India's Reliance joins Atlas in Marcellus JV

Atlas Energy Inc., Pittsburgh, has formed a $1.7 billion joint venture with India’s private Reliance Industries Ltd. to exploit Marcellus shale gas in southwestern Pennsylvania.

By OGJ editors
HOUSTON, Apr. 9
-- Atlas Energy Inc., Pittsburgh, has formed a $1.7 billion joint venture with India’s private Reliance Industries Ltd. to exploit Marcellus shale gas in southwestern Pennsylvania.

Atlas will transfer to Reliance an interest in its Marcellus shale position equal to 120,000 net acres. Reliance will pay $340 million in cash on closing plus $1.36 billion in the form of a drilling carry. Atlas will serve as development operator for the JV.

Reliance will have the option to operate in certain project areas in coming years outside of Atlas’ core operating areas of Fayette, Greene, Washington, and Westmoreland counties in southwestern Pennsylvania.

Reliance will acquire a 40% undivided interest in 300,000 net acres (120,000 net to Reliance) of undeveloped leasehold held by Atlas, and Atlas will retain a 60% undivided interest in the acreage.

In addition to funding its own 40% of drilling obligations, Reliance has agreed to fund 75% of Atlas’ respective portion of drilling and completion costs until the $1.36 billion drilling carry is fully utilized. Atlas has 5½ years to utilize the drilling carry, subject to a 2-year extension under certain conditions.

Atlas and Reliance agreed on a 5-year development plan that calls for the drilling of 45 horizontal Marcellus shale wells for the JV in the rest of 2010, then 108 wells in 2011, 178 wells in 2012, and 300 wells in 2013 and 2014.

Atlas will act as sole leasing agent for the JV in the area of mutual interest. In the near future, Atlas and Reliance expect to considerably grow the JV’s Marcellus shale leasehold position in the AMI. Reliance will have the option to acquire a 40% share of such new acreage under terms comparable to those agreed to by Atlas, with each party paying its proportionate share of acquisition costs.

If Atlas decides to sell all or part of the 280,000 additional Appalachian acres it currently controls but excluded from the JV and not included in the AMI, Atlas has granted Reliance a right to purchase such acreage at a price of $8,000/acre.

Reliance also receives a right of first offer with respect to potential future sales of this acreage by Atlas at lower prices. This acreage is located mostly in Mercer, Crawford, and other Pennsylvania counties not currently included in Atlas’ core Marcellus area of southwestern Pennsylvania.

Atlas said the transaction will enable it to greatly accelerate its Marcellus development while further reducing finding and development costs, benefitting capital structure, and reducing leverage and enhancing liquidity.

The purchase and sale is subject to certain closing conditions, including the consent of participating lenders under Atlas’ senior secured credit facility. The transaction is expected to close in April.

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