RIL’s US partner cuts production guidance from shale venture

Mumbai: Pioneer Natural Resources Co., one of the biggest shale gas companies in the US and partner of Mukesh Ambani’s Reliance Industries Ltd (RIL) in the Eagle Ford Shale acreage, has cut the guidance for production of shale gas and oil for the current calendar year from Eagle Ford.

In a note to investors on 23 July, Pioneer said the company had to cut the production guidance in Eagle Ford Shale due to “lower than estimated production” because of technical and weather-related delays in the second quarter of the current calendar year. This led to a drop in the number of wells brought under production in the second quarter.

“…production growth in the Eagle Ford Shale is now forecasted to be nominal in 2015… The reduction in the Eagle Ford Shale growth rate is primarily due to the delays in placing wells on production and performance issues during the first half of 2015,” said the company in the note.

It did not give any estimates of production figures for the full year for Eagle Ford.

This is expected to adversely impact the revenues and profits that RIL gets from its three shale oil and gas ventures, as currently its joint venture with Pioneer is the most profitable unit in its US shale exposure.

RIL has 45% stake in Pioneer’s Eagle Ford venture and is the highest producing shale oil and gas asset of RIL. Apart from this, RIL has two other joint ventures, one with Chevron Corp. and the other with Carrizo Oil and Gas Inc., in the prolific Marcellus region in south-western Pennsylvania.

For the quarter ended December 2014, the company’s revenue from the shale business came at Rs.1,286 crore, down 13.6% from a quarter earlier and down 6.5% from the fourth quarter of 2013-14. During the period, its operating profit, reported as earnings before interest and tax (EBIT), came at Rs.336 crore, down 40.7% from a year ago and 23.1% sequentially.

RIL reports its shale gas revenues with a lag of one quarter. Shale oil and gas contribution to the overall oil and gas exploration and production revenue and operating profit of RIL is up to 45% and 40%, respectively.

Pioneer, in its note on Thursday, said the production from Eagle Ford Shale was approximately 3 million barrels of oil equivalent per day (mboepd) below the company’s forecast of 5 mboepd for the quarter. The company could put only 33 wells under production as against a target of 45 wells.

On 20 February, Pioneer said that due to sustained poor outlook of commodity prices, the company was cutting down its drilling and completion cost by 20% for the calendar year 2015. In April, RIL had also informed investors that it will reduce its capex for the shale ventures by 30% in the current fiscal year due to fall in crude oil and gas prices.

Drilling and completion cost refers to the capital expenditure incurred for drilling new wells and bringing them into production.