RIL to sell US Marcellus shale assets for $250 million

Reliance Industries’ wholly owned subsidiary Reliance Marcellus has agreed to sell its stake in US Marcellus shale fields to Northern Oil and Gas of Delaware Corporation for $250 million or Rs 1,825 crore in cash and warrants. The sale is part of the company’s strategy to exit the US Shale business after the drop in crude prices hit the valuations of its shale assets.

The warrants entitle the company to purchase 3.25 million common shares of Northern Oil Gas at an exercise price of $14 per share in next seven years.

The company in its Q3FY21 results said that given the current weak macro environment and its impact on price realisation, both the Marcellus and Eagleford JVs are pursuing minimal activity and have optimised costs. “Due to the adverse changes in market environment, reduction in activity by operator and recent operational performance, the Shale Gas subsidiaries have impaired their assets including unavoidable costs based on contractual commitments, totaling to Rs 15,691 crore.”

However, according to sources, the company is not expected to reverse the impairment following the deal.

The sale and transaction is subject to customary terms and conditions of closing, the company said.

Citigroup Global Markets acted as financial advisor to Reliance and Gibson, Dunn & Crutcher served as its legal counsel.

RIL had in 2017 sold upstream Marcellus shale gas assets in northeastern and central Pennsylvania in the US for $126 million to BKV Chelsea, an affiliate of Kalnin Ventures. It is currently operated by Carrizo Oil & Gas. In 2010, RIL had bought a 60% stake in the assets for $392 million. RIL had between 2010 and 2013 bought stakes in three upstream oil exploration joint ventures with Chevron, Pioneer Natural Resource, and Carrizo Oil and Gas; and a midstream joint venture with Pioneer.

In June 2015, the company sold its Eagle Ford (EFS) midstream joint venture with Pioneer Natural Resources in the US, realising $1 billion from the sale. RIL had spent $46 million in acquiring the 49.9% stake in EFS and invested another $208 million over the years.