RIL to invest further 2 billion dollars in its U.S. shale assets

Oil rig workers
Source: DollarPhotoClub

Reliance Industries Ltd (RIL), India’s biggest private sector company by revenue, was among the first in a long line of foreign companies flocking to the U.S. in order to capitalise on the American shale gas boom. Now the company has announced that it plans to invest additional $ 2 billion in its three shale assets in the US – Indian business newspaper Mint reported.

The new investment – on top of $7.3 billion already invested in the U.S. shale since 2010 – comes at a time when Reliance is putting the breaks on its exploration from the company’s D6 block in the Krishna-Godavari (KG) basin, India. The slowing down of domestic exploration is the result of an ongoing conflict between Reliance and the Indian government over the proposed gas prices increase.

The recently elected National Democratic Alliance (NDA) government postponed its pricing-related decision to September 30, 2014. The deferred decision involves a proposed price hike pending modification on the basis of a formula suggested by the C. Rangarajan committee. This modification has the potential to nearly double the price of gas in India.

In view of the domestic uncertainties, Reliance has been steadily increasing its foothold in the U.S. It is believed that most of the $ 2 billion will be directed towards operations in the Marcellus shale, in the eastern part of the US, where Reliance has has agreements with Chevron and Carrizo Oil & Gas.

“In the JVs with Pioneer and Carrizo, the business has already turned profitable and cash flows from the business are enough to fund the incremental capex there. Therefore, the new capex is meant for the stake with Chevron,” Mint cited one of its sources as saying.

Reliance’s shale gas assets have been a steady income generator. Over the last three years, according to the company’s June statement, Reliance’s revenue increased by 26 percent and its operating profit from this sector was up by 22 percent. What is more, the company’s shale reserves produced 15 million metric standard cubic meters per day of gas which is almost twice the amount produced from its D1 and D3 fields in Block 6 of the Krishna-Godavari Basin.

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