The court ruling released on Friday in relation to the dispute between GSPC and Oilex is, in our opinion, good news for Oilex shareholders. The conditions imposed upon GSPC by the Judge to allow the Stay to remain in place pending the outcome of arbitration include the requirement on GSPCS’s part to lodge the not insubstantial sum of US$4.1m with the court within 2 weeks. This is indicative that GSPC really are coming to the end of the road in attempts to block the transfer of the residual 55% licence in the key Cambay block to Oilex. 

Such are the onerous terms of the order that we find it difficult to believe that GSPC will not heed the subliminal message sent by the judge that this issue now needs resolving. Further, aside from the costs run up on GSPC’s part thus far, with the now new costs of arbitration at some point commercial reality is going to hit – that is now is the time to settle. We also add that the PSC continues in operation during the Stay period and that GSPC continue to be liable for ongoing bills in this regard. GSPC thus now have effectively 2 choices – submit to arbitration within 30 days or be forced to relinquish their 55% share in the Cambay block (subject to the Indian Government process in effecting this of course).

One very important point likely not understood by many is that in relation to the lodgement of the $4.1m sum with the Indian court it is our understanding that 90% of the $3m element relating to the defaulted sum is actually cashable by Oilex following a relatively straight forward application to the court. 

Looked at another way, it does appear that Oilex shareholders are now in a “heads we win, tails you lose” situation. That being that if the conditions of the Stay extension are met by GSPC, Oilex will move to receive the sum of $2.7m per the application to receive 90% of the bank guarantee. Set against the current market cap of £5.87m, this is a material amount accounting for near 50% of the current market cap. In the alternate, should the Stay conditions not be met by GSPC within 30 days then the EOD (Event of Default) process will proceed and the expectation is that the residual 55% will be passed to Oilex.

By any stretch, we believe the stock to be woefully undervalued as we value the Cambay full interest at approx US$221.m on an NPV(10) basis – nearly 30 times the current market cap. See HERE the full note and valuation breakdown and in particular on page (24) the widely accepted reality that the true potential at the Cambay Field PSC is in fact much higher than the 145 Bcf that is planned to be produced until 2029 and which represents just a fraction of the resources at the block. In illustrating the importance of these reserves to India we also note that the value of this asset was in fact reiterated in the judgement with the comment that the block is “of National interest” by the Judge. Net effect of all this is that we suspect that the pressure is now on GSPC to come to an amicable solution and that Oilex will be able to get busy in the field in 2019.

We have been active buyers of the stock in recent months and a participant in the last placing. With Republic Investments on the register as a long term supportive shareholder and the winds of change finally beginning to blow in favour of Oilex re the finish line being in sight over the long running wrangle with GSPC we remain happy holders and are anticipating quite a spike on the open Monday post the suspension lift.

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