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First US shale stake for Gail India

Gail India has snapped up a 20% stake in Carrizo Oil & Gas’ Eagle Ford Shale acreage for $95 million

As part of the deal, the Indian state-owned gas company will pay $63.7 million in cash and will fund $31.3 million of Carrizo’s drilling and development costs. Gail will also invest up to $300 million in the assets, which cover around 20,000 acres, over the next five years.

Gail will secure access to around 4,000 acres in La Salle County, Texas, and a 20% interest in eight existing horizontal wells, which Carrizo says produce 1,700 barrels a day (b/d) of liquids and 3.8 billion cubic feet a day (cf/d) of natural gas.

The area has reserves of 13.8 million barrels of oil equivalent (boe), of which 2.5m boe are classified as proved developed, according to Carrizo. The Houston-based company added that a rig is drilling a four well pad on the acreage, from which it expects production to begin by year-end.

"With the uncertainty in global financial markets, we felt it prudent to execute this transaction,” said Carrizo chief executive SP Chip Johnson IV, “and take the opportunity to reduce our financial leverage and preserve our liquidity to be better prepared for whatever the future should hold.”

In June, Carrizo increased its Eagle Ford holdings acquiring more than 13,000 net acres for $1,650 an acre. The deal brought the company’s net Eagle Ford land position to around 33,000 acres in La Salle County.

The Eagle Ford, a play which covers much of south and east Texas, is a fast growing shale play because of its high content of liquids, which, because of high oil prices, fetch a premium to depressed North American natural gas.

Gail first

This is Gail’s first US shale acquisition and the company’s chairman said it is unlikely to be the last. Ahead of India’s planned auction of shale-gas blocks, BC Tripathi said Gail will look to expand its North American assets by pursuing various upstream and midstream opportunities, including liquefied natural gas exports to India.

The deal comes at a time when Indian utility companies are looking to increase their assets abroad and to develop domestic oil and gas resources to cope with the country’s burgeoning energy needs. India has been fleshing out regulations for shale-gas blocks ahead of an auction, expected to take place at the end of the year.

The US Energy Information Administration estimates India could have 63 trillion cf of recoverable shale-gas reserves and the government has identified six basins – Cambay, Assam-Arakan, Gondawana, the onshore sectors of the Krishna-Godavari and Cauvery, as well as the Indo-Gangatic – as potential shale-gas hot-spots.

Gail’s agreement with Carrizo follows three deals last year made by India’s Reliance Industries to buy into US shale assets including one with Atlas Energy to take a 40% stake in its Marcellus Shale operations for $1.7 billion.

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