By Phaedra Friend Troy
Major Indian producer Reliance Industries has further solidified its presence in the Marcellus Shale play of Pennsylvania with two more agreements to add acreage in this unconventional natural gas province.
First, Reliance has agreed to acquire the entire interest in 52,200 net acres of Pennsylvania Marcellus Shale mineral rights from private equity firm Avista Capital Partners for a consideration of $326.6 million. The transaction is expected to be completed by mid-September.
Under this agreement, Reliance will hold 60 percent interest in the acreage, and Carrizo Oil & Gas will hold 40 percent interest. Because of its current joint venture agreement with Avista, Carrizo is expecting to receive $44 million in cash from this transaction.
“The sale to Reliance will allow Carrizo to team with a respected, well capitalized industry partner in order to accelerate the development of the acreage in central and northeast Pennsylvania,” said Robert Cabes, partner at Avista.
Additionally, Carrizo (NASDAQ:CRZO) is selling part of its Pennsylvania Marcellus Shale acreage to Reliance in a separate transaction. Carrizo is entering a joint venture with a subsidiary of Reliance, whereby the Indian firm will acquire 20 percent interest in 52,200 Pennsylvania Marcellus Shale acres for a price of $65 million.
The agreement stipulates that Reliance pay Carrizo $13 million, and pay $52 million to carry Carrizo’s share in upcoming drilling, completion and seismic costs.
This transaction is also expected to be completed by mid-September.
“This transaction provides the capital to execute a more aggressive development drilling program in Pennsylvania than we would be able to pursue otherwise,” said S.P. “Chip” Johnson IV, Carrizo president and CEO. “Reliance brings regional Marcellus experience, technical expertise, and a strong balance sheet to the partnership. We look forward to working closely with them as we set our development plan in action.”
The new joint venture between Carrizo and Reliance covers some 104,400 gross Marcellus Shale acres in northern and central Pennsylvania. With its 40 percent, Carrizo will continue to serve as operator of the acreage for the time being. Reliance will have the option to assume operatorship after one year.
In addition to its own share of development costs, Reliance will pay 75 percent of Carrizo’s development costs over the next two years or until the $52 million development carry has been exhausted.
Carrizo and Avista will continue a joint venture agreement that holds interest in 140,000 acres in the Marcellus Shale of West Virginia and New York, which is currently being developed.
"We excluded our extensive acreage outside of Pennsylvania from this new joint venture to allow us to retain the benefit from current and future appraisal activities which will be conducted during the course of the year,” Johnson added.
Earlier this year, Reliance entered into a $1.7 billion Marcellus Shale joint venture with Atlas Energy in Pennsylvania. In South Texas, Reliance signed a $1.15 billion Eagle Ford Shale joint venture with Pioneer Natural Resources (NYSE:PXD).
Reliance adds Pennsylvania Marcellus Shale acreage in Carrizo JV, Avista asset acquisition
By Phaedra Friend Troy