FT Energy Source Indian group comes back for more US shale gas

By Joe Leahy in Mumbai

In its press release announcing it will invest up to $1.36bn in a partnership with Pioneer Natural Resources of the US, Reliance Industries mentions that its annual revenue is $44.6bn.

The point immediately raises the question of why India’s largest private energy group is spending so much management time on buying up stakes in non-conventional shale gas deposits, such as Pioneer’s Eagle Ford field in Texas.

Why is Reliance not going for the jugular and picking up bigger, more conventional assets?

Under the Pioneer deal, officially announced on Thursday, Reliance will hold a 45 per cent stake in joint venture interests with Pioneer to develop the shale gas field, giving the Indian company an implied interest of 118,000 net acres.

Reliance will pay nearly $300m upfront and deferred payments of more than $1bn over four years.

The deal is the second by Reliance Industries after it bought a stake in another US field from Atlas Energy earlier in the year for $1.7bn.

Those who know Reliance say the investment on non-conventional gas assets fits its style of doing business. Reliance’s chairman, Mukesh Ambani, may be India’s wealthiest man but he hates to overpay. Buying conventional oil exploration and production assets is expensive. Getting into a non-conventional but promising field such as shale gas offers a chance for significant upside.

The diffuse nature of the still-emerging US shale gas industry means he can buy smaller operators, which again gives him more bargaining power than trying to pick up assets from global oil majors or national oil companies. Working alongside these small operators will educate Reliance in shale gas technology, a skill it can exploit in other overseas markets.

Of course, where there is upside there is also downside, particularly if shale gas does not fulfill its promise. But Ambani is known for doing his homework.

Expect more shale gas field acquisitions by Ambani as he tries to build critical mass in this area.