To buy 20 % stake in shale gas for $95 million

GAIL (India) on Thursday announced its decision to buy 20 per cent stake in a shale gas area operated by Carrizo Oil and Gas Inc in the U.S. for $95 million.

Under the deal, GAIL will pay $63.7 million in cash to Carrizo and bear $31.3 million of the Houston-based firm's future costs to develop the area in the Eagle Ford deposits in Texas, the company said in a statement here.

$300 m investment

The gas utility, through its wholly-owned U.S. subsidiary GAIL Global (USA) Inc, will invest $300 million over the next five years in the lucrative Eagle Ford shale assets.

“The subsidiary company on Thursday executed definitive agreements with Carrizo, a NASDAQ-listed company based in Houston, Texas, to enter into an unincorporated joint venture,'' the statement said.

The joint venture will have 20,200 gross acres, out of which the GAIL subsidiary will have 4,040 net acres spread over four counties in Texas. GAIL will consider expanding its business portfolio in the North American market by pursuing various upstream and midstream opportunities, including LNG exports to India, GAIL Chairman and Managing Director B. C. Tripathi said.

GAIL will get a net 4,040 acres in La Salle County, according to Carrizo's statement. The agreement includes a 20 per cent share in eight wells that produce about 2,350 barrels of oil-equivalent a day. A number of shale gas plays have been discovered in North America, of which the Eagle Ford shale is considered as the most economically attractive unconventional resource play till date, it said.

“We believe that this transaction with Carrizo comes at an opportune time. Under the arrangement, GAIL shall be sending secondees to Carrizo to work on the Eagle Ford assets and GAIL and Carrizo shall also work together in exploring shale gas opportunities in India and other countries outside of the U.S. This transaction represents a major step in GAIL's efforts to establish its presence in North America,'' Mr. Tripathi said. Jefferies & Company acted as the exclusive financial advisor to GAIL on the deal.

Thompson & Knight LLP acted as legal counsel to GAIL, while Ernst & Young and RPS acted as tax and accounting and technical due diligence consultants, respectively.