2010-06-24-2010-06-24-2010-06-29
Acquired 45% WI in 263,000 acres (118,000 net) in S. TX Eagle Ford shale in DeWitt, Karnes, Bee, Live Oak & McMullen counties.
Indian conglomerate Reliance Industries Ltd. has finalized its joint-venture agreement with Dallas-based Pioneer Natural Resources Co. (NYSE: PXD) and its partner Newpek LLC for a 45% stake in the Eagle Ford shale play in South Texas for total consideration of US$1.315 billion in cash and drilling carries.
The acquisition involves a 45% working interest from both sellers in 263,000 total net acres (118,000 net to Reliance) primarily in DeWitt, Karnes, Bee, Live Oak and McMullen counties, of which 70% is in the oil condensate window.
Pioneer received $266 million in cash at closing and will receive an additional $879 million in drilling carries for a total of $1.15 billion. Pioneer holds 212,000 net acres and is conveying 95,300 net acres to Reliance. Pioneer is operator with a 46% interest, or an average 42% interest allowing for other partners with a total 17% interest.
Reliance, has an average 41% interest, will pay some $1.052 billion in deferred payments in a carry arrangement for 75% of both Pioneer's and Newpek's capital costs. Pioneer has six years to utilize the carry, with an option to extend. Reliance will have the right to perform certain drilling and completion operations beginning in 2011.
Newpek, which held a 16% nonoperated interest in the partnership, received $210 million in total consideration separately for a 45% interest in its holdings. A subsidiary of Mexican industrial company Alfa SAB de CV, Newpek now has a 9% interest following the transaction.
Current production is 28 million cubic feet equivalent per day (11 MMcfe per day net to Reliance) from five currently active horizontal wells.
Reliance will also participate with Pioneer in the development of midstream assets in the Eagle Ford Shale as a 49.9% partner for $46 million.
The companies plan to ramp up from one rig currently operating to four rigs, and to drill 26 horizontal wells by year-end 2010, increasing to 70 wells in 2011, 120 wells in 2012 and 140 in 2013. Pioneer has drilled and completed six horizontal wells in the Eagle Ford to date.
Upside includes 1,750 drilling locations. Estimated resource potential on the joint venture is 10 trillion cubic feet equivalent (4.5 Tcfe net to Reliance).
The companies formed an area of mutual interest in which Pioneer will continue to acquire leasehold in the Eagle Ford and Reliance will have the option to acquire a 45% share. The AMI covers Atascosa, Bee, DeWitt, Karnes, Live Oak and McMullen counties. Although Pioneer has leasehold in LaSalle County as well, it was excluded from the AMI due to other partner interests.
Reliance executive director P.M.S. Prasad says, "Reliance is very pleased to establish a long-term partnership with Pioneer in the Eagle Ford shale. This transaction represents another significant milestone in Reliance's efforts to grow its North American shale-gas operations."
Pioneer chairman and CEO Scott Sheffield says, "We are very excited to partner with Reliance, a global energy industry leader, and pleased that they share our confidence in the development potential of Pioneer's large, liquids-rich acreage position in the Eagle Ford shale. Our joint-development plan will add significant production and reserves for Pioneer while enhancing shareholder value."
Barclays Capital Inc. and UBS Securities LLC were financial advisors to Reliance. Baker Botts LLP was legal counsel. Bank of American Merrill Lynch and Tudor, Pickering, Holt & Co. were advisors to Pioneer.
The effective date is June 1.
In April, Reliance partnered with Atlas Energy Inc., Pittsburg, (Nasdaq: ATLS) for a 120,000-acre stake in the Marcellus shale in Pennsylvania for $1.7 billion.
Analysts at Wells Fargo Securities LLC and Global Hunter Securities value the deal at $12,000 per acre.
Pritchard Capital Partners analyst Ray Deacon places the deal value at $9,000 per acre, taking into account the time value of money. "The price per acre appears to be in line with what Talisman Energy Inc., Calgary, (Toronto: TLM; NYSE: TLM) paid Common Resources LLC for acreage in La Salle County."
Global Hunter analyst Michael Bodino says, "We are aware that Reliance is actively building a U.S. operating organization and suspect that these joint ventures are just a starting point for the company in the U.S."