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In election time, oil and gas return to haunt Modi again

Source : BUSINESS_STANDARD
Last Updated: Sat, Dec 08, 2012 18:54 hrs

pThough Gujarat State Petroleum Corporation officials term it a case of mismanagement the &lsquodubious&rsquo deal between GSPC and Canadian oil and gas exploration company GeoGlobal Resources has raised many questionsppThe association between Gujarat State Petroleum Corporation GSPC and the Canadian oil and gas exploration company GeoGlobal Resources Inc GeoGlbar has been in the eye of the storm every now and then The controversy surrounding the two has time and again caused embarrassment to the Narendra Modi-led government Now with Gujarat going to polls on December 13 and 17 the alleged dubious deal between the state-run GSPC and the Barbados-based firm for gas exploration in the offshore block of the Krishna-Godavari basin is back to haunt ModippEarlier in 2010 the leader of opposition in Gujarat assembly Shaktisinh Gohil had alleged that the state government had given away 10 per cent interest in the block to the crisis-ridden Canadian firm without receiving a single paisapp&ldquoThe principal amount of Rs 375 crore and its interest is due to GeoGlobal but the foreign company has paid nothing&rdquo Gohil had said alleging mala fide intentions behind the deal given that there was a condition in the agreement that any dispute would be settled in arbitrage in LondonppJean Paul Roy the Canadian geologist who acted as the key person for realising the Gujarat government&rsquos oil and gas dreams through GSPC has been at the centre of this controversy GSPC had set ambitious aims to emerge as an energy behemoth much like Oil and Natural Gas Corporation However going solo on the exploration without a strong technical and professional arm proved to be an uphill task for GSPC So Roy was roped in with a lucrative offer of 10 per cent &lsquoCarried Interest&rsquo in the KG Offshore Block KG-OSN-20013 through his firm GeoGlobal Resources IncppIn March 2002 GSPC had formed a consortium with GeoGlobal and Jubilant Enpro for the KG Block exploration GSPC is the operator of this block and holds 80 per cent participating interest GeoGlbar has 10 per cent participating interest net 5 per cent carried interest while Jubilant Offshore Drilling Pvt Ltd too holds 10 per cent participating interestppCuriously the deal with GeoGlobal Resources was made when the company had a paid-up capital of merely 64ppAccording to the Carried Interest Agreement CIA while GSPC would spend GeoGlobal&rsquos share of 10 per cent towards the project costs the recovery would start only after the commercial operations began This 10 per cent interest given to GeoGlobal became the bone of contention between GSPC and GeoGlbarpp&ldquoThis cannot be called a scam&rdquo says a director on the board of GSPC &ldquoAt the most this is mismanagement or lack of due diligence GSPC follows all procedures before selecting a partner&rdquo adds the director who does not wish to be namedppAn email query to GeoGlobal for comments on the issue remained unansweredpp&ldquoIt was on the basis of Roy&rsquos technical expertise that GSPC weaved its dream of becoming an oil and gas giant The gas exploration activities which GSPC has taken up over these years would have been difficult to achieve without strong support from a geologist like Roy&rdquo says a source associated with the oil and gas industryppFor GSPC however Roy&rsquos association became a matter of embarrassment when the Comptroller and Auditor General CAG of India also pointed out wrong estimation of cost of bidding by the technical expert due to an incorrect geological model for bidding for the KG block &ldquoIncorrect geological model of GeoGlobal led to escalation in exploration cost from 10970 million to US 14 billion&rdquo CAG noted in its report for the year ended March 2011ppThe dispute between the two entities became official in August 2007 when GSPC wrote a letter to GeoGlbar seeking payment for the exploration expenses GeoGlbar responded by saying that under the CIA terms the production sharing agreement and the joint operating agreement dated August 7 2003 &ldquoGSPC has no right to seek the payment and that it believes the payment GSPC is seeking is in breach of the Carried Interest Agreement The Company GeoGlbar further reminded GSPC that the company under the terms of the CIA shall be carried by GSPC for 100 per cent of all of its share of any costs during the exploration phase prior to the start of commercial production&rdquoppIt is also understood that GeoGlobal had obtained the opinion of a prominent Indian legal counsel based in New Delhi It sought his advice on its argument that the company had nothing to worry about given the strong backing of CIApp&ldquoThis troubled GSPC and the relations between the two became further strained Meanwhile a change of guard in both the companies in the last couple of years has made it difficult to resolve the matter&rdquo says an oil and gas analyst based in Mumbai Roy resigned in February 2012 and Paul Miller became president and CEO of GeoGlobal The earlier MD of GSPC D J Pandian also handed over the reins to Tapan Ray in November 