Reliance enters Eagle Ford venture with Pioneer, Newpek

A subsidiary of Reliance Industries Ltd. (RIL), Mumbai, has entered a joint venture with Pioneer Natural Resources Co., Dallas, and a partner in a $1.35-billion deal that will support the drilling of 356 horizontal wells/year in the Eagle Ford shale play of South Texas through 2013.

By OGJ editors
HOUSTON, June 24
-- A subsidiary of Reliance Industries Ltd. (RIL), Mumbai, has entered a joint venture with Pioneer Natural Resources Co., Dallas, and a partner in a $1.35-billion deal that will support the drilling of 356 horizontal wells/year in the Eagle Ford shale play of South Texas through 2013.

Pioneer said the JV will finance a program it announced earlier that calls for the drilling of 26 horizontal wells in the play from now through December, 70 wells in 2011, 120 wells in 2012, and 140 wells in 2013.

Pioneer said it would have 7 rigs drilling in the play by the end of 2010, 10 by the end of 2011, and 14 by yearend 2012. It reported earlier this year that it was pursuing a JV deal (OGJ, May 10, 2010, Newsletter).

The transaction includes current production of 28 MMcfd of gas equivalent from five horizontal wells. Pioneer expects to start production from a sixth horizontal well late in the third quarter.

The operator has five rigs at work in the play in Live Oak, Karnes, and DeWitt counties. It has three wells awaiting completion and expected to be brought on stream in the fourth quarter after central gathering facilities are finished.

Pioneer said it is buying new fracture stimulation equipment to support the drilling program. The fleet is to be operational by the second quarter of 2011.

The deal
RIL will acquire 45% of interests in the acreage now held by Pioneer and Newpek LLC, a subsidiary of ALFA SAB de CV.

It will pay the companies a total of $1.315 billion for a net interest of 118,000 acres to be held by RIL Eagleford Upstream LP. The total includes combined initial payments of $263 million and deferred payments of $1.052 billion to carry 75% of future Pioneer and Newpek capital costs.

After the transactions, the new JV will have a net working interest in 91% of 289,000 gross acres. The JV interests will be Pioneer 46%, Reliance 45%, and Newpek 9%.

Pioneer will serve as development operator, but RIL said it expects to become operator in some areas.

Pioneer has 6 years in which to use the drilling carry, subject to extension. RIL has the right to perform certain drilling and completion work beginning in 2011, using one rig at first and as many as four rigs under the current drilling ramp-up schedule.

Pioneer will continue to increase Eagle Ford leasehold. RIL has the option to acquire a 45% interest in new acreage.

RIL cited Pioneer estimates that the existing acreage will support drilling of more than 1,750 wells with a net resource potential to the JV of about 10 tcf of gas equivalent.

RIL also agreed to pay Pioneer $46 million for a 49.9% interest in a new midstream JV to serve gathering needs of the Eagle Ford project. The interest will be held by Reliance Eagleford Midstream LLC. Pioneer will be operator, with the partners having equal governing rights.

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