Reliance’s US Shale Exit Signals Refocus Intent

(S&P Global, 11.Nov.2021) — The move by Reliance Industries to divest all its US shale assets and exit the sector signals its intention to ensure the company maintains its sharp focus on India’s domestic market, where its energy portfolio is being increasingly diversified beyond its core refining business.

Analysts said Reliance will reap two gains from the decision — it will clearly signal to the market that it is accelerating efforts toward reducing its carbon footprint, and will make its intentions clear on focusing at home in India, where per-capita energy consumption is about one-third the global average and is set to grow exponentially.

“The decision by Reliance to sell US shale assets, which are not necessarily the most attractive in terms of generating cash returns, makes sense and also highlights the company’s intention to focus on the domestic market, where it has made a series of new investments in the clean energy space,” said Kang Wu, head of Asia analytics and global demand at S&P Global Platts.

“Keeping a close focus on its core refining business, while pushing new energy initiatives, will keep its hands full,” he added.

Reliance operates the world’s biggest refinery complex at Jamnagar in the western Indian state of Gujarat with a combined capacity of 1.2 million b/d.

Reliance in a recent statement said its wholly-owned subsidiary Reliance Eagleford Upstream Holding, LP has signed an agreement with Ensign Operating III, LLC to divest its interest in upstream assets in the Eagleford shale play of Texas.

With this transaction, Reliance has divested all its shale gas assets and exited the shale gas business in North America, the company said in the statement, but did not disclose financial details of the deal.

“Reliance is entering into the clean energy business in a big way, so consolidation and exiting from such carbon-intensive businesses will improve its ESG rating and help in raising more finance at reasonable rates,” said Vibhuti Garg, lead India energy economist at the Institute for Energy Economics and Financial Analysis.

Reliance has sold its last remaining shale assets in the Eagleford shale basin after having divested its entire stake in the Marcellus shale blocks earlier. The company retains sizable assets in the offshore KG basin in India and two coal bed methane blocks in eastern India.

“Reliance has had a mixed bag of results with its North American shale assets. It now seems determined to focus on low carbon and green energy, including hydrogen,” said Rajat Kapoor, managing director for oil and gas at AWR Lloyd.

Domestic market lucrative

Reliance, led by billionaire Mukesh Ambani, set up Reliance Exploration and Production in 2007, mainly to acquire overseas assets. The company went on to acquire conventional oil and gas assets in Peru, Yemen, Oman, Kurdistan, Colombia, Australia, Myanmar and Timor-Leste, but has exited from quite a number of them in recent years.

Some analysts saw Reliance’s exit from the Eagleford and Marcellus shale plays as a strategic shift in the right direction, although the company will keep its focus on gas-based upstream investments in the domestic market.

With gas accounting for less than 7% of India’s energy consumption basket compared with the world average of above 20%, Reliance and BP have pledged to jointly invest up to $6 billion to develop already-discovered deepwater gas fields off the east coast of India.

In April, Reliance and BP announced the start of production from the Satellite Cluster gas field in block KG-D6 off India’s east coast. The two companies have been developing three deepwater gas projects in block KG-D6: R Cluster, Satellite Cluster and MJ field.

Sashi Mukundan, president of BP India, recently said that the BP-Reliance venture would roughly reach its production target of 30 million cu m/d of gas by the end of 2023.

In addition, Reliance has launched an ambitious plan to expand presence in India’s retail energy sector — both fossil fuels and clean energy — through its partnership with BP.

The moves are in line with BP’s global strategic shift to become an integrated energy company, and is part of a plan by Reliance to invest $10 billion in the next three years in clean energy initiatives.

“Reliance has indicated that it aims to be a net zero carbon emissions company by 2035. Hence, if one connects these dots, then it is clear that the company is focusing more on new age businesses,” said Sumit Pokharna, vice president at Kotak Securities.

Reliance, which was ranked 55 in the Forbes Global 2000 rankings for 2021, has snapped up multiple partnerships in the clean energy space, such as in solar and electric mobility, but the company is expected to maintain its razor-sharp focus on its core refining business despite embracing energy transition goals, analysts said.

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By Sambit Mohanty