RIL exits US shale gas business by divesting Eagleford Upstream asset stake

Mukesh Ambani-led Reliance Industries has exited all its business in the upstream oil and gas shale play that was based out of the United States.

A company statement said that Reliance Eagleford Upstream Holding (REULP), a wholly-owned step-down subsidiary of Reliance Industries, announced the signing of agreements with Ensign Operating III, a Delaware limited liability company, to divest its interest in certain upstream assets in the Eagleford shale play of Texas, USA.

“With this transaction, Reliance has divested all its shale gas assets and has exited from the shale gas business in North America,” RIL said.

Reliance said that a Purchase and Sale Agreement has been signed between REUHLP and Ensign on November 5, 2021 for this sale. The sale is at a consideration higher than current carrying value of the assets.

RIL officials refused to disclose the price at which this transaction took place. The company is now left with nil interest in US-shale assets. A part of the Eagleford asset was sold in March 2018 to Sundance Energy for about $100 million.

Earlier this year, RIL had divested all of its interest in certain upstream assets in the Marcellus shale play of southwestern Pennsylvania. Those assets were sold to Northern Oil and Gas, (NOG), a Delaware corporation. The deal was for a consideration of $250 million cash and warrants that give entitlement to purchase 3.25 million common shares of NOG at an exercise price of $14.00 per common share in next seven years. A Purchase and Sale Agreement was signed between Reliance Marcellus and NOG on February 3, 2021 for this sale.

According to a company presentation, RIL’s share of output from US shale business stood at 11.1 billion cubic feet (bcf) in the second quarter of financial year 2021-22. This was from 10.2 bcf output in financial year 2020-21. RIL’s realisation from the US shale business stood at $ 6.20 per million cubic feet (mcf) in the quarter ending September 2021, up from $ 5.39 per mcf in the same months of the previous financial year.

In April 2020, Business Standard had reported that the falling demand for crude oil in the US will adversely impact investments made by Indian companies in the shale business there. For RIL, its investment in US shale has been providing it negative returns on equity. When crude oil prices drop, production of alternative fuels like shale oil and gas becomes unviable.

RIL’s upst­ream joint ventures in US shale included a 45 per cent working interest (WI) partnership with Ensign Natural Resources in the Eagleford shale play, and a 40 per cent WI partnership with Chevron. In October 2017, RIL had sold the first of its shale assets for $126 million, a third of the price it paid seven years earlier, amid a downturn in global oil prices.

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