Welcome!

News Feed Item

RIL, BP and Niko Issue Notice of Arbitration to Government of India

Seek implementation of "Domestic Natural Gas Pricing Guideline 2014" notified on January 10, 2014.

CALGARY, ALBERTA -- (Marketwired) -- 05/12/14 -- Niko Resources Ltd. ("Niko" or the "Company") (TSX: NKO), provides the following update.

Notice of Arbitration

RIL, BP and Niko, the contractor group of the D6 block in India, have issued a notice of arbitration on May 9, 2014 to the Government of India seeking the implementation of the "Domestic Natural Gas Pricing Guideline 2014" notified on January 10, 2014.

The continuing delay on part of the Government of India in notifying the price in accordance with the approved formula for the gas to be sold has left the parties with no other option but to pursue this course of action. Without this clarity, the parties are unable to sanction planned investments of close to $4 billion this year. In addition, this will also delay the ability of the parties to appraise and develop other significant discoveries made last year. Overall, the parties were planning to invest $8-10 billion in the next few years to significantly increase production from the D6 block. This domestic production is essential for meeting India's energy needs and will also help conserve foreign exchange which is required for imports of natural gas into India at the present time. All of this requires clarity on pricing.

The three parties shall endeavour to work with the Government to achieve a prompt and efficient resolution of this dispute.

Background

This background note explains the circumstances that forced RIL, BP and Niko, the contractor group of the D6 block, to file a notice of arbitration on the Government of India on May 9, 2014. As can be observed from the facts stated here, the contractor group was left with no other option.

Gas pricing has been debated for over two years with a Cabinet decision that approved a Rangarajan Committee price formula in 2013. This price formula was not an arms-length price as per the Production Sharing Contracts ("PSC"), yet it showed intent to move towards and transition to arms-length pricing. However, implementation of the Cabinet decision has been deferred leading to no clarity on gas price from April 1, 2014 for the contractor group to plan their future investments.

It has been well documented that the contractor group has been working diligently to arrest the decline from currently producing fields. In addition, the contractor group has an estimated 5 trillion cubic feet of discovered gas resources in the D6 block that await investment and development to be able to bring them to market. As has been stated before, these resources need clarity on long term gas prices to be developed economically.

Exploration and development activity is based on a pricing structure that enables investments. The PSCs promise an 'arm's-length, market determined' price for domestic gas. Having made a major discovery in 2013, the contractor group was getting ready to start investing in the development of discovered resources. The contractor group was upbeat over the opportunity to invest over $8-10 billion in development of discovered resources over the next 3-4 years. These investments could have significantly increased production by 2019. This would also help the country of India avoid LNG imports of more than $75 billion.

With this in focus, the contractor group had requested the Government in early 2012 to provide clarity on prices after 1Q 2014 (when the current price formula approved by the Government and the contracts to sell gas expired) to be able to progress development of discovered resources and increase exploration activities to find more gas in India.

The Rangarajan Committee, appointed by the then Minister of Petroleum & Natural Gas, Jaipal Reddy, proposed a formula for pricing of gas based on market prices of gas across the world for a period of 5 years before transitioning to gas-on-gas competition. This was to facilitate a transition to arms-length market prices.

The Cabinet Committee on Economic Affairs ("CCEA") in June 2013 endorsed the Rangarajan Committee formula as pricing for all domestic gas produced in India from April 1, 2014. The Ministry of Petroleum and Natural Gas (the "MoPNG") published guidelines for implementation of Rangarajan Committee formula as the new gas price formula in January 2014. The D6 Block is the only NELP block that is selling gas today and the contracts to sell gas from the D6 block at $4.2/mmbtu expired on March 31, 2014. Following expiry of the contracts, the new gas price was supposed to be calculated using the CCEA-approved formula.

The MoPNG was mandated to compute and notify the new gas price for the quarter April to June 2014 by early March 2014. The Election Commission, on March 24, 2014, advised deferment of announcement of the new gas price for the quarter starting April 1, 2014 till the Model Code of Conduct is lifted, due to elections and the matter being sub-judice in the Supreme Court. The Supreme Court, however, did not defer/delay notification of gas prices.

Hence, there is no gas price from April 1, 2014 for the current gas sales from the D6 block.

This resulted in an arbitrary decision by the MoPNG to force the contractor group to keep selling gas at $4.2/mmbtu after April 1, 2014. This is in contravention of the PSC and detrimental to the economic interests of the contractor group and the government.

Under protest but in good faith, the contractor group has kept supplying gas at $4.2/mmbtu to the customers.

The contractor group requested the government to announce the gas prices as soon as the Model Code of Conduct was over, with effect from April 1, 2014 as per the Cabinet decision and given that fact that the gas sales contracts had expired on March 31, 2014. The MoPNG indicated gas prices would only be announced for the 2nd quarter 2014, completely ignoring the Cabinet decision to change prices from April 1, 2014.

