Independent Resources (LON:IRG) and Nostra Terra Oil and Gas (LON:NTOG) have been served with a default notice by their Chinese partner at East Ghazalat in Egypt.

North Petroleum International, a subsidiary of China ZhenHua Oil owns 50% and is the operator of East Ghazalat.

The default notice is in respect of unpaid cash calls for November and December 2015, which IRG/Nostra estimate to be approximately $750,000.

These cash calls had previously been rejected on the grounds that they were manifestly excessive and failed to reflect issues already raised by the joint venture.

IRG/Nostra had also previously served notice on North that they intended to carry out detailed audits of the accounting and procurement processes, actual accounts, records and inventory for East Ghazalat for the 2013 and 2014 financial years.

The two companies believe that the default notice is in part in response to the submission of the audit request.

In addition, IRG/Nostra believe they are due US$575,000 in overcharges from a 2012 audit from North and that the Chinese company itself is in substantial breach of its responsibilities as operator.

The joint venture agreement provides for arbitration in London under UK law if the dispute cannot be resolved.

IRG/Nostra remains entitled to its share of the current revenues from East Ghazalat and believes that an audit will alsoi mean the recovery of the overcharges from 2012 and the later audits.