Reliance Industries has asked its partner Niko Resources to withdraw from eastern offshore KG-D6 gas block over default in payments for field development cost, but the Canadian firm has sought to stall the move by invoking arbitration, the companies said.
Niko, which defaulted on payment of loans to its lenders, has been unsuccessful in seeking a possible buyer for its 10 per cent stake in Bay of Bengal block KG-D6 or securing financing for its share of the USD 5-6 billion R-Cluster, Satellite Cluster and MJ development projects in the block.
In its third quarter earning statement last week, RIL stated that N?iko "defaulted on Cash Calls and accordingly default notice was issued as per the provision of Joint Operating Agreement (JOA)".
"Since Niko did not cure the default within the default period, RIL and BP issued notice to Niko for withdrawal from Production Sharing Contract (PSC) and JOA and assign the participating interest to RIL and BP," RIL said. "In response to the notice, NIKO has served notice of Arbitration."
Reliance is the operator of KG-D6 block with 60 per cent stake and UK's BP plc has 30 per cent interest.
Niko, in a corporate update, said that it has on December 17, 2018 "received a notice from the non-defaulting parties requiring the subsidiary to withdraw from the KG-D6 PSC and JOA".
The company said it was evaluating its legal options regarding the notice.
Niko decided not to pay a KG-D6 Block cash call that was due in early October, 2018. This led to Reliance slapping a default notice under the production sharing contract (PSC).
Under the terms of the joint operating agreement (JOA) between the participating interest holders in the D6 PSC, during the continuance of a default, the defaulting party shall not have a right to its share of revenue (which shall vest in and be the property of the non-defaulting parties who have paid to cover the amount in default).
In addition, if the defaulting party does not cure a default within 60 days of the default notice, the non-defaulting parties have the option to require the defaulting party to withdraw from the D6 PSC and JOA.
Niko had previously withdrawn from eastern offshore NEC-25 block due to cash crunch. Its 10 per cent interest was assigned to Reliance and BP. Subsequent to that, Reliance now holds 66.6 per cent interest in NEC-25 and BP the remaining 33.37 per cent.
Niko said it has asked its lenders for a loan to fund its KG-D6 Block expenditures. "None of the Lenders is under any obligation to provide this loan facility and, to date, none of the Lenders have offered to provide this loan facility," it said.