Why Reliance is selling all of its shale gas business in the US

No more party in the US.
No more party in the US.
Image: REUTERS/Amit Dave/File Photo
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India’s largest private firm has brought the curtains down on its shale gas business in the US.

Reliance Eagleford Upstream Holding (REULP), a wholly-owned step-down subsidiary of Reliance Industries (RIL), yesterday (Nov. 8) announced a deal with Delaware-based Ensign Operating III to divest its interest in “certain upstream assets in the Eagleford shale play of Texas, US.”

“With this transaction, Reliance has divested all its shale gas assets and has exited from the shale gas business in North America,” the Mukesh Ambani-led company said in a statement.

Reliance acquired the 49.9% Eagleford stake in 2010 for $46 million (340.39 crore rupees). However, it has not disclosed the deal amount for the REULP stake sale.

“A Purchase and Sale Agreement (PSA) has been signed between REUHLP and Ensign on Nov. 5, 2021, for this sale. The sale is at a consideration higher than the current carrying value of the assets,” it said.

Reliance’s shale bet runs out of gas

The constantly falling US demand for crude oil, along with the fall in the commodity’s prices, is a key reason for Reliance’s exit.

RIL’s shale investments were made before 2014 when the company was bullish on the sector. However, since then, crude oil prices have been falling, leading to negative returns on equity.

A fall in price affects shale gas business more than traditional oil and gas as shale assets are economically viable only if crude prices remain at a certain threshold.

The REULP stake sale is the latest in a string of divestments by Reliance since 2017.

In October 2017, it sold the first of its shale gas business Marcellus shale in northeastern and central Pennsylvania, for $126 million, which is a third of the $392 million it paid seven years earlier. In February, it decided to sell its entire stake in upstream assets in the Marcellus shale gas asset in south-western Pennsylvania in the US for $250 million.

Between 2010 and 2013, Reliance bought stakes in three upstream exploration joint ventures with Chevron, Pioneer Natural Resources, and Carizzo Oil and Gas. It also entered into such a venture with a firm called Pioneer, for the processing, storing, transporting, and marketing of hydrocarbons.