Canada’s Niko Resource has been wanting to shed the 10 per cent it holds in Reliance Industries-operated KG-D6 block but has not found a buyer.
“Niko expressed its intent for the first time in December 2014, but it is not easy. D6 is an asset which is facing litigations (in arbitration over costs), and there are uncertainties over domestic (India’s) gas price, while the steep fall in global oil prices has impacted the overall spending of all exploration companies,” an official in know of the development said.
Though the company has cited India’s natural gas price mechanism as the key reason for wanting to exit, the official said it is more to do with its financial condition. Niko had total debt of around $439 million as on December 31, 2014. The company’s net worth is around $32 million, according to its interim consolidated statement of financial position after third quarter results.
All the partners in KG-D6 block have already recovered their costs even at a gas price of $4.2 a unit (gas is measured million British thermal units), a government official said.
In December 2014, when engaging Jefferies LLC as its financial advisor, Niko had said the consultant will assist it in pursuing strategic alternatives, including sale of assets, a merger or other business combination, an outright sale of the company, a refinancing of its existing debt, or a combination of these options.
Reliance Industries and BP did not wish to comment on this proposed move of Niko.
However, those closely associated with them said the existing partners may not like to buy out Niko’s 10 per cent stake under the prevailing conditions.
On whether RIL has the first right of refusal, a source said: “It depends on the shareholders agreement they (RIL and Niko) have. BP had bought share from RIL stake in the block, so it will depend on what the two have agreed upon.”
An industry observer said: “D6 reservoir has surprised everyone. It is one of the trickiest reservoirs, which has made all the assessments go wrong.”
The process does not end with Niko finding a buyer. To complete the deal, the Canadian company will have to get a no objection certificate from the Centre based on the production sharing contract.