The upstream transaction consideration is valued at $1.315 billion
Reliance Industries Limited (RIL) on Thursday announced that its subsidiary, Reliance Eagleford Upstream LP, has executed definitive agreements to enter into a joint venture with U.S.-based Pioneer Natural Resources Company, Irving, Texas, under which, Reliance will acquire a 45 per cent interest in Pioneer's core Eagle Ford Shale acreage position in two separate transactions.
Pioneer and Newpek LLC, Pioneer's current partner in the Eagle Ford, will simultaneously convey 45 per cent of their respective interests in Eagle Ford to Reliance. Newpek, a wholly-owned subsidiary of ALFA, S.A.B. de C.V., at present owns about 16 per cent non-operated interest in Pioneer's core Eagle Ford Shale acreage.
Following the transactions, Pioneer, Reliance and Newpek will own 46 per cent, 45 per cent and 9 per cent of the joint venture interests, respectively. The joint venture will have an approximate net working interest of 91 per cent in 2.89 lakh gross acres implying 2.63 lakh net acres.
Reliance will pay $1.315 billion for its implied share of 1.18 lakh net acres. This upstream transaction consideration will include combined upfront cash payments of $263 million and deferred payments of $1.052 billion associated with a carry arrangement for 75 per cent of Pioneer's and Newpek's capital costs over an anticipated four years.
The joint venture's leasehold, which is largely undeveloped, is located in the core area of the Eagle Ford Shale in south Texas. Low operating costs, significant liquids content (70 per cent of the acreage lies within the condensate window) and excellent access to services in the region combine to make the Eagle Ford one of the most economically attractive unconventional resource plays in North America, RIL said in a release here.
“Pioneer believes the acreage will support the drilling of over 1,750 wells with a net resource potential to the joint venture of about 10 tcfe (4.5 tcfe net to RIL).”
The joint venture plans to increase the current drilling programme to about 140 wells a year within three years. Also included in the transaction is current production of 28 mmcfe/d (11 mmcfe/d net to Reliance) from five currently active horizontal wells.
While Pioneer will serve as the development operator for the upstream joint venture, Reliance is expected to begin acting as development operator in certain areas in the coming years as part of the joint venture.
Additionally, Reliance and Pioneer have executed definitive agreements to form a midstream joint venture that will service the gathering needs of the upstream joint venture. Reliance's subsidiary, Reliance Eagleford Midstream LLC, will pay $46 million to acquire a 49.9 per cent membership interest in the joint venture.
Pioneer and Reliance will have equal governing rights in the joint venture and Pioneer will serve as operator. Under the framework of the joint venture, Pioneer will continue acquiring leasehold in the Eagle Ford Shale and Reliance will have the option to acquire a 45 per cent share in all newly acquired acres.
Commenting on the joint venture, P. M. S. Prasad, Executive Director, Reliance Industries, said, “Reliance is pleased to establish a long-term partnership with Pioneer in the Eagle Ford shale. This transaction represents another significant milestone in Reliance's efforts to grow its North American shale gas operations.”
Barclays Capital Inc. and UBS Securities LLC acted as financial advisors to Reliance. Baker Botts LLP acted as legal counsel to Reliance.