RIL buys 45 pct in US shale gas JV

The deal is expected to close within five business days,Pioneer said in a separate statement.

“Reliance has lot of cash and as an investor I would like to see them investing more on getting access to resources like these,” said Taina Erajuuri,portfolio manager at FIM India,which owns about $150 million worth of Indian shares in Helsinki. “It’s a step in the right direction for Reliance,” she said.

The deal is the second this year in the promising U.S. shale gas sector for Reliance,a petrochemicals-to-refining giant with a market value of $75 billion,making it India’s most-valuable company. The deal had been widely expected and Reliance shares were little changed on Thursday.

In April,Reliance agreed to pay $1.7 billion to Atlas Energy to form a joint venture and own a 40 per cent stake in Atlas’ Marcellus Shale operations in the eastern United States.

Under the new agreement,Pioneer will get $1.15 billion and partner Newpek LLC will receive about $210 million. After the deal,Reliance will own 45 per cent in the Eagle Ford shale acreage,while Pioneer and Newpek will hold 46 per cent and 9 per cent respectively.

Last week,Reliance Chairman Mukesh Ambani,the world’s fourth-richest man,said his company planned to expand its presence in the U.S. shale gas business,in addition to a foray into India’s high-potential power sector and a return to the telecom business.

BULKING UP

Reliance has said it will pursue joint development opportunities with the best operators as well as on its own to build a substantial upstream business in North America.

Companies from around the globe are increasingly investing in U.S. shale plays — underground rock formations that hold reserves of oil and natural gas.

Shale gas accounts for between 15 per cent and 20 per cent of U.S. gas production but is expected to quadruple in coming years,touching off a scramble among producers large and small for access to resources.

Based on the joint venture development plan,Pioneer’s net production in the Eagle Ford asset will increase to between 32,000 and 41,000 barrels of oil equivalent per day (BOEPD) in 2013,from 2,000 barrels BOEPD in 2010,Pioneer said in a statement.

“This strong production growth,coupled with the up-front cash payment and drilling carry from Reliance,is expected to generate positive cash flow from upstream and midstream activities in all years going forward,” it said.

Pioneer plans to increase the drilling program to approximately 140 wells per year within three years.

Reliance will have an option to acquire a 45 per cent share in all newly acquired assets by the JV and will also act as development operator in certain areas in coming years.

Reliance said it would also form a separate midstream joint venture with Pioneer to service the exploration and production unit,investing $46 million for a 49.9 per cent stake.

Reliance was represented by Barclays and UBS for the deal,while Bank of America Merrill Lynch represented Pioneer.

At 12:45 p.m.,shares in Reliance,the biggest constituent in the Sensex index,were trading 0.35 per cent higher at Rs 1,062.25 in Mumbai,while Pioneer shares closed up 0.33 per cent in New York,ahead of the announcement.