No easy resolution to GeoGlobal dispute with GSPC

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

Dispute over the exploration bill at KG-OSN-2001/3 could potentially destroy the carefully built up relationship between GSPC and GGR.

A GGR spokesman tells PETROWATCH that given a choice the company would have preferred not to go public with the dispute. “We had to make this disclosure of a potential claim to our shareholders in line with legal requirements,â€‌ GGR tells us.

“We are bound to make full disclosure to our shareholders. We are still in discussions with GSPC and wouldn’t like to say anything beyond what is in our press release.

â€‌ GGR says its stand is supported by Indian legal opinion, but so too does GSPC. “GSPC has also taken legal opinion,â€‌ says a source.

GSPC’s confidence is based on the bidding terms for NELP-II, when the block was awarded. Under oil ministry rules during NELP-II, bidders had to prove a net worth equal to or more than the value of the Phase-I work programme.

If the Phase-I work programme submitted by operator GSPC for KG-OSN-2001/3 had an estimated cost of more than $60m, we are told, “GSPC would not have qualified as that amount would have been beyond its net worth. Somebody else with a matching net worth would have got this block.

â€‌ Adds our source: “GSPC won this block purely on its bid package (work programme and profit sharing) and net worth criteria.â€‌ Against this background GSPC insists GGR should pay 10% of the additional costs incurred beyond the $59.23m originally budgeted for in Phase-I.

Continues our source: “Even though $59.23m was budgeted for Phase-I, there would have been no issue if actual expenditure had gone up to, say, $65m or $70m, but GSPC cannot keep quiet if it goes to $400m as it has now.â€‌ What next “If GeoGlobal remains adamant, GSPC can call an Operating Committee meeting and get GeoGlobal declared a defaulter,â€‌ we are told.

“The defaulter then loses participating interest in the block. GSPC has 80% and should face no problem getting this done.