The news that energy firm Oilex (LSE:OEX) could soon take full ownership of its flagship Cambay project in India drew a mixed response from the market yesterday. After rising in morning trading, Oilex was down 4pc to 0.21p by the afternoon after revealing that it has issued a c.$3m notice of default against the Gujarat State Petroleum Corporation (GSPC), its JV partner at Cambay.
Oilex- which is Cambay’s operator and 45pc owner – said it issued the notice because GSPC has continually failed to pay its participating interest share of the expenses of the Cambay production sharing contract (PSC). If GSPC does not settle the outstanding amount within 60 days, then Oilex has threatened to take ownership of its 55pc participating interest in the project.
To ensure that the Cambay JV meets its obligations with the Government of India, Oilex said it has borne the full costs of many recent activities. The work has included efforts to prepare a field development plan and getting government approval for the proposal of a 10-year extension to the PSC last month.
Oilex said that taking a 100pc interest in Oilex’s Cambay would help the company’s strategic farm-in discussions to participate in the ongoing work programme, which have already begun with several third parties. However, given that Oilex’s market cap sits at just £3.3m and its cash balance was c.$700,000 in March, the risks of losing c.£2.2m of unpaid expenses and having to fund all of Cambay’s future costs could be high. Confounding this risk is the fact that, at just 0.22p a share, Oilex could soon be ripe for a share consolidation. Indeed, although Oilex said it is confident in its position, it added that it might have to consider other remedial strategies if GSPC fails to comply with the default notice and a legal or regulatory challenge occurs.
Joe Salomon, managing director at Oilex, said: “Securing government approval for the application for the extension of Cambay PSC has been a significant event for the company, demanding a considerable effort from our team. Whilst embarking on this new chapter towards the development of Cambay, it is imperative the Company and its partners are aligned and committed to unlocking Cambay’s significant value potential for all stakeholders. After exhausting all reasonable efforts over an extended period, the issue of the EoD Notice is both timely and necessary to move Cambay closer to development.
‘The company has sought and will continue to seek constructive resolution of all matters that obstruct the development of Cambay. We remain appreciative of the continuing support of our major shareholders in our efforts to remove impediments and drive the project forward. Reflecting the positive E&P investment climate fostered by the Government of India, our confidence in India as a country of immense potential remains unyielding.’