GAIL makes first shale gas asset buy; partners US co

Our Bureau New Delhi | Updated on March 12, 2018 Published on September 29, 2011

Mr B.C. Tripathi, Chairman and MD, GAIL (file photo). – S. Subramanium

GAIL (India) Ltd has acquired its first shale gas assets in the US through its wholly owned US subsidiary GAIL Global (USA) Inc for $95 million.

Definitive agreements on Thursday were signed with Houston-based Carrizo Oil & Gas Inc, a NASDAQ-listed company, to enter into an unincorporated joint venture. Under the agreement, GAIL Global will acquire a 20 per cent interest in Carrizo's Eagle Ford Shale acreage position.

The GAIL subsidiary was formed on September 26.

This is not the first time Carrizo Oil has formed a partnership with an Indian company. The Houston-based firm has a joint venture with Reliance Industries Ltd (RIL) for Marcellus shale acreage in northern and central Pennsylvania. Over the last decade, advent of shale gas has changed the US oil and gas market.

According to GAIL, the total investment would be around $300 million over a period of five years. This includes upfront cash payment of $63.7 million and a carry amount of $31.3 million linked to Carrizo’s future drilling and development costs. A major part of these investments would be funded by GAIL out of its earnings.

GAIL’s Chairman and Managing Director, Mr B.C. Tripathi, said, “This transaction represents a major step in the company’s efforts to establish its presence in North America. As the next logical step, GAIL Global will consider expanding its business portfolio in the North American market by pursuing various upstream and midstream opportunities including LNG export to India."

Under the arrangement, GAIL shall be sending secondees to Carrizo to work on the Eagle Ford assets. Besides, GAIL and Carrizo will also work together in exploring shale gas opportunities in India and other countries outside of US, he added.

Asked whether this gas will be brought to India, he said, “It will be monetised there.”

Jefferies & Company, Inc, acted as exclusive financial advisor to GAIL. Thompson & Knight LLP was the legal counsel to GAIL. Ernst & Young were tax and accounting consultants and RPS was the technical due diligence consultant.

The joint venture is expected to drill additional 139 wells in the acreage. Carrizo will continue to function as the operator for the joint venture. Included in the transaction are eight wells in the acreage which are currently producing about 2,350 net barrels of oil equivalent per day (470 barrels of equivalent per day net to GAIL), the company said.

The joint venture will have 20,200 gross acres, of which GAIL subsidiary would have 4,040 net acres spread across four counties in Texas.

Mr Vijay Iyer, Tax Partner Ernst & Young, said, "The acquisition should help GAIL gain experience in the technology and operations of shale gas fields. Given that the Indian Government is also planning to attract investment in shale gas projects, the experience gained by GAIL should put it in an advantageous position in the domestic shale gas sector as and when it is offered by the Government."

Published on September 29, 2011
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