BackCambay oil field faces closure as GSPC-Oilex joint venture turns sour
The firms invested $100 million in the field in the past 10 years but the realizations have been $3 million
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Mumbai: The Cambay oil field, operated by Australia-based Oilex Ltd and Gujarat State Petroleum Corp. (GSPC), may be staring at a shutdown after the Gujarat state-run firm failed to meet investment commitments.
The oil field may shut down in June, two officials aware of the development said, declining to be named.
The joint venture partners are sparring with each other over investments in the Cambay field with GSPC failing to meet its investment target for the field for more than three quarters.
GSPC and Oilex did not respond to an email query sent on 6 May.
Gujarat’s Cambay basin, where the Cambay field is located, is rich in petroleum resources.
GSPC, the exploration and production arm of the GSPC Group, holds 55% stake in the field while Oilex holds 45%.
“Our joint venture partner, GSPC continues to be in arrears in paying cash calls and in delaying approvals for budget and work programs," said Oilex in its March quarter earnings report dated 29 April.
“As a result, it has prepared a reduced budget for the Cambay field for the Indian financial year starting 1 April 2016. The associated program concentrates primarily on maintenance of the asset," Oilex added.
Oilex is also implementing a cost-cutting initiative in both its Perth and Indian offices and in field activities resulting in layoffs and reduced work activity.
“A cost-cutting program has been undertaken covering field operations and office costs in India in response to continued low oil and gas prices and the reduced activity level," Oilex said in the March quarter report.
Oilex was sued in November by one of its investors, Zeta Resources, over the firm’s failure to disclose default by GSPC in paying cash calls.
The investor had claimed it would not have agreed to make the investments in Oilex had it known the position of the partner.
A senior official from GSPC said the company is not happy with the way the joint venture with Oilex has progressed.
“We do not trust Oilex anymore. Oilex did not seek our approval for the work programs. So we do not owe any money to them. We have decided not to invest any further. The production sharing contract expires in 2019 and we are not interested in renewing it," the senior GSPC official said.
The official added that GSPC and Oilex have together invested $100 million in the field in the past 10 years but the realizations have been only $3 million.
“The cost of one onshore well is around $4 million. But Oilex spent $35 million on one of the wells citing technical issues. We have been approving investment programs but the results have not been lucrative. Thus we decided not to approve anymore investments," added the GSPC official.
GSPC has been facing financial headwinds and has undertaken a business restructuring to improve its credit profile.
In a report on public sector firms in Gujarat for the year ended March 2015, the Comptroller and Auditor General of India (CAG) pulled up GSPC for mismanaging its exploration and development-related activities in its KG Basin and overseas assets, leading to higher costs and financial losses.
The report was tabled in the Gujarat assembly on 31 March.
An analyst with a domestic brokerage said, “GSPC has been facing financial challenges in KG block and has seen cost overruns. The cash crunch they are facing on this front is bound to impact investments in other blocks." The analyst declined to be named.
The CAG report added that between 2011 and 2015, GSPC’s total borrowings increased 177% to ₹ 19,716.27 crore, mainly on account of development activities in KG block. This increased the interest burden from ₹ 981.71 crore in 2011-12 to ₹ 1,804.06 crore in 2014-15.
To improve its credit profile, GSPC will hive off its participating interest in the Krishna-Godavari Deen Dayal West (KG-DDW) block and its related assets and liabilities to GSPC Offshore, according to a 27 January note by Crisil.
The remainder of GSPC’s businesses (including exploration and production blocks other than KG-DDW, gas trading, wind power generation, and investments in subsidiaries and associates) will be amalgamated into GSPC Energy. The scheme is subject to approval by lenders, the Gujarat High Court, other relevant regulators, and was to be completed by March.
“Such business restructurings take time. We are still in the process and would take more time to complete it," said the GSPC official cited above.
GSPC’s debt of nearly ₹ 20,000 crore as on 31 December 2015, is to be split between GSPC Offshore and GSPC Energy, based on the security offered to lenders.
This means GSPC Energy will have a debt of ₹ 10,000-11,000 crore, against expected earnings before interest, tax, depreciation and amortisation of ₹ 700-800 crore in 2015-16.
GSPC Offshore will have a debt of ₹ 9,000-10,000 crore.
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