Reliance Industries eyes more US shale gas

Reliance Industries is in talks to acquire what would be its second US shale gas interest in as many months as India’s largest private sector oil refining and production group seeks to build a foothold in overseas markets.

Reliance, controlled by Mukesh Ambani, India’s richest man, is considering buying a stake in shale gas assets owned by Pioneer Natural Resources, which is developing a large field in south Texas, people familiar with the matter said.

The deal is still under negotiation but one person familiar with the talks said the price was expected to be less than the $1.7bn Reliance paid in April for a joint venture with Atlas Energy, which has a shale gas field on the borders of Pennsylvania, West Virginia and New York states.

The deal follows similar agreements between some of the world’s largest energy companies and smaller independents with exposure to so-called unconventional gas.

Proponents of these unconventional deposits claim new drilling technology makes them economical to develop for the first time. This has raised estimates for US gas reserves from 30 years to 100 years at current usage rates.

In the biggest deals, ExxonMobil has agreed a $41bn deal to buy XTO, the shale gas specialist, while BP, Statoil and Total have each struck deals with Chesapeake Energy to tap into its US shale assets.

Reliance Industries has been shopping for overseas acquisitions, resulting in the deal with Atlas Energy, under which the Indian company took a 40 per cent interest in the shale field owned by the US company and committed funds for development.

Dallas-based Pioneer said last month it had drilled its fifth successful well in its 310,000-acre Eagle Ford Shale in south Texas.

“To further accelerate Eagle Ford Shale development, the company is actively pursuing a joint venture, with an announcement expected by the end of the second quarter of 2010,” Pioneer said last month.

Reliance yesterday said it did not comment on “market speculation”.

Pioneer has another shale gas field, Barnett, near Fort Worth, with 80,000 acres.

Reliance – whose upstream operations are headed by Walter Van De Vijver, a former Shell executive – is keen to gain hands-on experience developing shale assets.

Reliance operates the world’s biggest refinery complex in a single location on India’s west coast and the country’s largest gas field on its east coast.

It sought to buy bankrupt chemicals group Lyondell-Bassell earlier this year but was thwarted by a management-backed debt restructuring proposal.

Mr Ambani is known for his ability to build large projects, particularly in oil and gas. But analysts say he now needs to show he is equally adept at acquisitions so that he can put the billions of dollars of cash flow being generated by his gas field and refinery to good use.