RIL increases its bets on shale gas - Livemint

Reliance Industries Ltd (RIL) has acquired three shale gas assets in the last five months. Last week, RIL entered into an agreement with Carrizo Oil and Gas Inc. for a Marcellus shale joint venture. The consideration for the deal works out to about $6,260 per acre, much lower than $14,167 per acre Reliance paid for its first shale gas asset in April. What explains the disparity between the two assets in the same basin? Analysts say the recently acquired asset is in a comparatively early stage of development than the first one and hence carries higher risk.

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Shale gas assets not just in the US but also in Europe have been attracting huge investments. Some believe that it could be a game changer in the energy business while others feel that the rush into shale has generated a lot of hype. In the US, shale gas came into vogue in a major way about five years ago when average gas prices were higher. Average Henry Hub natural gas spot price for 2005 stood at $8.89 per mmBtu (million metric British thermal units). Henry Hub prices are a common indicator for gas prices in US. Higher prices made shale gas an attractive space for some US companies to explore the opportunities. Unfortunately for them, gas prices have dropped considerably since then. So far, average Henry Hub natural gas spot price for 2010 stand at $4.70 per mmBtu. Debt-laden independent US companies have therefore been inking deals with cash-rich foreign ones, most of which involve payment of cash upfront with the foreign company paying for a large share of future drilling costs. No wonder Atlas Energy Inc., the firm with which RIL signed its first venture, saw its stock rise over 20% when the deal was announced. What will determine the fate of these shale gas investments is how gas prices and demand pan out eventually. While demand will no doubt recover, the risk is the rush into shale gas may become a victim of its own success, with rapidly rising supply if the fields are as rich as they are claimed to be.

RIL increases its bets on shale gas - Livemint