India’s largest corporate, Reliance Industries is all set to sell its 45% stake in its shale gas joint venture with Pioneer Natural Resources at Eagle Ford in USA by next week at a far lower valuation than its initial expectations of $4.5 billion. The valuation fell mainly due to the falling crude oil prices since the sale process began last year and due to environment damage concerns over fracking in the USA.
Bankers say Eagle Ford Midstream sale process took a lot longer than expected also due to the complexities of the contractual arrangements that amounted to moving away from Pioneer providing its own drilling services to contracting the same to a third party, and the negotiations on committing volumes to the third parties.
“But the company remain very optimistic that it will announce the sale of this business within June and its proceeds would substantially improve the balance sheet of the partners,” said a banker. Pioneer – the operator of the field -- holds a 46% stake in the Eagle Ford venture, while 9% is held by Alpha SAB's Newpeck LLC. RIL's stake is likely to be valued at around $4 billion.
When contacted, a RIL spokesperson said the company constantly strives to identify means by which to create additional value for its shareholders. “It is Reliance's policy not to comment on market speculation. If there are any required disclosures, Reliance will make them at the appropriate time," said he.
In June 2010, RIL had bought the 45% interest in Pioneer’s Eagle Ford shale formation in South Texas for $1.31 billion. RIL has invested a total of $3.91 billion in the Pioneer JV. Besides, in the US, Reliance set up two more partnerships with strong local operators – Carrizo and Chevron. So far, it has invested $ 7.9 billion of capex in its three joint ventures.
Analysts say falling crude oil prices coupled with widespread protests against shale gas projects in the USA is increasing the risk for investors. Many American states have even banned shale gas projects saying it is contaminating ground water with chemicals. These are some of the reasons why many companies are reducing their exposure to shale gas assets in the USA.
Analysts say RIL’s shale gas business reported 33% (QoQ) decline in revenues to $138 million and 48% decline in Ebidta to $91 million in the fourth quarter of Calender 2014 – reflecting 5% decline in production volumes. The company invested an additional $234 million in the March quarter of 2015.
Substantial part of Pioneer JV’s capex was met through cash from JV operations, while Carrizo JV was cash positive from operations in 2014. Chevron JV – in which RIL holds 40% stake — continued to account for most of the ongoing capex and funding need, the company said in its annual report for fiscal 2015.
No comments:
Post a Comment