By Alex MacDonald

LONDON-- Shares in Oilex Ltd (OEX.AU) fell Wednesday after the U.K.-listed firm said a request on behalf of its joint venture partners to terminate a production sharing agremeement in the Timor Sea at no cost has been rejected by the relevant authority.

Timor Leste's Autoridade Nacional do Petroleo has instead notified Oilex and its joint venture partners that the contract will be cancelled in accordance to its own terms, which may include penalties.

Oilex and the joint venture partners sumbmitted a request to terminate the agreement in July 2013 after the government of Timor Leste initiated an arbitration process against the Australian government over disputed maritime arrangements in the Timor Sea.

The joint venture is comprised of Oilex with a 10% stake; Japan Energy E&P JPDA Pty Ltd and Pan Pacific Petroleum N.L. (PPP.AU) with a 15% stake each; and GSPC (JPDA) Ltd, Videocon JPDA 06-103 Limited and Bharat Petroleum Corp. Ltd. (500547.BY) with a 20% stake each.

Oilex said it sought to terminate the agreement with the ANP by mutual consent and "without penalty or claim."

The ANP suspended the production sharing contract in January 2014 to consider the request. On Monday it issued a letter which rejected the request and further alerted the partners to the fact that the regulator wants to terminate the contract in accordance to its existing terms.

Oilex said it has yet to receive formal notice of the contract cancelation and will consider its next step in due course. A person familiar with the matter said that if the ANP terminates the contract, it was unlikely to result in a material cost to Oilex given the size of the company's assets elsewhere, particularly in India where it's developing the massive Cambay gas field.

At 1031 GMT, Oilex's shares were down 3.6% at 3.38 pence a share, giving the company a market capitalization of 23 million pounds ($36 million).

Analysts at SP Angel said the news should created any long term issue for the company and recommended that investors buy Oilex shares if shares should weaken.

-Write to Alex MacDonald at alex.macdonald@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires