Niko Resources : Financing + Hope

Niko’s debut album, Life On Earth (Photo credit: Wikipedia)

Niko Resources

(NKO : TSX : $8.63)
Niko recently closed a C$252-million offering of shares and convertible notes, to repay existing convertible debentures of C$308 million. This puts the company in a far more favourable position to execute its exploration and development plans.

Although Canaccord  estimates that another US$100 million will be required to develop Niko’s D6 satellite fields, a revised price contract for D6, along with development approvals in India and Trinidad, will likely increase the company’s reserve-based lending facility. The latest cash injection should also improve Niko’s bargaining position as it relates to potential asset divestitures.

As for its next steps...Following the drilling of Jayarani-1 on the Lhokseumawe block, Niko’s Ocean Monarch rig will make the ~4,000 km journey to the Kofiau PSC, where it will begin drilling Ajek-1. Recall, Jayarani-1 was spudded on October 10, 2012 and reached a TD of 3,500 metres within 30 days. an analyst thought Jayarani-1 had a good chance of success given the regional discoveries and while commercial reservoirs were not encountered, one positive take-away was the speed and cost at which Jayarani-1 was drilled. Ajek-1, a 209 million barrel prospect (PMean, gross), is believed to be on trend with the prolific onshore Salawati oil and gas fields just east of the Kofiau block (The Salawati fields hold an estimated 525 mmbbl of oil and 410 Bcf of gas).

From there, the Monarch Ocean rig will move to West Papua IV, where Cikar-1 is scheduled for drilling. Including mobilization time, Brown believe that Niko could potentially drill 8-10 locations per year. One additional catalyst that may be realized ahead of his Q1/13 projection is the  approval of D6 development plans. Also of note, over the coming quarter expect Niko to announce additional farmouts and asset divestitures.

Cannacord upgraded its rating noting that with Niko’s financial situation vastly improved, he believes investors will start to focus on the upcoming exploration campaign in Indonesia.

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NIKO Resources – The Bad News Keeps On Comin’

Burning of the Ocean Monarch (1850), Samuel Walters (Photo credit: Wikipedia)

Nov. 7

Niko Resources* (NKO : TSX : $11.88)

Type in KEYWORDS: Dry hole.

The company reported the Maestro – 1 offshore Trinidad well was a dry hole,adding to its recent disappointments in India and Indonesia. The Maestro-1 well in Trinidad has reached total depth in the Lower Cretaceous at a depth of 5,301 feet which is shallower than expected. Hydrocarbons were encountered at the Lower Cretaceous level; however, it did not find oil or gas in commercial quantity. No further testing of the well is anticipated.

Recall an analyst  has previously called Trinidad, the half empty glass. Ahead of its Annual Shareholders Meeting, Niko announced that its second prospect on Block 2ab in Trinidad was unsuccessful. Prior to this announcement, Niko had announced its drilling depth at Shadow- 1 (known as the Angostura sands). As the company did not announce successful results at that time (or in subsequent drilling updates), the results at Shadow did not come as a surprise, and neither impacted valuation .

Shareholders  and analysts both,remain skeptical of regional exploration success and have not modeled any upside associated with the company’s Trinidad acreage. From Trinidad to Indonesia, in early September the company encountered a dry hole at Lebah-1 offshore Indonesia.

The Lebah 1 prospect may have results by next week. Niko’s mid-range estimate was 775 Bcf( net)..

However  analysts  see Indonesia as the half full glass. In early October, deep drilling location offshore Indonesia, Jayarani-1. Niko holds a 30% interest in Jayarani-1, which is estimated at 2.5 Tcf gross.

Niko will pay the full cost of Jayarani-1 as part of its farm-in terms on the Lhokseumawe PSC. Overall  Jayarani has a relatively good chance of success but too many have believed the same about NIKO for too long.

Niko Resources – High Risk/ Reward Double Down BUY :Target $26

Sept. 18

Niko Resources Ltd  NKO TSX $ 10.38

COMPANY DESCRIPTION:

Niko Resources Ltd. is a Canadian-based international oil and gas company. Niko’s main producing asset is the D6 block in India (10% WI) where natural gas production is approximately 100 mmcf/d net and oil production is approximately 1,700 bbl/d net. Niko has an immense exploration portfolio spanning multiple countries and targeting very large, company-making prospects

Maintain BUY recommendation and C$26.00/share target Niko is expected to announce the results of its credit facility review later this week. As of Q1/F13, Niko had drawn US$41 million of the US$250 million line.

While Niko previously reiterated that the “maximum facility” would be cut, it recently commented that the facility “will still exist, but at a reduced level”. With these comments in mind, we estimate that facility will be reduced to 40-50% of PDP reserves, or ~US$125-160 million. We believe the market will react negatively to the pending news.

Investment highlights

The reduced credit facility  may provide a buying opportunity. This bank line should increase following a revised D6 gas price by April 2014.  Also watch for the update on the convertible debenture plans within four-to-five weeks.•

 The Ocean Monarch semi-submersible rig is expected to spud Jayarani-1 on the Lhokseumawe block on October 15, 2012. 

Valuation

We estimate a base F2013 NAV of C$23.20 (including existing discoveries in India, Trinidad, and Bangladesh). With a risked 2013E NAV of C$29.70, we maintain a mid-point target price of C$26.00 per share. With a potential return to target of 150%, and multiple high impact drilling catalysts expected over the next two years, we rate Niko  a BUY.

Risks

Niko’s future growth relies heavily on high-risk, high-reward drilling. The company’s ability to fund development and exploration projects has

also become a risk with the underperformance of D6

NIKO Resources – Analysts Cut Targets

English: Coat of Arms (Lambang) of City (Kota) Lhokseumawe, Provinsi Nanggroe Aceh Darussalam (on Sumatra), Indonesia (Photo credit: Wikipedia)

NIKO RESOURCES

Sept. 13

 (T-NKO) $9.00

Despite the feeling that the resource sector might have bottomed over the last while, there’s still some truly ugly stock charts out there. One that is now even worse is that of Niko Resources They announced that their Lebah-1 well on the North Ganal block in Indonesia has been abandoned.

That is the third miss in a row in Indonesia and Niko is on a losing streak over the last while. The former golden boy has lost much of its lustre.

 One talking head on BNN today was virtually chortling and needless to say, a little gleeful as his hedge fund is short Niko and he points to the company’s $300 million convertible debenture that comes due at the end of the year and expects that to cause the company more than a little grief.

 There has been a long, long list of analysts that have liked this story including Josef Schachter who has frankly liked it all the way down.

 

Meanwhile, Macquarie had just cut their target to $16.50 a week ago and now RBC cuts their target, but only to $35.00  from $43.00, showing they still have hopes.

Raymond James cuts their target to $20.00 from $30.00. Yes, the golden boy is somewhat tarnished. 

It is expected that their next exploration in Indonesia should be the Jayarani-1 on the Lhokseumawe block, scheduled to begin drilling in October 2012 and Niko has also suggested that a drilling rig has moved to location at Maestro-1 on Block 2ab in Trinidad.