2009ppIn its quarterly report for September 2012 GeoGlbar noted &ldquoIn September 2007 we commenced discussions with GSPC in an effort to reach an amicable resolution A number of draft settlement proposals have been put forward by us to GSPC seeking to settle this dispute amicably Subsequent to the October 2010 management committee meeting we have again met with senior management of GSPC to continue our effort to reach an amicable resolution However no settlement agreement has been reached as of November 16 2012 and there can be no assurance that this matter will be settled amicably&rdquoppIn the political circles questions have been raised about the appointment of GeoGlbar as a partner for the KG blockppSeveral RTI applications too have been filed seeking details of the deal &ldquoWe had filed an RTI application seeking details about GSPC-GeoGlbar deal but were denied the information citing &lsquocommercial secret&rsquo as the reason&rdquo says Amarsinh Chavda who is contesting the elections on the Bharatiya Janata Dal ticket from the Maninagar constituency against Chief Minister Narendra Modi &ldquoThis is a clear case of state-supported scam&rdquo he allegesppThe voices of opposition got louder especially after Modi gave an exorbitant estimate on gas find &mdash 20 trillion cubic feet valued at an estimated 50 billion &mdash in the KG Basin Modi termed this discovery a &ldquogreat leap forward for Gujarat&rdquo which would help the state to become the &ldquopetro-capital of the country&rdquoppBut the ghost of the GSPC-GeoGlbar controversy refuses to go away Soon after a report was published in an English journal social activist-turned-politician Arvind Kejriwal accused the Gujarat government of corruption in its deal with GeoGlobal The issue rocked Parliament causing the adjournment of both the Houses on December 4ppResponding to the issue Gujarat government spokespersons Jaynarayan Vyas and Saurabh Patel had issued a statement and clarified that the contract with GeoGlbar was cancelled &ldquoIn reference to an agreement between GSPC-Geoglobal company on August 27 2002 the GSPC has in writing said in August 2010 that Geoglobal company has no participating interest in this gas clock and the contract is cancelled This matter is pending before central government&rsquos petroleum ministry&rdquo the spokespersons had saidppGSPC officials say &ldquoThe contract with GeoGlbar has been cancelled and GSPC has approached the central oil ministry seeking the termination of GeoGlbar as a partner in KG block&rdquoppHowever GeoGlobal also has interests in blocks in other parts of India in partnership with other companies Of the 10 blocks where GeoGlbar has participating interests four are located in Gujarat two each in Rajasthan and the Deccan basin on Maharashtra-Madhya Pradesh border and two in the KG BasinppIndustry sources say the tussle between GSPC and GeoGlbar has caused much harm to GeoGlbar as the negative sentiment has caused heavy erosion of stock valuation of this New York Stock Exchange-listed firm Adding to the woes for GeoGlbar NYSE has recently issued a de-listing notice to the company On Tuesday December 4 NYSE issued a notice to GeoGlbar asking the company to submit a plan of compliance to the Exchange by December 31 addressing how it intends to regain compliance with the continued listing standards by March 29 2013ppAccording to the notice GeoGlbar shares traded at the one-month average price of 011 per share Also the company failed to comply with the exchange regulation as it has &ldquosustained losses which are so substantial in relation to its overall operations or its existing financial resources or its financial condition has become so impaired that it appears questionable in the opinion of the Exchange as to whether such company will be able to continue operations andor meet its obligations as they mature&rdquoppThe company&rsquos share prices have lost over 77 per cent in the past one year GeoGlbar ended at 00621 per share on NYSEAMEX on Friday The company has incurred a net loss of 156 million As of September 30 2012 the company&rsquos working capital deficiency stood at 142 millionppThings may get worse for this Canadian exploration company as sources believe that given its dispute with GSPC it may be difficult for GeoGlbar to exit from the existing four oil and gas blocks in Gujarat where it has partnership with GSPC In February this year GeoGlbar had expressed its willingness to sell its stake in four of its hydrocarbon blocks in Gujarat Mehsana Tarapur Sanand-Maroli and AnkleshwarppIn a recent statement the company noted &ldquoWe have a history of losses and our liquidity position imposes risk to our operationsppWe incurred a net loss of US 156 million As of September 30 2012 we have working capital deficiency of US 142 million These matters raise substantial doubt about our ability to continue as a going concern&rdquoppFor GSPC the road ahead is still uncertain as the projected gas reserves in the KG basin are less likely to be commercially viable to explore and produce The sweetheart deal with GeoGlbar does not seem to have gone down well with the opposition the management and the governmentp


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