RIL to buy 40 % interest in Atlas Energy's Shale acreage

Reliance Industries Limited (RIL) on Friday said that its subsidiary, Reliance Marcellus LLC, has executed definitive agreements to enter into a joint venture with U.S.-based Atlas Energy, Pittsburgh, Pennsylvania, under which Reliance will acquire a 40 per cent interest in Atlas' core Marcellus Shale acreage position.

The cost of acquiring this interest has two components. RIL will pay Atlas $339 million in cash at closing. Further, it will fund $1.36 billion of capital costs under a carry arrangement for 75 per cent of Atlas capital costs over an anticipated seven-and-a-half year development programme. The transaction is anticipated to close by the end of April. “This is a new, significant value creation platform for Reliance. The financial commitment to this joint venture, including development expenditure and carry is likely to be about $5 billion over the next ten years,” said Alok Agarwal, Chief Financial Officer, RIL, while announcing the joint venture here. With the completion of the deal, Reliance would become a partner in about three lakh net acres of undeveloped leasehold in the core area of Marcellus Shale in south western Pennsylvania. Low operating costs and proximity to U.S. northeast gas markets combine to make Marcellus one of the most economically attractive unconventional natural gas resource base in North America.

The acreage will support the drilling of over 3,000 wells with a net resource potential of about 13.3 trillion cubic feet equivalents (tcfe) (5.3 tcfe net to Reliance).

While Atlas will serve as the development operator for the joint venture, Reliance is expected to begin acting as development operator in certain regions in the coming years as part of the joint venture. Under the framework of the joint venture, Atlas will continue acquiring leasehold in the Marcellus region and Reliance will have the option to acquire 40 per cent share in all new acreages.

Reliance also obtains the right of first offer with respect to potential future sales by Atlas of around 2.80 lakh additional Appalachian acres now controlled by Atlas (not included in the present joint venture). The Reliance-Atlas joint venture thus has the potential to become one of the largest prime acreage holders in the Marcellus Shale.

Commenting on the joint venture, P. M. S. Prasad, Executive Director, Reliance Industries, said, “Reliance is very pleased to enter one of the fastest growing opportunities emerging in the U.S. unconventional gas business and that too with one of the largest, most experienced energy producers in the Appalachian Basin as partner.”