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Reliance Industries (RELI.BO)
Shale Gas Showing Signs of Shining Through
Production ramping up smartly — RIL’s Eagle Ford JV (Pioneer: 42%, RIL: 45%)
has made rapid progress, with CY12-13 production guidance having been recently
upped by ~15-30%. The proportion of liquids in overall production has also risen from
~45% in 2010 to ~65% presently, helping offset the relatively weak US gas price
environment. RIL has also gained, albeit notionally, on its investment, with recent Eagle
Ford transactions being concluded at 2x the valns paid by RIL (on the $/acre metric).
RIL’s two other JVs, with Chevron (Marcellus) and Carrizo (Marcellus) have, however,
yet to show meaningful contribution, with info/guidance also being relatively limited.
Pioneer JV most successful so far — Pioneer has upped its production guidance
(net) for CY12/13 to 26-30/40-45 kboepd vs 19-24/32-41 a year back, and expects
production to grow 3x from current levels by CY14E. The JV’s acreage is located in the
liquids-rich window, resulting in better project economics (Pioneer has indicated IRRs
of c80% for condensate-rich wells), as opposed to the other two Marcellus JVs (largely
dry gas). This has also increased attractiveness of the basin, with acquisition costs of
Eagle Ford acreages seeing a significant increase – while RIL had bought into this
acreage in Jun-10 at an acquisition cost of US$11K/acre, recent transactions (Mitsui,
GAIL) have happened at considerably higher valns of US$19-23K/acre. Pioneer is also
exploring new technologies which could lead to savings of ~10% for some wells drilled.
Global gas integration could benefit RIL — RIL stands to benefit if and as the US
mkt becomes more fully integrated into the emerging global gas mkt following
commencement of LNG exports. Conversely, if US gas demand were to rise at a faster
pace (environmental rules, gas-related industrial demand), leading to tightening of the
gas dd-ss balance which could impact the arbitrage economics and therefore limit LNG
exports, RIL could once again stand to gain, as this could drive Henry Hub prices up.
Significant contribution from FY14E — At $85 crude/$4.5 gas, Pioneer’s guidance
could imply ~US$420m EBITDA net to RIL in FY14E (~5% of our standalone forecast).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Industries (RELI.BO)
Shale Gas Showing Signs of Shining Through
Production ramping up smartly — RIL’s Eagle Ford JV (Pioneer: 42%, RIL: 45%)
has made rapid progress, with CY12-13 production guidance having been recently
upped by ~15-30%. The proportion of liquids in overall production has also risen from
~45% in 2010 to ~65% presently, helping offset the relatively weak US gas price
environment. RIL has also gained, albeit notionally, on its investment, with recent Eagle
Ford transactions being concluded at 2x the valns paid by RIL (on the $/acre metric).
RIL’s two other JVs, with Chevron (Marcellus) and Carrizo (Marcellus) have, however,
yet to show meaningful contribution, with info/guidance also being relatively limited.
Pioneer JV most successful so far — Pioneer has upped its production guidance
(net) for CY12/13 to 26-30/40-45 kboepd vs 19-24/32-41 a year back, and expects
production to grow 3x from current levels by CY14E. The JV’s acreage is located in the
liquids-rich window, resulting in better project economics (Pioneer has indicated IRRs
of c80% for condensate-rich wells), as opposed to the other two Marcellus JVs (largely
dry gas). This has also increased attractiveness of the basin, with acquisition costs of
Eagle Ford acreages seeing a significant increase – while RIL had bought into this
acreage in Jun-10 at an acquisition cost of US$11K/acre, recent transactions (Mitsui,
GAIL) have happened at considerably higher valns of US$19-23K/acre. Pioneer is also
exploring new technologies which could lead to savings of ~10% for some wells drilled.
Global gas integration could benefit RIL — RIL stands to benefit if and as the US
mkt becomes more fully integrated into the emerging global gas mkt following
commencement of LNG exports. Conversely, if US gas demand were to rise at a faster
pace (environmental rules, gas-related industrial demand), leading to tightening of the
gas dd-ss balance which could impact the arbitrage economics and therefore limit LNG
exports, RIL could once again stand to gain, as this could drive Henry Hub prices up.
Significant contribution from FY14E — At $85 crude/$4.5 gas, Pioneer’s guidance
could imply ~US$420m EBITDA net to RIL in FY14E (~5% of our standalone forecast).
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