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GAIL buys stake in US firm Carrizo’s shale gas assets

GAIL buys stake in US firm Carrizo’s shale gas assets
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First Published: Thu, Sep 29 2011. 09 10 PM IST

File photo of a GAIL gas terminal at Hazira in Gujrat
File photo of a GAIL gas terminal at Hazira in Gujrat
Updated: Thu, Sep 29 2011. 09 10 PM IST
New Delhi:State-owned GAIL (India) Ltd has acquired a 20% stake in Houston-based Carrizo Oil and Gas’s Eagle Ford shale acreage in a move aimed at acquiring expertise in a segment that may soon become a significant and lucrative one in India, with the country expected to auction shale gas blocks in the next few years.
File photo of a GAIL gas terminal at Hazira in Gujrat
The transaction marks GAIL’s first shale gas asset acquisition and involves an upfront cash payment of $63.7 million (around Rs 312 crore) to Carrizo, with the overall investment valued at around $300 million over a period of next 5 years. The acquisition has been made through GAIL’s US subsidiary GAIL Global (USA) Inc. which will form a joint venture with Carrizo, the state-owned company said in a statement on Thursday.
The joint venture will prospect 20,200 acres, and Carrizo will be the operator. The acreage currently produces the equivalent of 2,350 barrels of oil a day
Shale is a fine-grained sedimentary rock containing an organic material called kerogen, which, when distilled, can produce oil and gas.
GAIL’s efforts are aimed at being able to qualify technically when India bids out shale gas blocks shortly.
“Keeping in view the prospect of Indian shale gas bidding rounds opening within a couple of years, this experience will hopefully help GAIL develop the necessary skill-sets for shale gas exploitation. Under the arrangement, GAIL shall be sending secondees to Carrizo to work on the Eagle Ford assets and GAIL and Carrizo shall also work together in exploring shale gas opportunities in India and other countries outside of US,” said B.C. Tripathi, chairman and managing director, GAIL.
India is finalizing the policy for commercial exploitation of domestic shale gas reserves and will launch auctions for blocks soon. The country has sought the assistance of the US Geological Survey to identify areas where shale gas reserves exist, transfer the technology required to tap these, and finalize an exploration policy. Other state-owned companies such as Hindustan Petroleum Corp. Ltd (HPCL) are also evaluating opportunities in the area.
Around 32,500 trillion cu. ft (tcf) of shale gas reserves have been identified globally. The US is the leading producer of shale gas, with the fuel accounting for 17% of its domestic gas production.
While there are no official estimates of shale gas reserves in India, according to oilfield services provider Schlumberger Ltd, the country has shale gas reserves of between 300 tcf and 2,100 tcf.
The north-eastern states and the Cambay basin are believed to have shale reserves. Given India’s growing dependence on energy imports, there is emerging interest in tapping alternative energy sources such as shale gas and gas hydrates.
The Mukesh Ambani-controlled Reliance Industries Ltd (RIL) has been the most active in buying shale gas assets in the US. It has already acquired stakes in three assets in the US for about $3.44 billion. The deals included the acquisition of a 45% stake in Texas-based Pioneer Natural Resources Co. for $1.32 billion and a 40% stake in Atlas Energy Inc.’s Marcellus shale assets for $1.7 billion.
“As the next logical step, GAIL Global (USA) Inc. will consider expanding its business portfolio in the North American market by pursuing various upstream and midstream opportunities including LNG export to India,” Tripathi added.
Rating agency Fitch Inc. in a report released on Thursday said, “The rapid increase in US domestic gas production has decimated anticipated LNG import demand in the US and led to significant amounts of LNG being sold instead to Europe under short-term sales arrangements.”
The total supply of natural gas in India is around 167.80 million standard cu. m per day (mscmd), including imported LNG, against a demand of 220 mscmd. Of this, LNG accounts for around 20%, or 44 mscmd. India imports around 1 mtpa of LNG bought in the spot markets.
GAIL registered a net profit of Rs 3,561 crore last fiscal on revenue of Rs 32,459 crore.
Deals India, published jointly by Mint, Dow Jones Newswires and The Wall Street Journal, is a one-stop destination for investment professionals following deal flow, deals news, private equity and venture-capital activity in India.
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First Published: Thu, Sep 29 2011. 09 10 PM IST
More Topics: GAIL | Oil | Gas | Shale | Carrizo |