This contradictory move has resulted in a loss to the contractor group and the government of approximately $50 million per month.

Most capriciously, there is no clarity on what the gas price would be in the future, failing which all of the Contractor group's current and future investment plans are in jeopardy. The contractor group that was getting ready to sanction the first major project with an investment of $4 billion in June/July 2014 is now forced to halt activities. This major investment decision would have resulted in first gas from the project coming to Indian markets in 2017. One quarter's delay this year will delay this project by one year due to the construction weather window in the Bay of Bengal being lost. This will result in an increasing dependence on expensive LNG imports. A complete lack of clarity on gas prices going ahead has hence thrown all the contractor group's plans in disarray.

All such arbitrary, contradictory and contravening moves to deny contractually promised prices will deter future investments in the Indian E&P sector. The three Parties have, as a result, filed an international arbitration claim to secure a market price for gas as per the PSC.

The contractor group hopes for an early resolution of this dispute. The contractor group continues to be committed to delivering gas from the existing fields. The partnership will always act in the best interests of the people of India.

Forward-Looking Information

Certain statements in this press release constitute forward-looking information. Specifically, this press release contains forward looking information relating to the Company's planned capital program; expenditures, including those for development, appraisal and exploration; exploration results; gas prices; and governmental approvals. Undue reliance should not be placed on forward-looking information. Such forward-looking information reflects the Company's current beliefs and assumptions and is based on information currently available to the Company. These forward looking statements are based on certain key expectations and assumptions, including expectations and assumptions regarding its future growth; the outcome of potential asset sales and farm-outs; results of operations; production; future capital and other expenditures; business prospects and opportunities; prevailing commodity prices and exchange rates; applicable royalty rates and tax laws; future well production rates; the performance of existing wells; the success of drilling new wells; the availability of capital to undertake planned activities; general economic, market and business conditions; decisions or approvals of regulatory or administrative bodies; risks and uncertainties associated with the debt and equity capital markets. The reader is cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be incorrect. Actual results achieved during the forecast period may vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors and such variations may be material.

Such factors include, but are not limited to: the risks associated with the oil and natural gas industry in general, such as operational risks in development, exploration and production, delays or changes in plans with respect to exploration or development projects or capital expenditures, the uncertainty of estimates and projections relating to production rates, costs and expenses, commodity price and exchange rate fluctuations, marketing and transportation risks, environmental risks, competition, the ability to access sufficient capital from internal and external sources, changes in tax, royalty and environmental legislation, the impact of general economic conditions, imprecision of reserve estimates, the lack of availability of qualified personnel or management, stock market volatility, the risks discussed under "Risk Factors" in the Company's most recent Annual Information Form and in the Company's public disclosure documents, and other factors, many of which are beyond the Company's control. This forward-looking information contains future-oriented financial information that is based on assumptions that in management's view are reasonable in the circumstances but readers are cautioned that this future-oriented financial information may not be appropriate for other purposes. Niko makes no representation that the actual results achieved during the forecast period will be the same in whole or in part as those forecast. The forward-looking information is presented as of the date of this press release, and the Company assumes no obligation to update or revise such information to reflect new events or circumstances, except as required by law.

Contacts:
Niko Resources Ltd.
Jake Brace
President
(403) 262-1020

Niko Resources Ltd.
Glen Valk
VP Finance & CFO
(403) 262-1020
www.nikoresources.com

More Stories By Marketwired .

Copyright © 2009 Marketwired. All rights reserved. All the news releases provided by Marketwired are copyrighted. Any forms of copying other than an individual user's personal reference without express written permission is prohibited. Further distribution of these materials is strictly forbidden, including but not limited to, posting, emailing, faxing, archiving in a public database, redistributing via a computer network or in a printed form.

