Oil India Becomes 2nd Indian Company to Exit US Shale

Oil India Becomes Second Indian Company to Exit US Shale

by 5paisa Research Team Last Updated: Dec 12, 2022 - 01:52 pm 40.3k Views
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India’s second largest oil and gas extractor, Oil India Ltd, has decided to exit the global shale industry altogether. Shale is the oil and gas that is found embedded in rocks, which actually triggered the Shale revolution in the US since 2011. The result was that oil prices cracked sharply from $115/bbl in 2014 to as low as $20/bbl in subsequent years. However, oil has bounced back, but Indian companies don’t find shale too attractive.

Oil India sold its 20% stake in its Niobrara Shale Assets, United States to its venture partner. The sale of the entire 20% stake of Oil India in the shale asset was done at a price of $25 million. It may be recollected that Oil India and IOCL had together purchased a 30% stake in the Niobrara Shale Assets in the year 2012 from Carrizo Oil and Gas for $82.5 million. The balance 10% was held by Indian Oil.

However, out of the above amount of $82.50 million, only 50% was payable as upfront cash while the balance 50% was payable as a carry amount linked to Carrizo’s future drilling and development costs. The stake was bought by Verdad Resources LLC, which is also the operator of the shale asset.

Oil India is not the first company to exit the shale business in the US. The first to exit the shale business was Reliance Industries, which had last year decided to sell out its entire shale franchise. While the sale was done in phases, Reliance had completed the full sale of all assets in the Marcellus Shale Block in the US.

That is because, Reliance was not positive about the prospects of Shale gas as a business proposition. Oil India is the second Indian company to exit US Shale completely. This brings an end to Oil India’s shale plans, for which it had scouted aggressively about a decade ago. At one point, Oil India had owned such shale assets from Russia to Venezuela.

This also has to do with the COP-26 deadlines which put pressure on India to cut down on its carbon footprint aggressively. Most oil companies are realizing the hard way that the best way to boost stock market valuations and investor interest is to focus more on futuristic fuel technologies that are sustainable and green in nature. That is likely to drive priorities.

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