Oil India plans to exit US shale project

Cogencis, Wednesday, Dec 26

By Shilpa Samant and Sukalp Sharma

NEW DELHI – State-owned upstream player Oil India Ltd has decided to exit a shale exploration and production project in the US due to lack of returns. The company is, however, waiting for the project's valuation to improve before selling its stake, a senior official with Oil India told Cogencis.

In 2012, Oil India acquired 20% stake in a shale project–Niobrara asset–in the DenverJulesburg basin in Colorado. The company then set up a wholly owned subsidiary–OIL USA–to manage this asset.

Oil India had acquired the stake from Carrizo Oil & Gas Inc, which currently owns 60% stake in the project and is also the asset operator. Apart from Oil India, Indian Oil Corp Ltd is other Indian investor in the project and owns 10%.

Oil India has invested over $100 mln in the project, including the cost of acquiring 20% stake in it, the official added.

"We want to exit because we are not getting any returns from the project…but we have put it hold for the time being because of low valuations," said the Oil India official, who did not want to be named.

The Niobrara project is not proceeding as planned owing to a slide in prices of crude oil that began in 2014. Although prices have recovered to a certain extent, they have been volatile for the past many months. The US shale industry has been hit badly by the uncertain oil price environment.

As per the Oil India official, Carrizo has been focussed only on other shale assets where cost of shale production is considerably lower than Niobrara. As a result, there has hardly been any activity in the Niobrara project over the past few years.

"Over the years, since acquisition, OIL USA has seen many ups and downs, due to the prevailing commodity price scenario. In fact, year 2015-16 was one of the most challenging years, which witnessed further drop in commodity price as the battle for market share intensified and continues to reshape the oil industry," OIL USA had said in its annual report for 2016-17 (Apr-Mar).

At 1359 IST, shares of Oil India traded 0.3% higher at 174.80 rupees on the National Stock Exchange.  End
US$1 = 69.99 rupees 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Deepshikha Bhardwaj

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