Tuesday, June 22, 2010

Reliance Deal for Pioneer's Eagle Ford Assets Set?

The Financial Times reported that India's Reliance Industries will enter a into a joint venture with Dallas-based Pioneer Natural Resources, buying 45% of Pioneer's 310,000 acre Eagle Ford interest for $1.35 billion (also: Reuters).  Pioneer will receive $300 million upfront and the balance in drilling costs over the next four years.  The deal follows another 40% purchase by Reliance of Atlas Energy's Marcellus Shale interests. 

Over the weekend I read an article about Reliance in the Wall Street Journal (may require subscription) and noted comments made by Reliance's CEO Mukesh Ambani.  In reference to investing in U.S. shale gas assets, he said:
"We will commit capital alongside proven low-cost operators to accelerate the development of this resource ...We will continue to pursue such joint development opportunities with the best operators as well as on our own to build a substantial upstream business in North America."
Not a particularly intriguing quote, but it made me think about all of the investor presentations I read where company A declares itself the low cost E&P company in the industry, comparing itself in a variety of bar charts against a slew of unnamed competitors labeled B, C, D, etc.  It's a familiar strategy, but my first thoughts upon reading Mr. Ambani's quote were of BP.  In its efforts to achieve "cost efficiencies" (a term strewn across the company's investment materials), BP took short cuts that ended up endangering lives and causing an environmental catastrophe. 

At a time when EVERYONE has their eyes on the energy industry, I sure hope some of the low cost leaders in shale gas are not cutting costs BP style.  It's bad enough that there was a blowout in Pennsylvania at this sensitive time, but further accidents will just blacken the eye of an industry already playing defense on its environmental record.

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