Bloomberg: "Reliance Said to Be in Talks With Atlas for Shale Gas"

Reliance Industries Ltd., the owner of the world’s largest fuel-making complex, is in talks with Atlas Energy Inc. to invest in the U.S. natural-gas producer’s shale assets, a person familiar with the negotiations said.

The talks between Reliance, which is controlled by billionaire Mukesh Ambani, and Moon Township, Pennsylvania-based Atlas are in preliminary stages, the person said, asking not to be identified because the discussions aren’t public.

Reliance would join British, French, Japanese and Canadian companies in investing in U.S. reserves trapped in rocks that until five years ago were considered too hard to be worth drilling. Energy producers have been accelerating development of shale formations from Texas to Pennsylvania even after the fuel tumbled to a seven-year low of $2.41 per million British thermal units in September.

“The sentiment is that the U.S. has a wall of gas that can be drilled at very low prices,” said Brian Lively, vice president of exploration and production research at Tudor Pickering Holt & Co. in Houston. “But we believe it’s going to take a long-term average price of $6.50 to justify the returns people want to see.”

Energy traders don’t expect U.S. gas to reach $6.50 until January 2013, based on New York Mercantile Exchange futures.

The furnace and factory fuel has lost more than two-thirds of its value since July 2008 as the recession crippled demand and output from new wells in shale formations in Texas and Louisiana glutted the market with supply.

Shares Advance

Atlas rose $1.02, or 3 percent, to $35.14 at 4:06 p.m. on the Nasdaq Stock Market. Earlier, the stock climbed more than 5 percent for the largest intraday gain in a month. Atlas more than tripled in the past year.

Reliance shares increased 3.9 percent to 1,067.95 rupees at the close in Mumbai trading, the highest level since Jan. 20 and three times the rate of gain as the benchmark Sensitive Index.

Reliance’s interest in shale gas comes after it sought stakes in at least two overseas energy companies since November. The Mumbai-based company’s attempt to buy bankrupt LyondellBassell Industries AF was rejected this month and it missed out on an oil-sands block owned by Value Creation Inc.

Manoj Warrier, Reliance’s spokesman, declined to comment on whether it’s bidding for U.S. shale-gas assets.

The talks between Reliance and Atlas were earlier reported by Reuters.

Seeking Suitors

Atlas hired Jefferies & Co. to sell a stake in as much as 584,000 acres that may yield gas from the Marcellus Shale, Chief Executive Officer Edward Cohen told investors March 3.

Brian Begley, an Atlas Energy spokesman, wouldn’t comment on the sales process.

“We’ve made clear that we are very alive and receptive to the joint venture situation,” Cohen said on a Feb. 26 conference call. “We’re well into the process.”

San Diego-based Sempra Energy, along with other parties, is negotiating to be part of the deal, according to a report in the Wall Street Journal, citing people familiar with the matter.

Sempra spokesman Doug Kline declined to comment.

Gas locked in shale formations is expected to account for 50 percent of U.S. supply by 2035, up from the current 20 percent, according to a report by IHS Cambridge Energy Research Associates released last week at the CERAWeek energy industry conference in Houston.

Gas is extracted from shale through a process known as hydraulic fracturing in which millions of gallons of chemically treated water are forced into wells to break up rock and allow gas to flow.

BP, Mitsui

Shale and similarly hard formations accounted for 1 percent of U.S. supply in 2000, according to the IHS Cambridge report. Fracturing techniques have led the industry to more than double estimates of the gas that can be recovered in North America to 3,000 trillion cubic feet, a volume that could meet U.S. demand for 143 years.

“There’ve been a lot of Marcellus Shale transactions recently, and there are a lot of players, probably a dozen, looking at Atlas’s acreage,” Scott Hanold, an Austin, Texas- based analyst for RBC Capital Markets who rates Atlas shares “outperform” and owns none, said today in an interview. “They may feel a need to move soon or be left out.”

Recent entrants to U.S. shale prospects included BP Plc of London, France’s Total SA, Mitsui & Co. of Tokyo and Consol Energy Inc. of Canonsburg, Pennsylvania. Exxon Mobil Corp., the world’s second-largest company, agreed to its biggest acquisition in a decade in December with the $28.4 billion agreement to purchase shale pioneer XTO Energy Inc.

Debt, Cash

Reliance had outstanding debt of 700 billion rupees ($15 billion) and cash and cash equivalent of 159.6 billion rupees as of Dec. 31, the company said. Reliance has raised about $2 billion selling shares since September, Chief Financial Officer Alok Agarwal said in January.

“They are generating lots of cash from their operations and they need to deploy that somewhere,” said Vaibhav Sanghavi, a director at Ambit Capital Ltd. in Mumbai, who manages funds for wealthy individuals. “There is a large market for fuels in the U.S.”

PetroChina Co. of Beijing is the world’s biggest company by market value.

By Joe Carroll and Rakteem Katakey for Bloomberg Business Week. March 16, 2010.

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Bloomberg: "Reliance Said to Be in Talks With Atlas for Shale Gas"