Mumbai: Canada-based Niko Resources Plc has served a notice of arbitration to Reliance Industries Ltd (RIL) and BP Plc, its partners in the D6 block in the Krishna-Godavari basin.
Niko has a 10% stake in the KG-D6 block, off the country’s east coast. RIL owns 60%, while BP Plc owns a 30% stake.
“Since Niko did not cure the default within the default period, RIL and BP issued a notice to Niko for withdrawal from production sharing contract (PSC) and joint operating agreement and assign the participating interest to RIL and BP. In response to the notice, Niko has served notice of arbitration," RIL said in its third-quarter earnings statement.
In November, Mint reported that Niko may have to exit its holding in KG-D6 block as the cash-strapped company is struggling to meet its investment obligations. Niko’s cash flow has been impacted by the failure of its oil and gas operations in Bangladesh, Indonesia, and Trinidad.
“During the quarter, M/s Niko (NECO) Ltd defaulted on cash calls and accordingly a default notice was issued as per the provision of the joint operating agreement," RIL said.
In November 2016, Niko decided to sell its 10% stake in the KG-D6 block but has not been able to find a buyer. This has resulted in material uncertainty that may cast significant doubt about its ability to continue as a going concern, the company said.
In 2015, Niko surrendered its 10% stake in another block, NEC-25, off the Odisha coast to RIL (60%) and BP (30%) because of the cash crunch.
In 2016, Niko sold its 33.3% stake in the Hazira field in Gujarat to Sun Petrochemicals Pvt. Ltd.
Niko had said while announcing its September quarter earnings that 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 PSC.
Niko, which failed to find a buyer for its 10% stake in the KG-D6 block, 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 between the three companies in KG-D6, 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 joint operating agreement is not cured on a timely basis and the non-defaulting parties request that Niko withdraw from the D6 PSC and joint operating agreement, this will have a material adverse impact on the company’s stakeholders," Niko had said.
In September 2018, RIL had shuttered its only oilfield (MA field) in the KG-D6 block because of lack of production. Production from the field has been in natural decline and there were several challenges because of high water production and sand ingress.
Shuttering of the block impacted Niko’s cash flows in India. Niko is one of the few international oilfield operators in India.