Reliance Industries eyes selling US shale assets, but only at fair valuation

Reliance Industries may look at exiting its US shale assets, provided it gets fair value similar to Carrizo asset sold earlier this month, even as the company faces the challenges of low price environment. V Srikanth, joint CFO of RIL, said there is no direct answer to the current price environment both in domestic and the shale assets. The response to this low price environment is to stay focused on capex, try to squeeze every operational efficiency one can and if there are opportunities like in Carrizo the company is open to sell the assets. “If someone were to make us an offer which is attractive we will definitely evaluate our other assets as well,” Srikanth said. Revenues from the US shale assets have continuously fallen since it started operations in calendar year 2013. Revenues have dropped from Rs 4,816 crore in 2013 to Rs 2,404 crore in 2016.

While in the first half of 2017, the total revenue from shale operations stood at Rs 1,349 crore with a negative earnings before interest and taxes (EBIT) margin of 23%. In the second quarter of calendar year 2017 shale revenue was down 18.1% year-on-year to Rs 607 crore, while segment EBIT was (-171 crore) compared with (-512 crore). EBIT margin was (-28.2%) compared with (-81.8%) in the same quarter of 2016.

RIL has invested close to $9 billion on three shale assets in US since 2010 and after the sale of Carizzo asset Marcellus shale in Northeastern and Central Pennsylvania for $126 million against an investment of $392 million, RIL remains invested in the Marcellus shale play via its non-operated position with Chevron in southwestern Pennsylvania, and in the Eagle Ford via its non-operated position with Pioneer in Texas. Production at Chevron and Carrizo joint ventures were lower in Q2 2017 by 6% and 13% respectively. Overall Reliance’s share of production was lower by 3% sequentially at 33.5 billion cubic feet of oil equivalent. Capital expenditure for the quarter at about $63 million is comparable to same levels as in previous quarter.

Reliance Industries Limited (RIL)