Mumbai: State-owned gas marketeer GAIL?(India) Ltd is scouting for shale gas assets in the US and is willing to invest around $400-500 million (Rs1,824-2,280 crore), two people familiar with the development said.
The company has floated a request for proposal (RFP) from merchant bankers who can help it identify potential targets and eventually close a deal, said one of the persons familiar with the deal. He did not want to be identified as the matter is at a preliminary stage.
The RFP was issued in December, he said.
Another person with direct knowledge of the development said GAIL was also open to tieing up with another public sector oil and gas companies as a partner for its proposed overseas shale gas venture. He, too, did not want to be named.
“Acquiring a shale gas asset in the US would give the company the opportunity and the competence to bid for shale gas assets in India as and when they come up for auctions,” the second person said.
GAIL is likely to look at an asset that was already in production and would be open to either investing in a particular asset or picking up equity in specific firms, he added.
An email sent to the company on Thursday remained unanswered.
Acquiring a shale gas asset would be a strategic fit with GAIL’s existing line of business, said Niraj Mansingka, oil and gas sector analyst with Mumbai-based brokerage Edelweiss Securities Ltd.
“GAIL has always wanted to have backward integration in the natural gas space,” he said. “Since they are users of natural gas as well, acquisition of a producing asset would be beneficial for them.”
Indian oil and gas companies have been on the lookout for shale gas assets in the US. The strategy is to acquire technical expertise in exploring and developing shale gas by partnering with local companies that own shale gas fields, and commit much-needed capital for developing the resource in the US.
Reliance Industries Ltd, India’s most valuable company by market capitalization, has been the most aggressive Indian firm in the US shale gas space.
The company has made three acquisitions in the current fiscal for an aggregate consideration of around $3.44 billion.
“Big investments by Reliance in the US shale gas space helped it gain acceptance as a potentially profitable venture,” Mansingka said. “This has made other Indian companies take notice of the opportunities there.”
The interest of global companies in US shale gas has been quite high over this fiscal year that started on 1 April 2010.
Industry estimates peg the value of shale gas deals struck in the first half of 2010 at $62 billion, more than the investment in 2008 and 2009 put together.
The alacrity on the part of Indian companies to acquire US shale assets could be explained in the light of the pace at which assets with significant proven reserves were getting snapped up, said Alok Deshpande, oil and gas sector analyst at Elara Capital India Pvt. Ltd.
Assets that are fetching around $6,000 per acre at present could become four times more expensive in the next three-four years when the shale gas space in US reaches an advanced stage of development, he added.
According to an August investor presentation on the company’s website, GAIL has a projected capital expenditure of Rs29,026 crore over the next two fiscals, out of which it plans to borrow Rs15,434 crore.
For the fiscal ended 31 March, GAIL had a net profit of Rs3,139 crore on revenue of Rs25,103 crore.
The company is scheduled to announce its result for the December quarter on Tuesday.