India's Reliance Industries Ltd. agreed to pony up close to $392 million in cash to buy into its third joint venture (JV) in a U.S. shale play this year, this time with Carrizo Oil & Gas Inc.
In the first of two transactions a Reliance subsidiary agreed to pay $65 million in cash to acquire a 20% stake in close to 52,200 net acres of Carrizo's leasehold in the Marcellus Shale of Pennsylvania. Carrizo would receive $13 million in cash, and Reliance would pay an additional $52 million for the development carry to pay for Carrizo's share of future drilling, completion and seismic costs.
Simultaneously, Carrizo's existing JV partner in the Marcellus, Avista Capital Partners affiliate ACP II Marcellus LLC agreed to sell its entire interest in 52,200 net acres, which are part of the same leasehold in Pennsylvania, to Reliance for $326.6 million in cash. Carrizo would receive around $44 million in cash from this sale based on its agreement with Avista Capital.
"This transaction provides the capital to execute a more aggressive development drilling program in Pennsylvania than we would be able to pursue otherwise," said Carrizo CEO S.P. "Chip" Johnson IV. "Reliance brings regional Marcellus experience, technical expertise and a strong balance sheet to the partnership."
The new Carrizo/Reliance JV agreement covers close to 104,400 gross acres in northern and central Pennsylvania. Carrizo would retain a 40% working interest in the acreage; Reliance would own 60%.
In addition to funding its share of future development obligations, Reliance would fund 75% of Carrizo's portion of development costs over the next two years or until the $52 million development carry is used. Carrizo would continue as operator, but Reliance would have the right to assume operations in certain parts of central Pennsylvania after one year. Closing is expected by mid-September.
Carrizo's JV with Avista Capital would continue in the Marcellus Shale on about 140,000 gross acres primarily in the states of West Virginia and New York.
"We excluded our extensive acreage outside of Pennsylvania from this new joint venture to allow us to retain the benefit from current and future appraisal activities which will be conducted during the course of the year," Johnson said.
Avista Capital formed its JV with Carrizo in December 2008 with a $150 million equity commitment, which remains in place to fund continuing operations.
"The sale to Reliance will allow Carrizo to team with a respected, well capitalized industry partner in order to accelerate the development of the acreage in central and northeast Pennsylvania," said Robert Cabes, a partner at Avista Capital. "We look forward to continuing our successful joint venture with Carrizo and enhancing the value of our extensive acreage position in West Virginia and New York."
Reliance this year already has spent close to $3 billion to buy U.S. shale gas properties. In April Reliance agreed to partner with Atlas Energy Inc. in the Marcellus Shale (see Daily GPI, April 23; April 12). Dallas-based Pioneer Natural Resources Corp. in June agreed to sell almost half of its Eagle Ford Shale interests to Reliance for $1.15 billion (see Daily GPI, June 25).
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