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KATHMANDU, JUN 11 - The country’s petroleum exploration plans have suffered a setback, with two of the world’s leading oil companies, Texana Resources Company and Cairn Energy, announcing that they would stop survey work, citing “force majeure.”

Force majeure, a popular terminology in the oil industry parlance, frees a party from fulfilling an obligation in the event of circumstances going beyond its control. The two companies say they were abandoning exploration work in Nepal due to bureaucratic hurdles and lack of cooperation from the government.

The Houston-based Texana flashed its plans on June 1 while Cairn, a Scottish oil and gas company, did so on June 8.

Officials at the Department of Mines and Geology confirmed that the two companies had announced their plans to stop work.

This is not the first time that Texana and Cairn have invoked force majeure. They have halted work in the past citing volatile political and security situation.

Both have already spent millions of dollars in Nepal on preliminary surveys and were now all set for a 'seismic operation,’ which determines whether the surveyed areas contain commercially viable quantities of oil. To date, Texana has spent US$3 million and Cairn US$20 million in the country. The two companies pay an annual fee of US$ 50,000 per 'block’ to the Nepal government. They have also deposited US$ 400,000 each as bank guarantees.

The Tarai and the Siwalik hills have been divided into 10 'exploration blocks’ of 5,000 sqkm each. Texana won the bid for Blocks 3 (Banke) and 5 (Chitwan) and entered into an agreement with the government in December 1998.

Six years later, Cairn received a licence to explore five other blocks--Block 1 (Dhangadhi), Block 2 (Karnali), Block 4 (Lumbini), Block 6 (Birgunj) and Block 7 (Malangawa).

But trouble started brewing in December 2011 when Texana applied to the Department of Mines to transfer its rights and obligations to the Canada-based Patriot Petroleum Corp. Texana and Patriot had signed a sales and purchase agreement under which Texana would assign to Patriot all its interests under a petroleum agreement for exploration of Block 3 (Nepalgunj) and Block 5 (Chitwan).

Clause 64 of the Nepal government and Texana agreement allows the US-based company to transfer its project to any other company, and the government has to endorse it within 60 days of request. Till date, the Department of Mines has not approved Texana’s application

Cairn had asked the department to amend its work plan one-and-a-half-years ago in order to address a request for a new work plan, which is yet to be endorsed. “Our decision to declare force majeure is primarily based on the government's delay in endorsing our work plan amendment,” said Bharat Gyawali, the local representative of Cairn.

Asked to comment, Nepali officials said they would “seek a clarification from the two companies, as we just came to know about their decisions.”

Director General of the Department of Mines Sarabjeet Mahato said the department has asked Texana and Cairn for an explanation on declaring force majeure. “We had told Texana to continue work and that we would take forward their request for transfer,” said Mahato. “Amending the work plan as sought by Cairn is not legally possible.”

Sources said Texana was now considering international arbitration against the Nepal government and a loss could lead to millions of dollars in compensation. Cairn has told the government that it would 'pull out’ of Nepal altogether but it was not clear whether it would also go for international arbitration.

The two companies said they were frustrated with the way the Industry Ministry and the Department of Mines had handled the whole issue. Officials of the companies said the Industry Ministry had not shown any interest in addressing their issues despite repeated requests. “Every time we meet them, all they tell us is that our issues will be addressed,” said one oil company official.

Meanwhile, Texana headquarters has reportedly written to the US Embassy in Kathmandu and to the Nepali ambassador in the US, Shankar Sharma, to help resolve the issue. Around six months ago, a high-level delegation from Cairns visited Nepal and met Industry Minister Anil Jha. Jha, who heads the Petroleum Advisory Committee, refused to entertain the request made by these two companies. The committee has invited bids for the exploration of Blocks 8, 9 and 10, to the chagrin of Texana and Cairn.



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