Tata Petrodyne Farm-in behind Swala, Otto Energy dispute in Tanzania

A simmering dispute between two Australian companies Swala and Otto Energy in Tanzania could have emanated from a failed joint farm-down by Tata Petrodyne Limited.

According to Swala Energy in it latest presentation to shareholders the two joint venture partners had earlier agreed on a joint farm-down by Tata Petrodyne Limited where it would get equity in both the Pangani and Kilosa-Kilombero licenses from both partners.

However the operator said it assessed that a joint farm down would add additional complexity resulting to a new agreement between the then JV partners that the Indian company would farm into just Swala’s 25% which it did in June 2015 with the $5.7 million transaction completed in the following October. There were discussions regarding Otto then farming down 12.5% to Swala.

Swala however blames Otto Energy for not going ahead to pursue the matter even after holding initial discussions around a draft farm-in agreement.

Thereafter in early February 2016 Swala blames its Australian counterpart of delaying drilling at Kito prospect located in the Kilosa-Kilombero license with the backing of the new entry partner Tata which has now been pushed to 2017. The operator argued the delay to the commitment well on technical and financial grounds and Tanzania Petroleum Development Corporation (TPDC) also declined to allow the request

“On the 22nd February 2016 Otto’s lawyers contacted the Chairman of Swala Energy Limited (Australia) (SWE) demanding payment for the (incomplete) Pangani farm-down – coincidence that this was done 6 days after not getting their own way on Kilosa-Kilombero?. We discussed possible mechanisms to progress the farm-in, but Otto presented obstacles,” says Swala CEO David Mestres Ridge.

Swala claims that Otto’s argument is flawed as its assertion that the directors of SWE had controlled the actions of the board of Swala is wrong as there are just two directors and four ‘independent’ directors.

“Those SWE directors had removed ‘Otto’s money’ from Swala and sent it to SWE (actually, we sent $2.51 million and retained $3.2 million in Swala); and – Therefore (so the argument) the SWE directors should, through their insurance, reimburse Otto for a transaction that Otto has chosen not to complete – it has had 14 months to transact,” Ridge adds.

Otto in May commenced a legal action against against Swala, current and certain former directors seeking to recover a gross amount of approximately US$1,000,000 plus alleged damages in relation to the Pangani licence of which the partners have told the TPDC of their desire to relinquish  after the technical review of the licence showed no structures of commercial interest. Swala Energy said they intended to defend such legal action with vigour and, having taken initial legal advice, were of the opinion that Otto’s claim had no legal merit.

Otto Energy has also gone ahead to push for the removal of Swala as the operator after defaulting in various cash calls.

These notices relate to:

  1. defaults in relation to non-payment by SOGTP of cash calls and associated interest accrued under the JOAs;
  2. claims by Otto Tanzania for payment of interest accruing under the JOAs as a result of SOGTP’s defaults, amounting to approximately US$360,000; and the removal of SOGTP as Operator of the Kilosa-Kilombero licence area following SOGTP’s failure to satisfy the joint venture partners that it is not insolvent.

Otto Energy has since reached a farm-down agreement with MV Upstream Tanzania Limited (MV Upstream), a joint venture between Vegas Oil & Gas Limited, (Vegas) and Motor Oil Hellas SA (MOH) in respect of the assignment of a 25% participating interest in the Kilosa-Kilombero Licence onshore Tanzania.

The matter now being progressed in the Australian courts

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