Reliance Natural Resources (RNRL), an Anil Dhirubhai Ambani Group (ADAG) company, is planning to rope in a strategic investor in its coal bed methane (CBM) business, offering up to 20% stake in the CBM blocks.
The company has four CBM blocks, holding one of the largest acreages of coal gas in the country. RNRL had picked up these blocks in association with Geopetrol, which has 10% stake in the blocks.
Sources close to the development said that RNRL has two options for getting a strategic partner. It could either rope in private equity firms, which have, of late, shown considerable interest in India’s energy story or a global CBM player who will bring in upstream expertise.
RNRL, which has interests in a number of energy-related business, including fuel management, has a market cap of about Rs 12,000 crore. RNRL plans to unlock some of this value by offloading a stake in the block at a significant premium.
Sources in investment banking circles said at least three energy companies, one from the US and two from Australia, are interested in partnering RNRL. The private equity firms interested in partnering RNRL are from Europe and the US.
Although company officials declined to comment, it’s learnt that the company is currently carrying out a strategic internal exercise to decide as to whether it should opt for a technical operating partner or just a financial partner.
According to experts, while investment by a PE firm would enhance market value of the company, a strategic CBM operator with proven track record would provide valuable technological support. An RNRL-led consortium won contracts for exploration and production of four CBM blocks in 2006.
The four CBM blocks cover an acreage of 3,266 sq km. Out of the four blocks, two are in Rajasthan and one each in Andhra Pradesh and Madhya Pradesh. The estimated investment to complete the committed activities in Phase I for each block is about Rs 27 crore.
India, the third-largest coal producer in the world, has the fourth-largest proven coal reserves and holds significant prospects for commercial recovery of CBM. Prior to 1997, due to absence of proper administrative, fiscal and legal regimes, CBM exploration activities were limited to R&D.
CBM, an unconventional source of natural gas, is now considered an alternative to augment the country’s energy resources. The environmental, technical and economic advantages of CBM have made it a global fuel of choice.
Source: Economic Times