Cash starved Niko walks out of NEC-25 joint venture with RIL, BP

By relinquishing its interest in the block to the other partners, Niko saves its share of cost involved in drill stem tests

Mumbai: Niko Resources Ltd, the Canadian oil and gas company which is a 10% partner in six blocks operated by Reliance Industries Ltd (RIL), has relinquished its interest in one—the NEC-25 field located in the Bay of Bengal.

RIL holds 60% in each of these six fields, while British Petroleum holds 30% stake and Niko holds 10% stake. Niko has now exited one of these six blocks.

“In the second quarter of fiscal 2016, the company elected to withdraw from the NEC-25 block and relinquish its interest to the remaining interest holders, eliminating its obligation to fund its share of the DST (drill stem test) program," said the company in its second quarter results statement released on Friday.

The DST is a method of exploration drilling prescribed by the government for oil and gas blocks in India. After a hiatus of three years, in July, RIL said it would conduct DST on the NEC- 25 block.

While the cost of the DST has not been disclosed, by relinquishing its interest in the block to the other partners, Niko saves its share of cost involved in such tests.

Niko, however, will retain its share in the D6 block, which is the only oil and gas producing block among the six blocks, even though cash flows from that block too are under pressure.

“The reduction in gas price for the D6 Block for October 2015 to March 2016 is expected to negatively impact net cash flow by approximately $2 million per quarter for the next two quarters," Niko said in its statement on Friday.

While the gas prices in India are fixed under a prescribed formula by the government, RIL and its partners are not allowed to charge a price according to the formula for the gas produced from the D6 block in the Krishna-Godavari basin due to an on-going arbitration with the government. The partners are only allowed $4.2 per million metric British thermal units (mmBtu) for the gas.

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