Mumbai: Canada-based Niko Resources Plc may have to exit its holding in the D6 block in the Krishna-Godavari basin as the cash-strapped company is struggling to meet its investment obligations, according to the company. Niko has a 10% stake in the KG-D6 block, off the country’s east coast. Mukesh Ambani-controlled Reliance Industries Ltd holds 60% and BP Plc owns a 30% stake. Niko’s cash flow has been impacted by the failure of its oil and gas operations in Bangladesh, Indonesia and Trinidad.
In November 2016, Niko decided to sell its 10% stake in the KG-D6 block but has not been able to find suitors. The company has said due to the foregoing matters, there is material uncertainty that may cast significant doubt about its ability to continue as a going concern.
“While these efforts are continuing, to conserve its remaining cash (approximately $3.6 million as of 30 September 2018), the company elected not to pay a D6 block cash call that was due in early October 2018," Niko said in a statement posted on its website on 13 November.
Owing to the cash crunch, Niko surrendered in 2015 its 10% stake in another block, NEC-25, off the Odisha coast, to RIL (60%) and BP (30%).
In 2016, Niko sold its 33.3% stake in the Hazira field in Gujarat to Sun Petrochemicals.
Announcing its September quarter earnings, Niko said if the defaulting party does not cure a default within 60 days of the default notice, the partners have the option to ask it to withdraw from the KG-D6 production sharing contract (PSC). While Niko has failed to secure any buyer for its 10% stake in the KG-D6 block, it has also been unsuccessful in securing financing to fund its share of the R-Cluster, Satellite Cluster and MJ development projects in the block.
Niko’s share of the funding requirement for development of these projects is estimated at approximately $200 million between mid-2018 and mid-2020.
Under the joint operating agreement (JOA) between the three companies in the KG-D6 PSC, during the continuance of a default, the defaulting party shall not have a right to its share of revenue as it shall vest in and be the property of the non-defaulting parties who have paid to cover the amount in default.
“If the default under the D6 JOA is not cured on a timely basis and the non-defaulting parties request that Niko withdraw from the D6 PSC and JOA, then this will have a material adverse impact on the company’s stakeholders," Niko added.
In September 2018, RIL had shuttered its only oilfield (MA field) in the KG-D6 block due to lack of any production. Production from the field has been in natural decline and facing various challenges due to high water production and sand ingress.
“The D6 block is dead now. If you look at the losses RIL has made in the block quarter after quarter, it’s staggering. Niko doesn’t have multiple avenues for cash flow and this has impacted its performance in India. Niko is one of the few international oilfield operators in India," said an official from one of the participating companies in the D6 block. He spoke on the condition of anonymity.
The fields were predicted to last a minimum of 15 years but have been exhausted in less than a decade. In April-June 2018-19, the MA field contributed less than 0.1% in terms of revenue at the consolidated level, RIL said in September.
The Dhirubhai-26 (D-26), oil, gas and condensate deepwater discovery was made in 2006 and was India’s first deepwater development, entailing a water depth of up to 1,250 metre.
RIL had made 19 oil and gas discoveries in the KG basin, of which D26 or MA—the only oil discovery—was the first to begin production in September 2008. The Dhirubhai-1 and 3 (D1 and D3) gas fields went on-stream in April 2009.
RIL, along with its partner BP Plc, is now developing three sets of discoveries—R-Cluster, Satellite Cluster and MJ fields—in the KG-D6 block at a cost of ₹ 40,000 crore. These fields are expected to bring peak output of 30-35 million metric standard cubic metres per day, with gas set to flow from 2020.