GAIL to exit US shale venture

New Delhi: State-owned gas utility GAIL (India) Ltd plans to exit its shale gas venture in the US, following in the footsteps of Reliance Industries Ltd and Oil India Ltd.

India's largest gas transportation and marketing company has floated a tender to sell its 20 per cent interest in Eagle Ford Shale Assets in Texas US, according to the tender document.

Bids have been invited by February 14 for the sale of GAIL's entire holding in the Eagle Ford.

The transaction will be effective January 1, 2025, the document showed.

"We are not making much money there because of the low gas prices (in the US)," a company source said on the sidelines of India Energy Week. "The venture is housed in a private company (which is a subsidiary of GAIL). If it is not making profits obviously the owners will ask questions." GAIL had in September 2011 acquired its first shale gas asset in the US when it took a 20 per cent interest in Nasdaq-listed Carrizo Oil & Gas Inc's Eagle Ford Shale acreage for $95 million.

The Eagle Ford asset was spread over 20,200 acres, out of which GAIL Global (USA) Inc - the wholly owned subsidiary of the state-owned firm that was for the acquisition - got 4,040 net acres spread over four counties in Texas.

At that time, the partners had agreed to spend around $300 million over a period of the next five years to develop the asset. This was besides the acquisition cost of GAIL, which consisted of an upfront cash payment of $63.7 million and a carry amount of $31.3 million linked to Carrizo's future drilling and development costs.

Eagle Ford currently produces 3,681 barrels of oil per day and 5,368 cubic feet of gas per day.

GAIL's decision follows Reliance Industries in 2021 ending its decade-long venture into US shale gas with a sale of its last remaining shale assets in the Eagleford shale basin to a company backed by private-equity firm Warburg Pincus LLC. Prior to that, it had divested its entire stake in the Marcellus shale blocks earlier.

In 2022, state-owned Oil India Ltd (OIL) sold its 20 per cent stake in the Niobrara shale asset in Colorado, United States to Verdad Resources LLC for $25 million. OIL and Indian Oil Corporation (IOC) had together in October 2012 bought a 30 per cent stake in Houston-based Carrizo Oil & Gas's Niobrara shale asset in Colorado for $82.5 million.

GAIL is seeking offers for its "non-operated working interest position in the Eagle Ford volatile oil window in La Salle and Frio Counties, Texas," the tender said.

"This portfolio includes 92-producing wells which tap into the highly economic Lower Eagle Ford and offers another 48 horizontal drilling locations for future development." "This opportunity generates a solid cash flow of $820,000 per month from the unconventional Eagleville field and is operated by both Texas American Resources (TARC) and Ridgemar (being acquired by Crescent Energy)," it said.

GAIL's evaluation shows a net present value discounted at 10 per cent of $26,362,040 for the interest, supported by net reserves of 1,338,157 barrels of oil equivalent.

The Indian firm held the option to take its share of oil and gas production in-kind or market it separately. GAIL also retains the right to participate in the renewal or replacement of any oil and gas leases or interests, which adds further potential for future value and development.

GAIL's decision to exit the venture follows a change in ownership of its partner.

In 2020, following Callon's acquisition of Carrizo, a strategic portfolio realignment occurred as Callon turned around and sold its Eagle Ford assets in two key transactions - a $100 million sale to Texas American Resources Company (TARC) in October 2021 and a $655 million sale to Ridgemar effective January 2023.

These deals replaced Callon and Carrizo's operatorship with TARC and Ridgemar as the new operators managing GAIL's position.

As on March 31, 2024, Gail Global (USA) has up to 20 per cent participating interest in total of 92 wells being operated/developed by the present operators - Ridgemar Energy Operating, LLC and Texas American Resources II, LLC under the respective Joint Operating Agreements (JOAs).