After a couple of failed attempts, Reliance Industries has finally struck an overseas deal by entering into a $1.7-billion joint venture agreement with US-based Atlas Energy Inc.
As per the deal, Reliance will be acquiring 40% interest in Atlas Energy’s core Marcellus Shale (in southern Pennsylvania) acreage position. Reliance will pay around $340 million in cash and an additional $1.36 billion under a carry agreement for 75% of Atlas’ capital costs for a period of seven-and-a-half year development programme.
Reliance has also become a partner in around 300,000 acres of undeveloped leasehold in the core area of Marcellus Shale. Reliance will also act as development operator in certain regions in the coming years, along with Atlas.
The transaction is expected to close by the end of April 2010. Barclays Capital Inc has acted as financial advisor to Reliance for the transaction.
PMS Prasad, executive director, Reliance Industries, says, in the statement, “the JV will materially increase Reliance’s resources base and provide with an entirely new platform of exploring and production business of Marcellus Shale. It will also simultaneously enhance our ability to operate unconventional projects in the future.”
Atlas Energy is a leading Marcellus Shale operator controlling 519,000 net acres, with 266,000 acres in Southwestern Pennsylvania. As of December 31, 2009, Atlas Energy has successfully drilled around 200 Marcellus shale wells.
The deal will help Reliance, controlled by billionaire Mukesh Ambani, to stamp its presence outside India, as it attempts to break into new markets and expand its various businesses including refining, oil and gas exploration and petrochemicals.
"This marks Reliance's foray into a totally new venture altogether. Reliance is going to generate a lot of cash flows going ahead and investments in shale gas could be a good growth opportunity," said Deepak Pareek, oil and gas analyst with Angel Broking.
Reliance Chairman Ambani, who according to Forbes is the world's fourth-richest man with a net worth of $29 billion, has made no secret of the firm's overseas ambitions as the company has raised a war chest of $2 billion by selling stock in recent months.
But Reliance had not met with much success until now in its foreign takeover attempts.
Bankrupt petrochemicals firm LyondellBasell recently rejected a bid from Reliance that valued the target at about $14.5 billion, and the Indian firm also lost a race for Canadian oil sands firm Value Creation, in which it wanted to take a majority stake for $2 billion.
Shares in Reliance closed up 1.8 percent on Friday, while the Mumbai market rose 1.2 percent.
Atlas Energy shares jumped 16.3 percent to $37 in premarket trading on Friday, after closing at $31.81 on Thursday on Nasdaq.
Atlas will serve as the development operator for the joint venture, and will retain a 60 percent undivided interest in the acreage.
Reliance will have the option to buy 40% in all new acreages, and also has the right to first offer for potential future sales by Atlas of about 280,000 additional Appalachian acres controlled by the U.S. firm.
Jefferies & Co was the lead financial advisor, while J.P. Morgan Securities was another advisor to Atlas.