Swala Oil & Gas Issues Otto Energy With Notice Of Withdrawal in Tanzania

Swala Oil & Gas (Tanzania) plc  has advised that it has exercised its option under the Kilosa-Kilombero Joint Operating Agreement (JOA) to require Otto Energy (Tanzania) Pty Ltd  to withdraw from the JOA and the Kilosa-Kilombero Production Sharing Agreement.

Swala Oil & Gas accuses Otto of failing to fulfill its obligations under the JOA and to pay the sums it owed in order to remain on the Kilosa-Kilombero licence.

“Notwithstanding Swala’s efforts during 2016, Otto has steadfastly refused to fulfill its obligations under the JOA and to pay the sums it owed in order to remain on the Kilosa-Kilombero licence,” says Swala CEO Dr. David Mestres Ridge.

Otto’s Participating Interest is to be apportioned between the remaining parties to the JOA not in default in proportion to their current Participating Interests. As the other co-venturer, Tata Petrodyne Limited, remains in default the new Participating Interests effective from the 26 th March 2017 are:

  • Swala Oil & Gas (Tanzania) plc 75% and Operator
  • Tata Petrodyne Limited 25%

Swala adds that in accordance with the provisions of the JOA Otto remains liable for the costs of transferring its Participating Interest and for its Participating Interest share of the Kito-1 exploration drilling programme (estimated at US$5.5 million net to Otto), together with accrued defaults of US$0.4 million.

Kito well is scheduled for drilling in 3Q 2017, targeting best contingent resources net to Swala of a combined 110mmbbls over two distinct horizons.

“Regrettably, but in the best interests of the Joint Venture and to ensure the successful drilling programme scheduled for 2017, Swala was forced to exercise its option to require Otto to withdraw from the JOA and the PSA on the 26th March 2017,” he adds.

On the 28th March 2017, Otto issued Swala with a Dispute Notice, under which a Dispute Resolution mechanism that starts with a meeting of Senior Executives is invoked.

Otto Energy in a rejoinder has accused the operator in issues relating to:

  • handling of joint venture funds;
  • position as Operator under the JOA following SOGTP’s failure to satisfy the joint venture that it is not insolvent; and
  • exclusion of Otto Tanzania and Tata Petrodyne Limited from an operating committee meeting, and purporting to pass resolutions at that meeting affecting the non-operating parties

Swala says it considers the content of the Dispute Notice to be inapplicable and premature under the JOA, and shall not engage in further public discussion of this matter.

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