Indian oil firms acquire 30% stake in Carrizo's shale asset for $82.5 million
BY RAKESH SHARMA
NEW DELHI -- Oil India and refiner Indian Oil said that they will acquire a 30% stake in Carrizo Niobrara shale oil acreage in Colorado for $82.5 million, gaining entry to America's booming shale industry.
Indian companies are scrambling to buy oil and gas assets overseas to satiate the burgeoning energy demand of Asia's third largest economy, which meets four fifths of its crude oil and about a fourth of its gas needs through imports.
Shale gas finds in the United States have led to a supply glut and depressed prices, prompting companies like BHP, BP and Encana to write down the value of their assets. Several explorers have been forced to look for joint ventures or asset sales to salvage their weak balance sheets, making valuations attractive and igniting the interest of energy hungry countries like India.
India's state run companies are eyeing assets in politically stable nations like the United States after suffering setbacks in countries like Libya, Sudan and Syria, where production has been hit due to the geopolitical situation.
Will Pearson, an energy analyst at the Eurasia Group, said India is catching up "to where a lot of Asian companies already are," pointing to Cnooc's proposed $15 billion takeover of Nexen. Companies such as Reliance and GAIL have already made ventures into North America.
Mr Pearson said many Asian companies are hoping to gain technological know how they can ultimately apply to development of their own domestic shale resources India has said it will open bidding for exploration of shale gas by late 2013.
Asian companies are also hoping to gain access to inexpensive United States natural gas they hope will one day be exported to Asia, Mr. Pearson said.
Indian Oil and Oil India will invest another $230 million over the next three to four years to develop the Niobrara shale oil acreage, Oil India's Director of Finance, T K Ananth Kumar, said at a news conference.
Oil India, which has cash reserves of $2.5 billion, will raise $100 million in debt overseas for the acquisition, as the cost of raising funds abroad is cheap, he said.
Oil India and Indian Oil currently hold stakes in oil and gas blocks in countries like Gabon, Iran, Libya, Nigeria, Yemen, Timor Leste and Venezuela. Oil India, which has a majority of its producing fields in northeast India, accounted for a tenth of the country's oil and about 6% of its natural gas output in the financial year ended. Oil India's domestic oil output is on the decline, and overseas oil sources will help it make up for the loss in local output.
Indian Oil is the country's largest refiner by capacity, owning 10 of the country's 22 refineries. It has been scouting for oil assets overseas to meet its rising oil demand.
Carrizo's Niobrara shale acreage is currently producing about 2,000 boepd and output is expected to touch 6,000 boepd in the next few years, Mr Kumar said. Carrizo last year sold a 20% stake in its Eagle ford acreage in South Texas to GAIL and in 2010 sold a 20% stake to privately held Reliance in its Marcellus shale acreage in Appalachia.
Dow Jones Newswires