Indian billionaire Mukesh Ambani’s Reliance Industries, which has struck three shale gas joint ventures with US firms this year, may make a full buyout next, as the cash-rich firm builds the knowledge it needs to run such operations.
Shale is underground rock formations that hold reserves of oil and natural gas. Reliance has received about 20 to 25 pitches from investment bankers for shale assets, Reliance Chief Financial Officer Alok Agarwal said recently.
Bankers say potential targets include Fort Worth, Texas-headquartered Quicksilver Resources Inc, Denver, Colorado-based Enduring Resources and companies with assets in the Horn River shale formation in Canada. Another firm on Reliance’s radar may be Houston, Texas-based EOG Resources, which said in early August it plans to sell about 180,000 acres in US shale plays.
Shale gas accounts for between 15 per cent and 20 per cent of US gas production, but is expected to quadruple in the coming years, touching off a scramble among producers large and small for access to resources.
Ambani, the world’s fourth richest man according to Forbes magazine, has made no secret of Reliance’s overseas ambitions, and is looking to invest in new areas such as shale gas to expand the firm’s businesses beyond petrochemicals, refining, oil and natural gas exploration, and retail. He could face competition from other firms, including Royal Dutch Shell, Total and Mitsui, which have done shale gas deals previously, and those that have not bought a shale asset yet such as Chevron and Encana.
Reliance is expected to generate free cash flow of $18 billion between this year and the financial year that ends in March 2014, giving it plenty of firepower for investment. The company has raised a war chest of $2 billion by selling stock over the past year, and a top credit rating means financing will be easily available if needed, bankers say.
Last month, the company said it would acquire a 60 per cent stake in a joint venture with Carrizo Oil & Gas at the booming Marcellus Shale region in the United States, following similar deals with US firms Atlas Energy and Pioneer Natural Resources earlier in the year.
Joint ventures give independent oil companies, who own much of the acreage in these areas, access to capital and allow foreign oil firms to pick up expertise in new drilling techniques developed for the shales.
"They would love to do a large deal, a $3 billion to $5 billion type deal somewhere," said one US investment banker familiar with the company’s thinking.
"They’ve really had to put only a few hundred million dollars to work right now. They’ve got tons of cash on the balance sheet," the banker said. The bankers mentioned in the story did not want to be identified as they were not authorised to speak with the media.
A US brokerage firm said last week that Reliance is a likely partner for Chesapeake Energy’s Eagle Ford shale acreage.