Reliance Industries Limited (RIL) on Thursday said it would acquire a 60 per cent interest in Marcellus Shale acreage in Central and Northeast Pennsylvania for a total consideration of $392 million. The shale acreage is now held by Carrizo and ACP II Marcellus LLC (an affiliate of Avista Capital Partners) in a 50:50 joint venture. Pursuant to the transaction, Reliance will acquire 100 per cent of Avista's interest and 20 per cent of Carrizo's interests in the joint venture.
Reliance Marcellus II, LLC, a subsidiary of RIL, has signed definitive transaction agreements to enter into a Marcellus Shale joint venture with U.S. based Carrizo Oil and Gas.
Upon completion of the transaction, Reliance and Carrizo will own 60 per cent and 40 per cent interests, respectively, in a newly formed joint venture between the companies.
The total consideration of $392 million comprises $340 million of cash and $52 million of drilling carry obligations. The drilling carry obligations will provide for 75 per cent of Carrizo's share of development costs over an anticipated two-year development programme.
The joint venture will have about 104,400 net acres of undeveloped leasehold in the core area of the Marcellus Shale in Central and Northeast Pennsylvania, of which Reliance's 60 per cent interest will represent about 62,600 net acres. This acreage is expected to support the drilling of about 1,000 wells over the next ten years, with a net resource potential of about 3.4 trillion cubic feet equivalents (tcfe) (2 tcfe net to Reliance).
The transaction allows for additional growth in the development acreage, at pre-agreed terms. Carrizo will serve as the development operator for the joint venture and Reliance has the option to act as a development operator in certain regions in the coming years as part of the joint venture. The transaction is anticipated to close by mid-September 2010.
Commenting on the joint venture, RIL President (International E&P Business) Walter Van de Vijver said, “Reliance is excited about the opportunity to further expand presence in the Marcellus Shale in the U.S. We are pleased to establish a long-term partnership with Carrizo, which has demonstrated operating expertise in the shale plays. The proposed joint venture will supplement strengths achieved through our recent joint ventures and further expands our footprint in North American shale gas operations.”
Jefferies & Company, Inc. acted as lead financial advisor and Vinson & Elkins LLP acted as legal counsel to Reliance. BNP Paribas and Credit Agricole Corporate and Investment Bank provided strategic advise to RIL in respect of this investment.