HOEC to buy Hardy’s India assets for $1.5 mn

Hindustan Oil Exploration Company (HOEC) has agreed to buy the India assets of Hardy Oil and Gas for $1.5 million (approximately Rs 10.3 crore).

“HOEC has entered into a conditional agreement with Hardy Oil and Gas, subject to their shareholders’ and other approvals, to acquire the entire share capital of HEPI [Hardy Exploration & Production (India)],” HOEC said in a regulatory filing on Tuesday without giving any further details.

Hardy, however, in a statement said it has entered into a conditional share purchase agreement (SPA) to sell HEPI to HOEC for $1.5 million in cash.

HEPI holds interests in three oil and gas blocks in India - 75 per cent stake in CY-0S/2 and 18 per cent in PY-3 in the Cauvery basin offshore from Pondicherry and a 10 per cent stake in the Reliance Industries-operated GS-01 block off the west coast.

Hardy said the company and HEPI had “faced significant challenges in respect of the (three) assets, including protracted litigation with the Government of India and disputes with partners.”

“These challenges have been ongoing for an extended period of time and have resulted in the group being unable to operate or commercialise the assets.

“As a result of these challenges, the board of the company determined that the assets have no financial value and the Asset CY-OS/2 was written-off in the group’s accounts for the half-year ended September 30, 2018, and the other two assets were written-off in the group’s accounts in earlier financial periods,” it said in a statement.

Given the write-offs, Hardy felt realising “some value” for the three assets was in the “best interests” of the company and its shareholders.

During the financial year ended March 31, 2019, HEPI made a loss of $58.3 million.

HEPI is the operator of the CY-OS/2 block, which is located offshore India’s east coast and encompasses a natural gas discovery, Ganesha.

In 2009, HEPI was informed that the Government of India had deemed the block relinquished citing expiration of the time to appraise the Ganesha discovery.

The company challenged the decision before an arbitration panel, which held the government action was illegal and required the government to reinstate the block. The government has challenged the decision before the Supreme Court.

The PY-3 field was shut-in in July 2011 and Hardy has initiated arbitration against partners Tata Petrodyne (21 per cent stake), HOEC (21 per cent) and ONGC (40 per cent) to recover outstanding amounts associated with expenditure incurred.

GS-01 has a natural gas discovery, but faces possible liquidated damages associated with the unfinished minimum work programme.

“Pursuant to the terms of the SPA, HOEC has agreed to acquire the whole capital stock of HEPI for cash consideration of $1,500,000,” the statement said.

“Under the terms of the SPA, HOEC is required to pay the consideration to the company’s solicitors within five business days of the date of signing the SPA in order for the SPA to have any force or effect.

“As the company’s solicitors have received the consideration within the required period, the SPA is now binding. The consideration will be released to Hardy on completion,” it added.

Completion of the transaction is conditional only on Hardy’s shareholders passing a resolution approving the transaction.

Neither Hardy nor HOEC has any right to terminate the SPA between signing and completion and the SPA is not subject to any other conditions, it added.

“Due to the difficulties associated with the assets, HEPI has been reliant on the company to provide it with funds to continue to trade and fund the ongoing litigation and disputes,” Hardy said.

“The ongoing funding requirements of HEPI are a significant financial burden on the company, particularly when it is not certain when, or if, any of the assets will start generating returns for shareholders,” it stated.

Following receipt of a number of approaches to acquire HEPI, the Hardy board concluded that the disposal of HEPI made in accordance with the terms of the HOEC deal is in the best interests of the company and its shareholders.

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