 mn

Diversified Indian conglomerate Reliance Industries Ltd has agreed to sell a shale oil and gas block in the United States for $126 million, a third of the price it paid seven years ago, amid a downturn in global oil prices.

Reliance Industries (RIL) on Friday said it has sold its shale assets in northeastern and central Pennsylvania, Marcellus Shale, to BKV Chelsea, an affiliate of energy investment firm Kalnin Ventures, for $126 million, seven years after it had bought them for $392 million.

On Friday, Reliance Marcellus II, a subsidiary of Reliance Holding USA, and RIL announced the signing of agreements to divest all of its interest in certain upstream assets in north-eastern and central Pennsylvania.

RIL may receive contingent payments of up to $11.25 million in aggregate based on natural gas prices exceeding certain thresholds over the next three years, the company said.

The US shale market has become highly competitive and companies have cut costs to stay afloat after a slump in crude oil and gas prices.

Houston-based Carrizo Oil & Gas Inc, the operator of the Marcellus asset, also exited its investment, Reliance said.

"This transaction represents an opportunistic sale of developed upstream Marcellus assets and ends a successful partnership of 7 years with Carrizo in a joint sale. We will continue to actively manage the remainder of our US shale resources," said Walter Van de Vijver, president and CEO of Reliance Holding.

The Carrizo operated acreage was one of the three upstream assets in the US, owned by Reliance. Reliance remains invested in the Marcellus shale play via its non-operated position with Chevron in southwestern Pennsylvania and in the Eagle Ford play via its non-operated position with Pioneer in Texas.

The sale of the assets will be consummated in accordance with the terms of a purchase and sale agreement, dated 5 October 2017, by and between Reliance and the buyer.

The deal reduces the number of Reliance-owned U.S. shale assets to two.

Reliance may look at selling its other US shale assets, which have also been losing money, said Reuters citing analysts. It had invested just over $2 billion in 2010 to purchase the three assets, which were operated by its joint-venture partners.

The three shale assets accounted for less than 1 per cent of the consolidated revenue of Reliance, which runs the world's biggest refinery complex at Jamnagar in Gujarat. It has also ventured into telecoms in recent years, investing $30 billion in fourth-generation network Jio.

US shale assets were badly hit after oil prices had dropped to less than $30 per barrel in the last three years, making many of these projects unviable.

Reliance invested close to $9 billion in three US shale projects over the last seven years. The company said in March without disclosing the value that they might have to take an impairment hit on shale assets over the next five years due to fall in crude oil prices.

Walter Van de Vijver, president and chief executive of Reliance Holding USA, said, ''This transaction represents an opportunistic sale of developed upstream Marcellus assets and ends a successful partnership of seven years with Carrizo in a joint sale. We will continue to actively manage the remainder of our US shale resources.''

The Carrizo-operated acreage was one of the three upstream assets in the USA owned by Reliance. It remains invested in the Marcellus shale play via its non-operated position with Chevron in southwestern Pennsylvania, and in the Eagle Ford via its non-operated position with Pioneer in Texas.

The transaction is anticipated to close by the end of the third quarter of FY 2018 with an effective date of 1 April 2017. Citigroup Global Markets acted as the financial advisor to Reliance, while Haynes and Boone served as its legal counsel.

The transaction is anticipated to close by the end of the third quarter of FY2018, with an April 1, 2017 effective date.