RIL- Facing Huge Loss on Selling US Shale Stake

Mukesh Ambani’s led Reliance Industries has sold its US stake of shale oil and gas block for $126 million at a huge loss. The company sold the shares at 2/3rd of its price. RIL invested in the stakes 7 years ago. In 2010, the Indian conglomerate company bagged 60 percent of stakes in the upstream field for $392 million. The deal was a part of a joint venture with Carrizo Oil and Gas. Reduction of the number of Reliance-owned U.S. shale assets to two was the result of the deal.

The company decided to disown the shares due to their downfall in the oil prices globally. It was disclosed in an exchange filing recently that Reliance Marcellus II, Reliance’s US subsidiary and LLC are divesting interests in north-eastern and central Pennsylvania.

The filing said, “The assets, which are currently operated by Carrizo Oil & Gas, Inc., were sold to BKV Chelsea, LLC, an affiliate of Kalnin Ventures LLC, for consideration of $126 million.” If over the next three years, there is any hike or the thresholds in the price of natural gas are exceeded, Reliance Industries may get conditional payments of up to $11.25 million.

The assets of the two company lie in production of gas and they are situated in Wyoming, Susquehanna and Clearfield County in Pennsylvania. December of this year is expected to be the month to see the final transaction.

According to Kalnin Ventures LLC, the cumulative price of total transaction is around $210 million, in addition to the potential payments of $18.75 million to the sellers over the next three years, as per the price of natural gas.

Reliance Marcellus II, LLC and Carrizo (Marcellus) LLC have stepped in to separate purchase and sale agreements to obtain the asset’s interests.

CEO and President of Reliance Holding USA, Inc, which is the subsidiary of Reliance Marcellus, Walter Van de Vijver stated “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.”

The shale play in the US has seen $9 billion investment from RIL. The main reason behind writing down the price of the gas is lower volumes and poor pricing from the Marcellus region.

Reliance Holding USA Inc has delivered a loss of ₹1,430 crores in CY 2016 in annual report of 2017, as compared to ₹3,280 crores in CY 2015. “Overall volume trends remained subdued reflecting the impact of forced curtailment of production at Marcellus and a ‘zero development’ strategy which are being pursued to conserve cash flows and safeguarding investment returns in a challenging business environment. Consequently, production (RIL share) was 14.6 per cent lower. “The business is taking a cautious approach to resuming development and focusing on conserving cash and retaining optionality.”

The segment’s capital expenditure was ceased and the book value of its shale assets was noted down by RIL over the last few quarters.

As said by a company’s policy bound analyst, who do not want to disclose his identity, “The shale oil and gas market is consolidating in the U.S. and shale gas particularly is not remunerative at current low prices.”

The amount which RIL had invested in the three shale assets accounted for less than 1 percent of Reliance’s consolidated revenue. The Indian Conglomeration is the pioneer and the biggest investor in the world’s biggest refinery complex in western India.

The CEO, Mukesh Ambani has started up a new 4G network ‘Jio’ in the country investing a huge amount of USD30 billion. He offered unlimited calling and data usage for free in his New Year’s festive offer.

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