Mumbai: Energy major Reliance Industries gained an overseas foothold by agreeing to pay $1.7 billion to form a joint venture with U.S.-based Atlas Energy.
India's largest-listed firm will pick up a 40 percent stake in Atlas's operations in the booming Marcellus Shale -- a gas project that spans parts of Pennsylvania, West Virginia and New York in the United States and which, according to some geologists, could hold enough natural gas to satisfy U.S. demand for a decade.
Atlas's core Marcellus position consists of about 300,000 acres, largely in southwestern Pennsylvania, out of which about 120,000 acres will go to Reliance, the companies said.
Reliance will pay about $340 million in cash upon closing must contribute $1.36 bln to the JV to develop the shale project, Atlas said in a statement.
The deal will help Reliance, controlled by billionaire Mukesh Ambani, to stamp its presence outside India, as it attempts to break into new markets and expand its various businesses including refining, oil and gas exploration and petrochemicals.
"This marks Reliance's foray into a totally new venture altogether. Reliance is going to generate a lot of cash flows going ahead and investments in shale gas could be a good growth opportunity," said Deepak Pareek, oil and gas analyst with Angel Broking.
Reliance Chairman Ambani, who according to Forbes is the world's fourth-richest man with a net worth of $29 billion, has made no secret of the firm's overseas ambitions as the company has raised a warchest of $2 billion by selling stock in recent months.
But Reliance, founded by Ambani's father Dhirubhai, a school teacher's son, had not met with much success until now in its foreign takeover attempts.
Bankrupt petrochemicals firm LyondellBasell recently rejected a bid from Reliance that valued the target at about $14.5 billion, and the Indian firm also lost a race for Canadian oil sands firm Value Creation, in which it wanted to take a majority stake for $2 billion.
Shares in Reliance closed up 1.8 percent on Friday, while the Mumbai market rose 1.2 percent.
Atlas Energy shares jumped 16.3 percent to $37 in premarket trading on Friday, after closing at $31.81 on Thursday on Nasdaq.
Joint Venture
Atlas will serve as the development operator for the joint venture, and will retain a 60 percent undivided interest in the acreage.
Reliance will have the option to buy 40 percent in all new acreages, and also has the right to first offer for potential future sales by Atlas of about 280,000 additional Appalachian acres controlled by the U.S. firm.
Jefferies & Co was the lead financial advisor, while J.P. Morgan Securities was another advisor to Atlas.
Barclays advised Reliance on the deal, which is expected to close by the end of April.
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