Reliance Industries' US Shale Business Takes a Knock
Reliance Industries’ US shale gas business suffered in the fourth quarter of fiscal 2016 (Apr 2015-Mar 2016) that ended on March 31 due to low oil and gas prices.
Reliance said in its annual results that WTI averaged 21 percent lower sequentially at $33.45/bbl and Henry Hub Gas averaged 8 percent lower sequentially at $2.09/Mmbtu in the fourth quarter. For the full year, WTI averaged lower by 44 percent on year at $45/bbl while HH Gas was lower by 38 percent at $2.44/MMbtu. The low price environment was effectively managed through reduction in activity levels, rationalization of capital expenditure and lowering of costs, the company said, adding that focus was on liquidating existing well inventory to bring more wells online and delivering wells at much lower well costs.
Consequently, capex for the quarter was sequentially 31 percent lower at $113 million, and reflected a fall of 53 percent year-on-year. During the fiscal, aggregate capex was at $781 million, lower by 32 percent on year. During the year, 129 wells were drilled and 190 wells were put on production – lower by 10 percent compared with the year before. Total producing well count stood at 1,055 in March 2016, compared with 865 wells in the same period last year.
Production grew by 3 percent to 205 Bcfe in fiscal 2016. Despite slightly higher volumes, overall revenue was substantially lower and reflected the impact of 47 percent year-on-year fall in unit realization in the year. Average gross production was at 1,252 Mcfe/d in fourth quarter, up 2 percent on year. Production dropped 7 percent sequentially to 50.6 Bcfe in the final quarter of the fiscal.
Net sales volume (Reliance share) stood at 6 percent lower sequentially at 42.9 Bcfe in fourth quarter. Lower volumes, coupled with sharply lower realization, resulted in overall revenues being sequentially lower by 26 percent.
Year-end well costs were 24-25 percent below average 2014 cost levels.
Cash conservation
As business environment continues to remain challenging Reliance is focused on lowering activity levels to conserve cash while retaining optionality and preparedness for ramp-up, when prices improve.
“Challenged market outlook does curtail near-term growth, but long term outlook for the business remains promising,” Reliance said.
Reliance has three shale JVs in US. Besides Eagle Ford JV with Pioneer, RIL has a 40 per cent stake in Chevron’s Marcellus shale acreage and a 60 per cent interest in Carrizo Oil and Gas Inc’s Marcellus shale acreage in Central and Northeast Pennsylvania.