Reliance to Digest US Shale Gas Assets before Buying More - Source

MUMBAI (Dow Jones Newswires), Oct. 12, 2010

Reliance plans to focus on developing its existing shale gas assets in the U.S. before going ahead with further acquisitions, a person with knowledge of the matter said.

India's biggest company by market value will buy additional shale assets in the U.S. only if the valuations are low, the person, who declined to be named, told Dow Jones Newswires.

"Each shale gas acreage has been acquired at a cheaper price than the previous one. The company will look at investments only if they are at a good price," the person said.

Reliance Industries, India's biggest private oil refiner, has been actively diversifying its exploration portfolio across the energy spectrum, including into U.S. shale gas.

This is an area that has attracted heavy investments from global energy giants such as Shell, Exxon Mobil and more recently, Cnooc.

In April, Reliance Industries took a 40% stake in U.S.-based Atlas Energy's Marcellus Shale acreage in a deal valued at $1.7 billion. It followed up in June with the purchase of a 45% stake in Pioneer Natural Resources' Eagle Ford shale natural gas asset in Texas for $1.3 billion.

The Atlas transaction was at $14,167 per acre while the Pioneer Natural purchase came in at $11,111 per acre. In August it made a smaller $392 million investment for a 60% stake in a shale gas joint venture with Houston-based Carrizo Oil & Gas.

Shale gas is trapped in geological shale formations and previously had been very difficult to extract. But U.S. companies have developed technologies to crack these tight rock formations, making output of the gas economical, and in so doing transforming the country's energy profile.

One reason for previous shale gas investment was high natural gas prices. But now a supply overhang resulting from shale output has driven U.S. gas futures to a one-year low. Shale gas output in the U.S. has also displaced imported liquefied natural gas, making more LNG available for other countries and keeping a lid on international prices.

The person said Reliance Industries intends to become an operator of its shale gas acreage and plans to acquire working knowledge and expertise of the sector before expanding its presence.

"It does not make sense to accumulate shale acreage without learning anything from it," he said.

The person said the original contracts gave Reliance the right to be joint operator, but he didn't give any details of what would be required for this to happen.

China's state-run oil company Cnooc Ltd. Sunday chose shale gas for its first major investment in onshore U.S. energy assets, in a venture worth more than $2 billion.

It bought a third of Chesapeake's southern Texas shale resources for $1.1 billion, and said it would finance another $1 billion in drilling costs. Media reports said earlier that Reliance Industries was initially in talks with Chesapeake.

Analysts say companies such as Cnooc and Reliance Industries want to take the technology know-how they acquire in the U.S. to develop potentially huge gas reserves at home.

India's upstream regulator plans to have a shale gas policy in place by the end of 2011, while China's Ministry of Land and Resources has said it wants domestic annual shale gas output capacity to reach 15 billion-30 billion cubic meters by 2020, from negligible levels now.

The International Energy Agency says China alone has untapped shale gas reserves of 26 trillion cubic meters.

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