* Reliance to pick up 40 pct in Atlas Energy's acreage
* Co to pay $340 mln cash, $1.36 bln as JV development
* Atlas to be development operator for the joint venture
* Atlas shares jump 20 pct, Reliance up 1.8 pct
(Adds details about Exco, updates share price)
By Pratish Narayanan and Michael Erman
MUMBAI/NEW YORK, April 9 Indian energy giant
Reliance Industries (RELI.BO) will pay $1.7 billion to form a
joint venture at one of the most promising natural gas deposit
regions in the U.S. with Atlas Energy ATLS.O, becoming the
latest foreign company to invest in shale plays that are
expected to be very lucrative.
Reliance, controlled by billionaire Mukesh Ambani, has been
working hard to expand its presence outside India, break into
new markets and broaden its various businesses including
refining, oil and gas exploration and petrochemicals.
India's largest listed firm will pick up a 40 percent stake
in Atlas's operations in the booming Marcellus Shale -- a gas
project that spans parts of Pennsylvania, West Virginia and New
York in the United States and which, according to some
geologists, could hold enough natural gas to satisfy U.S.
demand for a decade.
With this move it joins a number of international oil
companies including BP Plc (BP.L), Total (TOTF.PA), Statoil
(STL.OL) and Mitsui & Co (8031.T) MITSY.O who have bought
into shales, rock formations that could hold vast amounts of
While the shale formations have proven to be lucrative,
they are also very expensive to develop and environmentally
sensitive. The joint ventures have given the independent oil
companies who own much of the acreage in these areas access to
capital and should allow foreign oil companies to pick up
expertise in new drilling techniques developed for the shales.
"This marks Reliance's foray into a totally new venture
altogether. Reliance is going to generate a lot of cash flows
going ahead and investments in shale gas could be a good growth
opportunity," said Deepak Pareek, oil and gas analyst with
Reliance Chairman Ambani, who according to Forbes is the
world's fourth-richest man with a net worth of $29 billion, has
made no secret of the firm's overseas ambitions as the company
has raised a war chest of $2 billion by selling stock in recent
But Reliance, founded by Ambani's father Dhirubhai, a
school teacher's son, had not met with much success until now
in its foreign takeover attempts.
Bankrupt petrochemicals firm LyondellBasell [ACCEIN.UL]
recently rejected a bid from Reliance that valued the target at
about $14.5 billion, and the Indian firm also lost a race for
Canadian oil sands firm Value Creation, in which it wanted to
take a majority stake for $2 billion. [ID:nSGE6270CQ]
For a NEWSMAKER on Mukesh Ambani, click [ID:nSGE62304N]
For a FACTBOX on Reliance, click [ID:nBOM516811]
Shares in Reliance closed up 1.8 percent on Friday, while
the Mumbai market .BSESN rose 1.2 percent.
Atlas Energy shares jumped $6.44, or 20.3 percent, to
$38.25 on the Nasdaq on Friday.
Shares of other companies with acreage in the Marcellus
Shale, including Exco Resources (XCO.N) and Range Resources
(RRC.N), were also boosted by the news.
More joint ventures in the region can be expected to
follow, bankers said. Exco, in particular, should be closely
watched. Chief Executive Doug Miller said in February that the
company was in discussions for a potential joint venture with
its acreage there.
Atlas's core Marcellus position consists of about 300,000
acres, largely in southwestern Pennsylvania, out of which about
120,000 acres will go to Reliance, the companies said.
Upon closing Reliance will pay about $340 million in cash
and must also contribute $1.36 billion to the joint venture to
develop the shale project, Atlas said in a statement.
Reliance is paying around $14,000 an acre for its share of
the Marcellus acreage, which is in line with what Japan's
Mitsui paid for its joint venture with Anadarko Petroleum Corp
(APC.N) announced in February [ID:nN16229402]. Still, the price
is more expensive than most of the previously announced deals.
The members of Atlas's management team have a background in
finance and are known for their deal making skills, said
Marshall Carver, energy analyst at Capital One Southcoast in
Atlas Energy Chairman Edward Cohen is also chairman of
Resource America Inc REXI.O, a publicly traded asset
management company, and Chief Operating Officer Richard Weber
was head of energy investment banking at KeyBanc Capital
Markets from June 1997 to March 2006.
"This deal was certainly done at a good price" for Atlas,
Atlas will serve as the development operator for the joint
venture, and will retain a 60 percent undivided interest in the
Reliance will have the option to buy 40 percent in all new
acreages, and also has the right to first offer for potential
future sales by Atlas of about 280,000 additional Appalachian
acres controlled by the U.S. firm.
Debate over drilling in the region has sharpened in recent
months. Environmentalists claim the drilling fluids needed to
crack the rock and free the gas can contaminate drinking water,
an assertion the industry hotly disputes.
Jefferies & Co was the lead financial advisor, while J.P.
Morgan Securities (JPM.N) was another advisor to Atlas.
Barclays (BARC.L) advised Reliance on the deal, which is
expected to close by the end of April.
(Additional reporting by Indulal P.M. in Mumbai and Anna
Driver in Houston; Editing by Rupert Winchester, Phil Berlowitz
and Bernard Orr)