GeoGlobal payment row with GSPC comes out in open

Vol 11, PW 8 (23 Aug 07) People & Policy

Long the subject of rumour, it is now in the open.

GeoGlobal Resources (GGR) of Canada has publicly announced it is in dispute with partner Gujarat State Petroleum over its share of the exploration cost at discovery block KG-OSN-2001/3, where GSPC is operator with 80%. On August 16th, GGR took the unprecedented step of acknowledging this in a public announcement to shareholders.

GGR’s equity in the block is 10%, â€کcarried’ by GSPC during the exploration period. At issue is whether GSPC should continue paying for GGR’s share of the exploration bill at KG-OSN-2001/3.

In dispute is whether there is any limit to this â€کcarry.’ GSPC insists the â€کcarry’ is limited to 10% of the $59.23m budgeted in the bid document for Phase-I of the exploration period, but GeoGlobal disagrees and says the â€کcarry’ is limitless.

Says GGR: “The Company intends to vigorously protect its contractual rights in accordance with the dispute resolution process under the Carried Interest Agreement, the Production Sharing Contract and the Joint Operating Agreement as may be appropriate.â€‌ GGR adds that its position is backed up by opinion from “prominent Indian legal counselâ€‌.

PETROWATCH learns the dispute has been simmering in the background for some time with regular exchanges of letters. “GSPC has been sending cash calls to GeoGlobal, but the whole thing was being taken lightly,â€‌ we are told.

On July 18th, we hear, an exasperated GSPC finally sent a terse letter asking GGR to pay up or be considered a defaulter. A source close to GSPC says it was “understoodâ€‌ by both sides when bids were submitted for this NELP-II block that the 10% â€کcarry’ would be limited to the Phase-I budget of $59.23m.

“GSPC has spent about Rs1700cr ($425m) so far,â€‌ we hear. “Drilling conditions have changed radically beyond what was anticipated when putting in the bid but GeoGlobal has not contributed a penny.

GSPC cannot carry GeoGlobal beyond a limit and this was clearly understood by both sides.â€‌ GGR says it is in discussions with GSPC to reach an amicable resolution but all indications point to the contrary.