Latest Stories
It's easy to assume that your app will run on a fast and reliable network. The reality for your app's users, though, is often a slow, unreliable network with spotty coverage. What happens when the network doesn't work, or when the device is in airplane mode? You get unhappy, frustrated users. An offline-first app is an app that works, without error, when there is no network connection.
Data-as-a-Service is the complete package for the transformation of raw data into meaningful data assets and the delivery of those data assets. In her session at 18th Cloud Expo, Lakshmi Randall, an industry expert, analyst and strategist, will address: What is DaaS (Data-as-a-Service)? Challenges addressed by DaaS Vendors that are enabling DaaS Architecture options for DaaS
One of the bewildering things about DevOps is integrating the massive toolchain including the dozens of new tools that seem to crop up every year. Part of DevOps is Continuous Delivery and having a complex toolchain can add additional integration and setup to your developer environment. In his session at @DevOpsSummit at 18th Cloud Expo, Miko Matsumura, Chief Marketing Officer of Gradle Inc., will discuss which tools to use in a developer stack, how to provision the toolchain to minimize onboa...
Cognitive Computing is becoming the foundation for a new generation of solutions that have the potential to transform business. Unlike traditional approaches to building solutions, a cognitive computing approach allows the data to help determine the way applications are designed. This contrasts with conventional software development that begins with defining logic based on the current way a business operates. In her session at 18th Cloud Expo, Judith S. Hurwitz, President and CEO of Hurwitz & ...
As someone who has been dedicated to automation and Application Release Automation (ARA) technology for almost six years now, one of the most common questions I get asked regards Platform-as-a-Service (PaaS). Specifically, people want to know whether release automation is still needed when a PaaS is in place, and why. Isn't that what a PaaS provides? A solution to the deployment and runtime challenges of an application? Why would anyone using a PaaS then need an automation engine with workflow ...
SYS-CON Events announced today that Catchpoint Systems, Inc., a provider of innovative web and infrastructure monitoring solutions, has been named “Silver Sponsor” of SYS-CON's DevOps Summit at 18th Cloud Expo New York, which will take place June 7-9, 2016, at the Javits Center in New York City, NY. Catchpoint is a leading Digital Performance Analytics company that provides unparalleled insight into customer-critical services to help consistently deliver an amazing customer experience. Designed...
The cloud competition for database hosts is fierce. How do you evaluate a cloud provider for your database platform? In his session at 18th Cloud Expo, Chris Presley, a Solutions Architect at Pythian, will give users a checklist of considerations when choosing a provider. Chris Presley is a Solutions Architect at Pythian. He loves order – making him a premier Microsoft SQL Server expert. Not only has he programmed and administered SQL Server, but he has also shared his expertise and passion w...
With the proliferation of both SQL and NoSQL databases, organizations can now target specific fit-for-purpose database tools for their different application needs regarding scalability, ease of use, ACID support, etc. Platform as a Service offerings make this even easier now, enabling developers to roll out their own database infrastructure in minutes with minimal management overhead. However, this same amount of flexibility also comes with the challenges of picking the right tool, on the right ...
SYS-CON Events announced today that FalconStor Software® Inc., a 15-year innovator of software-defined storage solutions, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. FalconStor Software®, Inc. (NASDAQ: FALC) is a leading software-defined storage company offering a converged, hardware-agnostic, software-defined storage and data services platform. Its flagship solution FreeStor®, utilizes a horizonta...
SYS-CON Events announced today that Interoute, owner-operator of one of Europe's largest networks and a global cloud services platform, has been named “Bronze Sponsor” of SYS-CON's 18th Cloud Expo, which will take place on June 7-9, 2015 at the Javits Center in New York, New York. Interoute is the owner-operator of one of Europe's largest networks and a global cloud services platform which encompasses 12 data centers, 14 virtual data centers and 31 colocation centers, with connections to 195 ad...
SYS-CON Events announced today that (ISC)²® (“ISC-squared”) will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. Two leading non-profits focused on cloud and information security, (ISC)² and Cloud Security Alliance (CSA), developed the Certified Cloud Security Professional (CCSP) certification to address the increased demand for cloud security expertise due to rapid growth in cloud. Recently named “The Next...
The Art of DevOps provides a fun overview to help teams understand DevOps. Written in the style of the famous 6th century Chinese manuscript “The Art of War,” this eBook describes DevOps in the form of a mission to continuously deliver assets to the operational battlegrounds safely, securely, and quickly. It’s a fun read with valuable insights.
SYS-CON Events announced today that Alert Logic, Inc., the leading provider of Security-as-a-Service solutions for the cloud, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. Alert Logic, Inc., provides Security-as-a-Service for on-premises, cloud, and hybrid infrastructures, delivering deep security insight and continuous protection for customers at a lower cost than traditional security solutions. Ful...
Join us at Cloud Expo | @ThingsExpo 2016 – June 7-9 at the Javits Center in New York City and November 1-3 at the Santa Clara Convention Center in Santa Clara, CA – and deliver your unique message in a way that is striking and unforgettable by taking advantage of SYS-CON's unmatched high-impact, result-driven event / media packages.
The Quantified Economy represents the total global addressable market (TAM) for IoT that, according to a recent IDC report, will grow to an unprecedented $1.3 trillion by 2019. With this the third wave of the Internet-global proliferation of connected devices, appliances and sensors is poised to take off in 2016. In his session at @ThingsExpo, David McLauchlan, CEO and co-founder of Buddy Platform, will discuss how the ability to access and analyze the massive volume of streaming data from mil...