25th Jan 2016 14:29
LONDON (Alliance News) - Nostra Terra Oil & Gas Co PLC and Independent Resources PLC Monday said they plan to take legal action against their partner on the East Ghazalat field in Egypt, claiming their partner is over-spending and failing to communicate.
North Petroleum International Co, which holds a 50% stake in the field, has served a notice of default to Nostra Terra and Independent Resources, claiming the two companies owe USD750,000 in unpaid cash calls for November and December for work completed on the field by North Petroleum as the operator.
However, Nostra Terra and Independent Resources believe the amount being asked for has not been justified, and said North Petroleum owes them funds for failing to allow the pair to conduct an audit over the project's finances.
Nostra Terra shares were trading up 6.0% to 0.0768 pence per share on Monday afternoon whilst Independent Resources shares were down 14% to 0.150p.
"These cash calls had previously been rejected by the joint venture (between Nostra Terra and Independent Resources) on the grounds that they were manifestly excessive, contained no justification for the level of funds demanded and failed to reflect the issues already raised by the joint venture under the joint operating agreement in relation to the 2015 budget," said both companies in separate statements.
Nostra Terra and Independent Resources had previously informed North Petroleum that they planned to undertake detailed audits of the accounting and procurement processes, accounts, records and inventory of the project for the 2013 and 2014 financial years.
The pair said those audits would be aimed at improving operating margins through cost reduction initiatives and to implement further reserve enhancement opportunities in a "disciplined and rigorous manner," however, North Petroleum has failed to provide a satisfactory response to the pair.
"The joint venture believes that the service of the notice is in part in response to the submission of the audit request by the joint venture and the challenges it has been posing and continues to pose to North in its capacity as operator," said Nostra Terra and Independent Resources.
However, the pair are not just fighting the claims made by North Petroleum, but making their own counter-claim that North Petroleum owes them USD575,000 for failing to follow the "proper process" of responding to the request to conduct an audit on the project's records.
Nostra Terra and Independent Resources said that sum needs to be paid by North, and they are currently "seeking resolution of this matter urgently".
The two companies said they believe and have been advised that North Petroleum are in "substantial breach of the joint operating agreement" in terms of the preparation approval and revision of budgets, in the provision of requested information to the joint venture, in supplying inadequate information to substantiate their cash call and in failing to declare or manage certain "significant conflicts of interest to the detriment of the joint venture."
"In an environment of low and unstable oil prices the joint venture has challenged the budgets and the levels of expenditure being incurred but North have refused to respond despite their duty as operator to do so under the joint operating agreement," said Nostra Terra and Independent Resources.
"Accordingly, the joint venture is preparing a full and detailed dispute notice as required by the joint operating agreement and has served that on North. The joint operating agreement provides for arbitration in London under UK law if the dispute cannot be resolved," they added.
The share of revenue held by both companies remains unaffected and both are continuing to progress arrangements for "prompt invoicing and payment" of their share, they said.
"The joint venture believes that a robust response and challenge to North both through the dispute notice and the audit process will result in greater control of overheads, better planning and management of operations in the field and the recovery of overcharges from the 2012 audit and the possibility of recovery of overcharges from the proposed audits," said Nostra Terra and Independent Resources.
North Petroleum is a subsidiary of China Zhenhua Oil Co, which is the wholly owned oil and gas arm of China North Industries Corp, a Chinese state-owned company.
By Joshua Warner; [email protected]; @JoshAlliance
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