Niko Resources - An Elephant that can gallop?

Wednesday, Apr 20 2011 by
23

Given there as been quite a bit of discussion about NKO following the First Energy Global Energy Conference last year, I thought it would make sense to give it its own thread.

http://www.nikoresources.com/

The overview http://www.nikoresources.com/operations/overview.html  on the company website gives access to a wealth of information on their operations. Click on each area around the globe for a v brief overview and then click in the blocks for more detail on ownership etc.

Essentially, Niko has been something of a wonder stock over the past few years based upon the success of its Indian Venture. At the core is the D6 block in the Krishna Godavria Basin where they have 10% interest. "10% is that all?" I hear you say, well in this case 10% of D6 is a lot. Current production of c170Mscf/d net to NKO and planned increases to 280M scf/d eventually.

The company has repaid its debt and is now very cash generative so the company can fund its exploration out of current cash flows even before further expansion of production (or price increase for the gas from D6).

Alongside India the company has built up an incredible acreage position in many areas as shown in the overview mentioned above.

The biggest acreage wise is Indonesia, where, IIRC, Niko is the largest acreage holder offshore.

Trinidad has also been significantly increased with further acreage acquired just this week (19/4/11).

Kurdistan is interesting, especially in the short term, where it is involved with Vast in the Qara Dagh license as operator (and 10% equity holder in Vast). News on QD is fairly short term.

And lets not forget the current "Jewel in the Crown" of India.

Oh, before we get to the tour of the NKO goodies, I should say a couple of other things. NKO also pays a dividend!! Okay, a miniscule one but its there. NKO is ISA’ able and shouldn’t pose any real trouble trading with decent liquidity, as you would expect for a $4.5bn market cap.

One of my niggles with the company though is that they are not the most transparent with regard to information. There does, however, seem to have been a realisation of this with the level of communications improving significantly of late. 

India 

Without doubt, the discovery of the giant gas fields in Block D6 in the Krishna Godavari Basin (KG) by Reliance (90%) was the making of Niko and is the foundation for the company’s current wealth of opportunities.

D6 has 40Tcf in place and is currently producing around 1.7 Bcf/d and 20k bpd of liquids. There are 23 undeveloped discoveries (with many more explo targets) in the block which will allow for further increases of gas production to the peak which is estimated to be 2.8bcf/d. However, the shares took a knock with the Q3 results due to the lower production from D6 than had been expected. This was due to a dispute (ongoing) between Reliance and the Indian Govt. over price and development.

D6 gas is sold under long term sales agreement at $4.2 per mcf as mandated by the Govt. Other producers are receiving $8 or better and end users are paying up to $11 per mcf or LNG. Obviously there is an argument for the price being higher and increased production as a result. This would be very positive for NKO’s cash flow, which, as mentioned above, already allows them to cover their planned activity across the portfolio.

A key development was the announcement of the BP deal to take a 30% in 23 of Reliance’s Indian oil and gas blocks (including the 3 in which Niko is a partner) for $7.2bn initially. This triggered an option whereby NKO can increase its own interest by 30% i.e. from 10% to 13% in D6. This is very likely to happen and would be funded by debt. Again, this is positive from cash flow and valuation metrics.

NEC25 in the Bay of Bengal is another block where NKO has 10% (with a potential to go to 13% due to BP). 15 discoveries to date with many additional explo targets.

D4 is a giant of a block at 4.2m acres. NKO have 15% (can go to 19.5% due to BP). 4,400km2 of 2D and 3,500 of 3D has been completed and a three well program is slated for this year (2011). The block is seen by many as being a potential D6 or even bigger.

India looks to be a very solid core and financial driver for NKO’s exploration program. This is what interest me most of all given the sheer scale of what is being pursued. What really interests me is the fact that the company has giant partners and has secured good farm ins from the likes of Repsol that mitigate financial exposure whilst still retaining very material stakes.

Indonesia 

Niko have been working on Indonesia for many years now, carrying out a 400,000 km2 Multi Beam survey between Dec 2006 and April 2008. They applied their own Sea Seep technology to find seeps and then use this to focus their attention on areas where there was an active petroleum system. On top of this Niko has a database of 70,000 km of 2D, 11,000 km2 of 3D, 110,000 line km of grav and mag data, 5,000 km2 of aeromag data and over 3,000 Sea Seep geochem analysis of cores taken in relation to the multibeam survey. In short, they have a lot of data.

That isn’t enough for Niko though, they are about to start a second multibeam survey over 300,000 km2 using the latest generation equipment generated by the US Navy who developed it with one of the Niko Indonesian tech team seconded (a very good vote of confidence there). This new survey should, as a result be conducted quicker and offer better resolution. Given the attention being given to the area by the majors, agreements have been put in place to swap drilling data to the benefit of all. These companies include – Exxon, Marathon, Conoco, Statoil, Talisman, Murphy and Hess.

Another possible advantage for Niko is that they have built up their acreage via strategic acquisitions. For example Voyager Energy’s team had worked on Indonesia for much of their working careers, often with each other. Black Gold added another technical team. Of the 60 odd employees in country, 35 are techs. The majority of the team had worked together at Unocal before it was bought out by Chevron. Whilst at Unocal the team were very active, drilling roughly 150 deep water wells in SE Asia (mostly Indonesia) between 1,000m and 2,400m water depths.

We have just had the first of the announcements from the company of Independent Resource Estimates on 3 of the 16 licenses carried out by Netherland Sewell. http://www.nikoresources.com/upload/news_release/123/01/news-release.pdf   Further announcements on the remaining 13 licenses will be released regularly from here on in.

 

Block

Prospective Resources (P50mmbbls)

Prospects

Low CoS

High CoS

Mid CoS

SE Ganal

2,890

11

12%

15%

14%

N Makassar

Strait

407

1

21%

21%

21%

West Sageri

550

5

 Special Offer: Invest like Buffett, Slater and Greenblatt. Click here for details »

16%

29%

23%

Total

3,847

Niko has 100% WI in SE Ganal and North Makassar Strait with 50% in West Sageri.

Volume calcs were based on a 50% prob that each prospect is oil and 50% gas.

NS calculated the CoS for each prospect. Mid is Niko’s mean of low and high estimates.

     

 

 

       

P90

781

       

P10

12,064

       

 

That is just the first 3 blocks. The 16 blocks cover 19.7 million acres and it is the largest leaseholder other than the government. In addition, Niko is in various stages of discussions for 5 farm-ins and two bids (open tenders) that could push up the number of blocks to 23 by the end of the year (2011). Remember that Niko have always said that they would not acquire a block unless it had at least 1 bn boe potential.

The company has said that it is planning a 3 year continuous drilling program in the country from late Q4 2011, probably Q1 2012. This is just in respect of the blocks where they are the operator. Other non operated blocks will see activity, adding to the number of wells to be drilled. The Partners are, it has to be said, big – Repsol, Marathon and Exxon. Marathon’s Bone Bay well should be the first to spud.

The company should benefit from being able to offer a long term contract and so should be able to get advantageous day rates. Given the range of prospects (water depth etc) Niko will most likely draft in a second rig from time to time to tackle the shallow water wells.

Trinidad 

Yesterday, Niko announced that it has signed three new PSCs, http://www.nikoresources.com/upload/news_release/125/01/niko-signs-three-new-pscs-in-trinidad-pdf.pdf

bringing the total up to 8. Again, like Indonesia, Niko is the largest leaseholder outside the government. The announcement relating to the new PSCs gives a breakdown of the licences, interests and acreage.

The offshore fields are mainly gas orientated and the partners on two of the blocks include RWE and BG, both sensible with a view to any commercialisation of any discovery since both have major experience with LNG around the world. BG is also part of the consortium that owns the Atlantic LNG facility in Trinidad as is Repsol, which is, of course, a major partner of Niko in Indonesia.

Looking at the various licenses, the Central Range Block (CRB), 2AB and Guayaguayare blocks are on trend with the prolific E Venezuela Basin which extends to the East of Trinidad and includes the Angostura gas/condensate discovery (80M bbls and 1tcf).

A new 1,200 km2 3D survey is ongoing in Block 2AB to supplement the older 3D data it already has. The new data will verify what the company has already identified form the older generation with 2 prospects that stand out. The first is the Stalin with a risked est. recoverables of 200M bbls to 500M bbls and a second, Shadow, being a shale play.

In the CRB, Niko has already identified similar prospects to those seen on 2AB from the 2D data it shot 18 months ago. We should see the first of two wells (at least) spud in the Shallow Horizon CRB in the next month or so.

Guayaguayare is, like the CRB, split shallow and deep with several features already identified. 3D seismic is to be acquired and the first well will be likely on the Deep Beach prospect in Q1 2012.

NCMA2 & NCMA3 are immediately East of 3 producing gas fields, Poinsetta, Hibiscus and Chaconia, which are estimated to have 5Tcf recoverable which is being delivered to the Atlantic LNG terminal. Niko is teaming up with Centrica, who own NCMA4 (and is also NKO’s partner in 2AB)  to shoot 4,600 km2 of 3D over the two blocks, 2,900 of which will cover all of NCMA2 & NCMA3 starting in Q3 and likely to run to Q1 2012.

The “RNS” re the new blocks doesn’t actually cover it but NKO has a 25% interest in Block 5(c) which was acquired in December last year. http://www.nikoresources.com/upload/news_release/94/01/niko-to-expand-in-trinidad[1].pdf  This block already has 3 gas discoveries on it. The block offsets the producing Dolphin field (BG and Chevron) again producing to the Atlantic terminal. The Victory 1 well was tested in December 2007 with two tests on two different formations. The first tested 40-45mmcf/d and the second did 30 mmcf/d and both tests were constrained by equipment. In mid 2008, Bounty 1 tested at a stabilised 60mmcf/d (2.5km East of Victory). Endeavour 1, some 8.4km North of Bounty 1, tested 60mmcf/d. All three wells were suspended but could ultimately be put on production. NKO’s estimates are that the 3 discoveries total up to 2.5Tcf with several undrilled structures remaining on the block.

Block 4(c) is immediately to the North of Block 5(c) with 1,000 km2 of 3D available. Already several channel fairways and stacked sands have been identified.

Kurdistan 

Some people get excited by Kurdistan, others don’t. I tend to fall into the later category given the seemingly never-ending political wrangling between the KRG and the Iraqi Oil Ministry which makes commercialising any discovery a dream at the moment. Nevertheless, NKO has a 37% interest in the Qara Dagh well being drilled by Vast Exploration. It also holds a 10% interest in Vast itself.

Recent update on the QD1 well, (which spudded on 12 May 2010) was positive with the logs showing 143 m of possible pay in the Upper Cretaceous (Tanjero and Upper Shiranish formations). The top of the Shiranish is the first of the three initial primary Cretaceous targets estimated to be at 3420m. Increased florescence and gas readings were seen in cuttings which could suggest oil or liquids.

The well had been drilled to 3558m with a 7” liner set. The plan is to now drill on to the TD of 4200m which some analysts think means it may not drill through the deeper Qamchuqa formation. This would reduce the potential In Place numbers but the Unrisked IP nos were estimated by AJM to be 2.25 bn bbls so we are talking big numbers here. There is also the Aliiji formation which was drilled through in July 2010 that had a 64m net pay zone with strong indications of hydrocarbons. This will be tested as part of the overall testing program which is expected to be completed in June.

As I say, Kurdistan is not the main reason for holding NKO in my opinion, but a discovery here would be potential material but there are the risk re government and also a possible repeat of HOIL where the initial positives (for oil) turned into a multi tcf gas play).

A second well planned for the block will not be drilled until mid 2012.

Pakistan 

Niko has 4 blocks (100% WI) in the Indus Basin, the second largest fan system in the world. The blocks total 2.45M acres and NKO has 2,000 km2 of 3D data from 2 separate programs.

Pakistan has long been a frustration for the international oil companies with recent offshore explo activities disappointing. The previous drilling has focussed on the shallow Miocene whereas Niko is looking to opportunities it has identified in the Cretaceous to pre Miocene levels. Positive AVO responses have been noted on several Eocene channel prospects as leads on Palaeocene carbonate build-ups with at least 20 opportunities being identified to date from the different play types. There is no drilling location planned yet since the company has to complete the 3D analysis. The first of a 2 well program is planned for early Q1 next year (2012) and they are sourcing a rig and tubulars. Water depth here isn’t a problem (mostly sub 200M). Whilst a 4km well would cost roughly $40M, Niko has 100$ so I would expect to see a farm down to say 50% to mitigate costs.

Madagascar 

Over the course of the next month, Niko should complete the processing of the 3,200km2 of 3D that it acquired last year (2010). It also has around 10,000km2 of multibeam data available. A variety of play types (stratigraphic and Cretaceous channels) have been identified and oil seeps processed during the multibeam acquisition provide evidence of an active petroleum system extending out from the big heavy oil fields on shore. The first explo well could spud in H2 2012. Given the recent experience of investors and companies in Madagascar (MOIL) and the political problems of the country, I don’t attach any real value (yet).

Bangladesh 

I didn’t really know where to put Bangladesh. It’s a cash flow situation really, not massively material to the upside story for the company with most analysts carrying around the $3/shr PV10. Onshore operations with the main Block 9 (60% WI) operated by Tullow. Current production (gross is 120M scf/d).

Summary

Well that’s about it for now. That puts a bit more “meat” on the bones (or into the thread header anyway). Apologies for any spelling, grammar and other errors but hopefully that gives everyone a better idea about the company.

Disclosure. We do hold a goodly chunk of NKO stock


Disclaimer:  

The opinions expressed by the author are those made by him personally as an individual and not in any professional capacity. 


Do you like this Post?
Yes
No
25 thumbs up
2 thumbs down
Share this post with friends




136 Posts on this Thread show/hide all

Isaac 10th Feb '11 17 of 136
1

I think one will get a better opportunity between now and Q3 to buy Niko, especially since it is likely we will have a market correction sometime in that period after 5 months of significant gains. Therefore no rush to buy.

| Link | Share | 1 reply
repobear 10th Feb '11 18 of 136

In reply to Isaac, post #17

isaac,

You could be right but bear in mind you'll pay up to to $10-15 on a decent QD success once it gets priced in.

i'll add bits and pieces along the way because I'm looking to build some longer term, lock 'em away and wait positions, and Niko looks a pretty decen fit to that.

repo

| Link | Share
Isaac 10th Feb '11 19 of 136

You could be right but bear in mind you'll pay up to to $10-15 on a decent QD success once it gets priced in.

Indeed I will pay more for certainty that a QD has HC, but I will also pay less on failure.I'm waiting for a cheaper price.

 

| Link | Share
emptyend 10th Feb '11 20 of 136
11

I haven't taken a really serious look at this one as yet, primarily because I'm not a huge fan of minority positions in India but also because I'm not a great fan of Canadian stocks in general.

In both respects there is little chance that the tail will end up wagging the dog.

I've just had a quick scan through the various broker notes and am a bit surprised to see no mention of the current Cairn/Vedanta impasse in which politics has intervened to stymie an apparently-sensible commercial arrangement (though of course there is a valid need to query Vedanta's operating skills). The relevance of this may appear to be quite tangential, but the first page of Canaccord's latest note clearly says:

Niko receives the majority of its revenues from a single non-operated
property in India. Thus, any issues related to field performance or
adverse changes in the country’s political, regulatory or business
environment could adversely affect the company.

I don't think one can underestimate the potential for politics to disrupt expectations. In particular, the RBC note says:

Niko's partner on its key acreage in India is Reliance
Industries; although Niko is the junior partner, to date this has not impacted the
stock performance as they have been aligned. However, Reliance is engaged in
long-term maneuvering with the Indian government in an attempt to drive Indian
gas prices higher, sooner. As a result, development expenditure offshore eastern
India (that could improve current production issues) is likely to be limited until
gas prices are moved from $4.20/mcf up to $6/mcf. Timing around this is
uncertain and Niko is now an innocent bystander as this 'arm wrestle' plays out.
India needs gas and prices will increase but the offtakers are currently
state-owned companies, so gas price increases will be unpopular.

Niko is a pimple on the bum of this particular elephantine debate - and is a hostage to fortune over its progress. Those who have followed the incredibly slow progress of SOCO in working towards a gas agreement for CNV in Vietnam (now over three years I think - and still not done) will rightly be cautious, I think. Gas price debates rarely seem to get resolved quickly.

That said, when Darron first raised Niko, I had pencilled in $83-84 as an area where there was decent value - and the share price is now below  there - so those who can take a sufficently-long view may do well enough. But I'm not sure enough of the near-term to rush to get involved myself.

Good luck to those who hold though.

ee

| Link | Share | 2 replies
marben100 10th Feb '11 21 of 136
2

In reply to emptyend, post #20

Hi ee,

re your second quote... to me, that seems a positive, for Niko. If higher tariffs can be obtained, so much the better. Niko currently has 177mmscf/d of NET production. That already produces a very healthy cashflow. Given it is not the operator, it can play the "innocent bystander" to Reliance's political games and hence not upset the Indian govt directly. Of course, there is a risk of getting "caught in the crossfire" but I find that risk acceptable, all else considered.

As Djp has pointed out, a "hidden asset" Niko clearly have is their ability to play the political games very shrewdly, as demonstrated by their success in winning attractive licences (attractive enough to get majors farming in).

Concerning timing... well, maybe it'll be possible to get them cheaper before the market likes them again, maybe not. I like to have a "foot in the door" at this level & see where we go from here. If I can get some more, more cheaply over the summer, then I'll probably have some (all else being equal). I like "drip feeding" into shares as I get more familiar with the companies, unless of course, something nasty comes out of the woodwork.

Best,

Mark

| Link | Share
repobear 10th Feb '11 22 of 136
3

In reply to emptyend, post #20

Niko's partner on its key acreage in India is Reliance
Industries; although Niko is the junior partner, to date this has not impacted the
stock performance as they have been aligned. However, Reliance is engaged in
long-term maneuvering with the Indian government in an attempt to drive Indian
gas prices higher, sooner. As a result, development expenditure offshore eastern
India (that could improve current production issues) is likely to be limited until
gas prices are moved from $4.20/mcf up to $6/mcf. Timing around this is
uncertain and Niko is now an innocent bystander as this 'arm wrestle' plays out.
India needs gas and prices will increase but the offtakers are currently
state-owned companies, so gas price increases will be unpopular.

Well it's quite stunning sometimes how different people can read the same reports and reach different conclusions.

I've read those reports and I focussed on the potential upside, if, and when, the price should rise. In the meantime, I thought, NKO has fantastic revenue from this, and if it increases 40%+, that would be great news and a bonus, nothing more.

What did, and does worry me, is that NKO's strategy is, for the time being, totally dependent on this revenue and being the minority partner, with uncertain politics and a dominant, home country partner, there are clear risks. However when all is said and done India needs gas , as was stated above, and this, and the other fantastic opportunities, that await Niko in India, gives me quite some comfort that they have the politics pretty well sorted, for now, at least.

The other thing that has limited my position to date is the price. If ee had that target it's quite encouraging,  but after reading that post above, I suspect it might have to go a lot lower, before he even looks again.

Maybe I should try looking through the correct end of the telescope sometimes;-)

repo

PS I hadn't read Marben's response before I sent this. Multitasking and slow typing skills slowed my reply.;-)

| Link | Share
Mattybuoy 10th Feb '11 23 of 136

India is not Russia. They can't just steal your property, and if they want you to f off they will have to pay. English law and all that ...

I don't think that's going to happen anyway. This looks to me like simple misinterpretation of what's going on by a small number of parties. Also, remember that just because it's a $4bn market cap doesn't make it liquid. 50m shares out is not a lot and I believe it's pretty tightly held.

| Link | Share | 2 replies
peterg 10th Feb '11 24 of 136
1

In reply to Mattybuoy, post #23

Hi Matt,

I don't think the reaction is due to worry that anything is going to get stolen. What it does reflect are concerns that the short term future of Niko's biggest current project and cash generator is unclear. Production is dropping, that's natural, but there seem also to be hints that there are some technical issues with the wells as well. But the issue remains that at present there is no guidance when any of this will be sorted - the planned new wells appear to be on hold. That may well be for a very short time, but it might not, and that's not under Niko's control.

That may well represent an overeaction given what else Niko has, but that's another issue.

| Link | Share
emptyend 11th Feb '11 25 of 136
1

In reply to Mattybuoy, post #23

India is not Russia. They can't just steal your property, and if they want you to f off they will have to pay. English law and all that ...

All the more reason to follow closely the Cairn situation. The FT has a pertinent piece on Cairn this morning:

Cairn ....has hardened its stance in its battle to secure the Indian government’s approval for its proposed $9.6bn sale of oilfields in Rajasthan, rejecting conditions being placed on the transaction. The directors of Cairn’s Indian subsidiary on Thursday said they “cannot accept” any interference that might change the value of the sale of a controlling stake...........
....uncertainty surrounding the deal was beginning to have a material impact on the performance of the business, and cause a loss of momentum.
| Link | Share
marben100 11th Feb '11 26 of 136
2

Looks like the politics is heating up (but also reassuring):  http://tmx.quotemedia.com/article.php?newsid=38459264&qm_symbol=NKO

CALGARY, ALBERTA, Feb. 11, 2011 (Marketwire) --

Niko Resources Ltd. ("Niko") (TSX:NKO) has now received the operator's volume forecast for the fiscal year ended March 31, 2012. The forecast predicts that volumes during the period will remain flat at current production levels. The forecast has been approved by Niko and the operator and has been forwarded to the Director General of Hydrocarbons.

| Link | Share
djpreston 21st Feb '11 27 of 136
4

BP deal with Reliance announced,

Extracts from the announcement:

BP will pay Reliance Industries Limited an aggregate consideration of US$7.2 billion, and completion adjustments, for the interests to be acquired in the 23 production sharing contracts. Future performance payments of up to US$1.8 billion could be paid based on exploration success that results in development of commercial discoveries. These payments and combined investment could amount to US$20 billion.

The partnership across the full value chain comprises BP taking a 30 per cent stake in 23 oil and gas production sharing contracts that Reliance operates in India, including the producing KG D6 block, and the formation of a 50:50 joint venture between the two companies for the sourcing and marketing of gas in India. The joint venture will also endeavour to accelerate the creation of infrastructure for receiving, transporting and marketing of natural gas in India.

The partnership will combine BP's world-class deepwater exploration and development capabilities with Reliance's project management and operations expertise.

Mukesh Ambani said: "We are delighted to partner with BP, one of the largest energy majors and one of the finest deep water exploration companies in the world. This partnership combines the skills of both companies and will be focused on finding more hydrocarbons in the deep water blocks of India and significantly contribute to India's energy security."

Fund Management: European Wealth
| Link | Share
thegreatgeraldo 21st Feb '11 28 of 136
1

Nothing to do with the recovery in NKO's SP late last week... oh no!!! ;-#))

| Link | Share
Mattybuoy 22nd Feb '11 29 of 136
1

Niko is granted an option to increase its working interest to 30% ...

http://www.marketwire.com/press-release/Nikos-Option-for-30-Increase-With-Reliance-TSX-NKO-1399166.htm

| Link | Share
thegreatgeraldo 22nd Feb '11 30 of 136
3

Niko is granted an option to increase its working interest to 30% ...

Niko can increase by 30%

| Link | Share | 1 reply
djpreston 23rd Feb '11 31 of 136
3

In reply to thegreatgeraldo, post #30

Niko can increase by 30%

Indeed.

Some could argue that the price that BP paid was quite cheap. Given the drilling commitments on the blocks, you could argue that the $7.2 bn is basically a valuation of D6.

Previous estimates for the block have 20 tcf to 40 tcf so that makes a metric of anywhere from $1.2/mcf to $0.80/mcf. On those figures, I would be very surprised if NKO didnt exercise its rights of first refusal to increase its position by 30% in D6 and possibly NEC25 and D4.

Certainly Id view bringing in BP as very favourable. Reliance have done an incredible job getting D6 on stream so fast but I did always have a doubt in my mind that they were possibly not experienced enough to maximise the efficiency of the field production BP will have that experience in spades.

Given NKO doesnt have any long term debt, a decent bond issue to raise the fudns for an increase would be my recommendation, especially as it should carry a very low coupon (especially if convertible) and the extra cashflows that would be garnered as a result.

Fund Management: European Wealth
| Link | Share
alano20 23rd Feb '11 32 of 136

NEC 25 increase same as for D6:

Also, Niko can can raise its stake to 13 per cent from the current 10 per cent stake in NEC 25 block and to 19.5 per cent in D4 block from the present 15 per cent stake, the statement said.

http://www.energy-pedia.com/article.aspx?articleid=144257&editionid=100606

| Link | Share
Mattybuoy 24th Feb '11 33 of 136

Yes I am a numpty ...

That's actually better, I couldn't see them having the wherewithal to go to 30% on anything.

| Link | Share
djpreston 3rd Mar '11 34 of 136
1

Niko are doing a presentation next Thursday in New York.

The Conference will be accessible at that time via webcast at the ste shown in their press release here. It will also be achived for 30 days.

Fund Management: European Wealth
| Link | Share
djpreston 3rd Mar '11 35 of 136
9

Thinking about the conference above, i would imagine that there will be a fair amount of discussion on the matter of D6 production, Indian gas prices and their intentions following the BP buy in and the rights to increaae their own positon by 30%.

As I said in post 31 above, I would imagine that NKO will definitely exercise their Right of First Refusal to take up the extra % interest and that they will fud it via debt. As to the timings regarding that, I understand that once (if) BP get Indian govt approval, NKO has 10 days to exercise their ROFR. There will then be a period of 90 days to close and the balance can be paid in installments like BP over 6 (? - not entirely sure on that) months.

Arguably, given the fact athat D4 is being talked off as as good as D6, an increase in the interest to 19.5% is potentially very interesting. Question again is when woudl we see drilling on D4, Q4 or early next year?

One has to wonder how much of the confusion over the plans for D6 came about as a result of the on going BP discussions and how the BP bods will change plans. What remains though is the fact that they have had over 25 discoveries on D6 of which 3 have been brought on line and there are many more prospects on the block, just this block, forget about D4 or NEC25.

As has been pointed out to me, if the reservoir deliverability is not as was first modelled, more wells will be required but this is not necessarily a bad thing since the terms of the PSC allow the partners to recover capex and opex x2.5 before the profit petroleum to the govt kicks in. In some respects this improves the NPV.

I still feel that the market is worrying overly about the Indian gas price negotiations and that there will be an increase. Indeed, there has to be an increase if they want the partners to develop and bring on line more wells. Given the costs of alternatives - LNG - paying $6/mcf woudl still make a lot of sense. If (when IMO) NKO increases their interest to 13%, $1 increase/mcf woudl be another $80m cashflow...

I doubt that the conference will miss the opportunity to highlight the flood of newsflow expected over the next 18 months or so. Whilst we wont see much from Indonesia till Q4(?) there is still lots of other prospects and Id imagine questions will be asked re:

  • Kurdistan - "imminent"/overdue update?
  • Trinidad - Q3? (plus updates on prospectives following acquisitons and seismic progs?)
  • Pakistan - no real news on prospectives and plans that I can see but can we expect some?
  • Indoesia - ahh, Indonesia. Quesiton woudl be when will we see some reports on prospectives?

I still cant get over the fact that Niko have managed to acquire 16 blocks, each roughy equivalent to 200 Gulf of Mexico blocks. Considering they planned up to 16 wells in fiscal year 11/12, that sounds a lot but then given the acreage its not exactly making a pin cushion of the area. Then again, look at the partners (some of whom are carrying NKO) and whose acreage we abutt. A lot of big players think this is very exciting and I can see why.

Given the pullback I still think that weve been offered an exceptional entry point and have been adding more today in size.  If we see a pullback on KRG, I'll buy some more.

 

Fund Management: European Wealth
| Link | Share
djpreston 9th Mar '11 36 of 136
9

I see that First Energy has issued a new note, well March, following a review of the impact that exercise of the ROFR on the Indian assets as a result of the BP deal. Theyve reiterated their $125 target and upgraded their rating to Top Pick, a select bunch of their best ideas.

What strikes me from the note is the barely concealed excitement, this is from a house that is probably one of the most conservative Ive come across.

Some highlights:

  • Equity market is materially under estimating the impact of the ROFR and impact that of an inevitable hike in gas prices in India.
  • Reiterate target and our view that Niko will trade through $160 over the next 24 months.
  • Upside potential of the portfolio is exceptional. This is the explo portfolio of a company multiples of Niko's size.

I wont go into details re their cashflow sensitivities calculations but will highlight one line that I thought was very interesting:

In our view, nothing presented in this ....should be deemed "Blue Sky". In fact, it took considerable will power not to run some much more aggressive pricing cases.

They highlight how, after their calculatins for the value of the Indian blocks, the explo portfolio is valued at roughly $450m, which, based on 33 blocks is just $14m per block. Thereby poiting out the falacy of the implied valuation. Just three of their recent acquisitons (2009-2010) dealing with Trinidad and Indonesia cost $423m. Given that Repsol and the other giants are playing and indeed carrying Niko in Indonesia, they obviously see great potential there and somehow $14 per block seems just a tad undervalued? Id like to imagien what they woudl cost on the open market.

The rest of the note is a walk through of the various cashflow scenarios based ona number of variables and entirely backs up my view that excerice of the ROFR via debt issue (see above) would be a complete no brainer.

Im stil staggered that NKO gets so little coverage from the bigger houses given its size, production and incredible upside. Never mind, a good opportunity for us I guess.

Fund Management: European Wealth
| Link | Share | 1 reply

What's your view on this thread? to Comment Now

 
 
You are feeling neutral

Use the £ sign in front of a ticker to turn £VOD into Vodafone PLC

You can track all @StockoChat comments via Twitter



Stock Picking Tutorial Centre



Stock Picking Simplified

Stockopedia takes your stock picking to the next level with cutting edge Stock Reports & Screening tools.


Get started
or Take a Tour to find out more.