India State Cos Acquire 30% Stake in Carrizo's Shale Asset
NEW DELHI - India's state-run explorer Oil India Ltd. and refiner Indian Oil Corp. said Thursday that they will acquire a 30% stake in Houston-based Carrizo Oil & Gas Inc.'s Niobrara shale oil acreage in Colorado for $82.5 million, gaining entry to America's booming shale industry.
Indian companies are scrambling to buy oil and gas assets overseas to satiate the burgeoning energy demand of Asia's third largest economy, which meets four-fifths of its crude-oil and about a fourth of its gas needs through imports.
Shale gas finds in the U.S. have led to a supply glut and depressed prices, prompting companies like BHP Billiton, BP PLC and Encana Corp. to write down the value of their assets. Several explorers have been forced to look for joint ventures or asset sales to salvage their weak balance sheets, making valuations attractive and igniting the interest of energy hungry countries like India.
India's state-run companies are eyeing assets in politically stable nations like the U.S. after suffering setbacks in countries like Libya, Sudan and Syria, where production has been hit due to the geopolitical situation.
Will Pearson, an energy analyst at the Eurasia Group, said India is catching up "to where a lot of Asian companies already are," pointing to Chinese state-run oil giant Cnooc's proposed $15 billion takeover of Nexen Inc., a Canadian oil company. Indian companies such as Reliance Industries Ltd. and GAIL (India) Limited have already made ventures into North America.
Mr. Pearson said many Asian companies are hoping to gain technological know-how they can ultimately apply to development of their own domestic shale resources--India has said it will open bidding for exploration of shale gas by late 2013.
Asian companies are also hoping to gain access to inexpensive U.S. natural gas they hope will one day be exported to Asia, Mr. Pearson said.
Indian Oil and Oil India will invest another $230 million over the next three to four years to develop the Niobrara shale oil acreage, Oil India's Director of Finance, T.K. Ananth Kumar, said at a news conference Thursday.
Oil India, which has cash reserves of 130 billion rupees ($2.5 billion), will raise $100 million in debt overseas for the acquisition, as the cost of raising funds abroad is cheap, he said.
Oil India and Indian Oil currently hold stakes in oil and gas blocks in countries like Gabon, Iran, Libya, Nigeria, Yemen, Timor Leste and Venezuela. Oil India, which has a majority of its producing fields in northeast India, accounted for a tenth of the country's oil and about 6% of its natural gas output in the financial year ended March 31.
Oil India's domestic oil output is on the decline, and overseas oil sources will help it make up for the loss in local output.
Indian Oil Group is the country's largest refiner by capacity, owning 10 of the country's 22 refineries. It has been scouting for oil assets overseas to meet its rising oil demand.
Carrizo's Niobrara shale acreage is currently producing about 2,000 barrels of oil equivalent a day and output is expected to touch 6,000 barrels of oil equivalent a day in the next few years, Mr. Kumar said.
Carrizo last year sold a 20% stake in its Eagle ford acreage in South Texas to India's state-run GAIL (India) Ltd. and in 2010 sold a 20% stake to privately held Reliance Industries Ltd. in its Marcellus shale acreage in Appalachia.
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