Niko exits NEC-25 block, gives stake to RIL, BP

Niko Resources of Canada has decided to quit Reliance Industries Ltd (RIL)'s gas discovery block NEC-25, off the Odisha coast.

The company, in a statement, said,"the second quarter of financial year 2016, the company elected to withdraw from the NEC-25 block and relinquish its interest to the remaining interest holders." RIL is the operator of the block, with 60 per cent interest, while BP plc of UK has the remaining 30 per cent stake.

Gas discoveries in North-East Coast block NEC-0SN-97/1 (NEC-25) hold recoverable reserves of 1.032 trillion cubic feet.

Niko's 10 per cent interest will be split between RIL and BP in proportion to their equity stake.

Niko has been facing cash crunch and had put up for sale its 10 per cent interest in blocks - NEC-25 and Krishna-Godavari basin - but could not find a buyer.

"In the first quarter of financial year 2016, the contractor group for the NEC-25 block elected to conduct a drill stem test (DST) for one discovery in the block," Niko said, adding that relinquishing its interest would eliminate the company's obligation to fund its share of the DST programme.

RIL had in March 2013 filed a $3.5-billion integrated field development plan for producing 10 million standard cubic meters per day of gas from the discoveries D-32, D-40, D-9, and D-10 in NEC-25 by mid-2019.

RIL-BP-Niko decided to relinquish D-40 and conduct DST on D-32. According to RIL, D-32 and D-40 hold an in-place reserve of up to 663 billion cubic feet capable of producing 170 million standard cubic feet per day.

Niko said it would not be able to conclude negotiations for the sale of its upstream interest by November 15 and will seek an extension from its lenders for additional time.

"The company's management is focused on reducing ongoing costs by reducing staff and closing branch offices in countries where it had been exploring," it said. "The company will continue its efforts to monetise its non-core assets and minimise cash outflows outside its core areas."

Niko added its cash flow would be reduced by $2 million per quarter from October 2015 till March 2016.

"The reduction in gas price for the D6 block for October 2015 to March 2016 is expected to negatively hit net cash flow by approximately $2 million per quarter for the next two quarters," the company said in a statement on Friday.

The government has cut domestic natural gas prices by 18 per cent to $4.24 per million British thermal unit (mBtu) on a net calorific value basis for the period October 2015 to March 2016.

"For the Dhirubhai-1 and -3 fields in the D6 block, where a dispute between the contractor group and the government of India on the cost recovery of certain costs is under arbitration, the guidelines indicate that the contractor group will be paid the earlier price of $4.2 per mBtu and the difference would be credited to a gas pool account," Niko's statement added.

The company also said total sales volume from the D6 block in the second quarter of 2015-16 at 41 per million cubic feet a day decreased compared to the same quarter last year due to the impact of "natural production declines in the fields''.

The three partners together have pumped in Rs 4500 crore to keep the D1 and D3 blocks producing.