Niko extends time to sell stake in KG-D6 block to Sept 15

Company had in February announced plans to sell its 10% stake in the KG-D6 block to pay off $340 million debt

Canada's Niko Resources has extended by over three months the search for a buyer of its stake in Reliance Industries' KG-D6 gas block to pay off debt.

Niko had in February announced plans to sell its 10 per cent stake in the KG-D6 block to pay off USD 340 million debt. It had planned to sell off the interest by April 30 but later extended it till May 31.

It now reached reached an understanding with lenders to extend the search till September 15.

The company in filings to Toronto Stock Exchange last week said: "The Board of Directors of Niko now believes that it requires more time to determine if the sales process will be successful or, if not, to develop an alternative plan with the assistance of its advisors and stakeholders to achieve the best results for the stakeholders of the Company."

Niko said it has reached an agreement with the lenders to the search for a buyer of KG-D6 stake to September 15, 2015.

In February, Niko had blamed lower-than-expected gas price for its decision to sell its stake in the KG-D6 block where a total of 20 oil and gas discoveries had been made and three out of them are in production.

The government had in October announced raising natural gas price to USD 5.61 per million British thermal unit from USD 4.2. The increase was lower than USD 8.4 that the industry was expecting and prevailing USD 5.71 rate applicable to gas from western offshore fields.

"The announced price for the period from November 2014 to March 2015 is a 33 per cent increase over the price received previously, but is lower than expected. In addition, there is uncertainty around the long-term natural gas price outlook in India," Kevin J. Clarke, Chairman and interim Chief Executive Officer, Niko Resources Ltd had said then.

The company had engaged Jefferies as its financial advisor to look for a buyer for KG-D6 stake.

RIL is the operator of the block with 60 per cent interest while 30 per cent is with BP plc of UK.

The partners have first right of refusal over the stake. It remains to be seen if RIL will buy the stake.

Even if it doesn't buy the stake, it will have to play a role in case debt-ridden Niko defaults in paying up its share of development cost of satellite and other discoveries in KG-D6 block, industry sources said.

RIL, in that case, have to either pay for Niko's share or declare the Canadian firm a defaulter, a scenario where the government can cancel the production sharing contract (PSC).

While the higher gas price is applicable uniformly across fields, Dhirubhai-1 and 3 (D1&D3) gas fields in KG-D6 block will continue to get the old rate of USD 4.2 till it is settled through arbitration if the output falling by over 80 per cent to about 8 million standard cubic meters per day was due to natural reasons or was a deliberate ploy.

RIL and partners will get the incremental difference only if they can prove that fall in output was not deliberate.