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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

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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. 


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136 Posts on this Thread show/hide all

repobear 9th Mar '11 37 of 136
1

In reply to djpreston, post #36

Good points Darron,

I can see NKO's share price growing at 25-30% and more per year for the next five years on average without too much trouble.

There aren't too many companies of that size, with an asset base that even starts to compare, and the cashflow to exploit it. Why Niko doesn't attract more attention, I don't know, but I hope it stays that way for the time being, because it's one of several companies that I have my eye on for further investment in the future.

repo

I hold but would like to double my holding, at least, within 3-6 months.

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Fangorn 9th Mar '11 38 of 136

I suppose the reason it doesn't attract more attention from PI's is because they don't want to invest in a currency other than sterling - it's Canadian listed isn't it which opens up a different set of holding charges at a nominee? And translation costs.Etc etc.

have been mulling buying them myself but the currency issue is a tad off putting,as are the possible charges for holding a non sterling denominated asset in my nominee account. I'm with TDW, but have to admit I've not looked into these possible holding charges for a C$ asset.

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thegreatgeraldo 9th Mar '11 39 of 136
1

I'm not aware of any "holding charges" (I use TDW), the only extra cost involved is the currency transaction. On the plus side, no stamp duty.

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Fangorn 9th Mar '11 40 of 136

Ah thanks. I was under the impression there was some kind of holding charge. Thanks for clearing that up.

:)

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peterg 9th Mar '11 41 of 136

In reply to Fangorn, post #40

I think it may depend on the broker. I haven't fully checked Barclays recently for example, and to be fair I know they are upgrading it at the moment, but they used to be a complete rip off for overseas stocks, and may well have had holding fees as well as much bigger commissions, whereas people like Selftrade will trade US and Canadian (plus other non UK stocks) seamlessly. You do have to watch out for the spreads though. Selftrade trade overseas stocks in GB pence, they operate through someone else who does the currency conversion. That seems to work fine for liquid companies like Niko, the extra spread is very small. However, on thinly traded stocks like Falcon Oil, they can rip you off for over 10%, above the quoted spread.

The best way to trade a range of international stocks at good prices is without doubt to use Interactive Brokers, but they don't trade a full range of UK stocks or allow ISAs.

Peter

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Fangorn 9th Mar '11 42 of 136

The currency issue is the most off putting yes. I certainly wasn't aware of the abuse of spreads . I've always used local currency brokers for any overseas trades until returning to the UK.

But thanks for your comments

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repobear 9th Mar '11 43 of 136
2

This site gets less interesting by the day.

I'm sorry for the guys running it, who seem very genuine and have done a good technical job, but us punters want to make money and I am getting the feeling that we're moving away from that.

sorry guys,

repo

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peterg 9th Mar '11 44 of 136
8

In reply to repobear, post #43

This site gets less interesting by the day.

I'm sorry for the guys running it, who seem very genuine and have done a good technical job, but us punters want to make money and I am getting the feeling that we're moving away from that.

sorry guys,

repo

What on earth was that in response to? Someone asks about the mechanics of investing in a share that looks interesting (at least to some of us), what is that about if not making money?

Given this is a thread about a share about which you said: I hold but would like to double my holding, at least, within 3-6 months less than 12 hours ago I'm left completely bemused.

Peter

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djpreston 10th Mar '11 45 of 136
8

I'd guess Repo's just a tad sore at the moment.

Mind you, he does have a point. So many people view a thread or a post (you can see it in the count) yet they never post either in response or even start a new discussion thread. Don't be shy, jump on in.

Sadly, these days I'm so snowed under that my own amount of posting has declined markedly and I'm not able to start a new stock idea and maintain a thread properly. I had hoped others would join in and yet....


I'm sorry for the guys running it, who seem very genuine and have done a good technical job, but us punters want to make money and I am getting the feeling that we're moving away from that.


Then again, repo, as I've said before, I can't remember you and the punters bringing up any new ideas, only seizing upon others' work and ramping them hard or attacking other posters.

So, my question to you is:

Why don't you contribute with some original discussion rather than cheer lead, regurgitate, snipe and berate? There's plenty of stocks out there......

Fund Management: European Wealth
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repobear 10th Mar '11 46 of 136
5

In reply to djpreston, post #45

Hi Darron,

Why don't you contribute with some original discussion rather than cheer lead, regurgitate, snipe and berate? There's plenty of stocks out there......

I have done in the past but you've missed it. Any ideas that I do come up with might well be new to you lot but they are unlikely to be original.

I gave a few clues today here but nobody is bothered really here and I'm not pushing the several 'ideas' that I have because my funds are largely tied up for the next several months.

http://www.stockopedia.com/content/shale-gas-other-unconventional-plays-38438/

Response as usual ..zero.

Just for you information I was aware of SLG and Cladhan long before I bought in. Investment is about timing and risk reward, imv and that's one that I think I got fairly spot on and some of  the so called 'experts' here just didn't bother with it or were late to the party. They were too busy ramping or moaning about their favourites.

Here's the proof from 2008

http://boards.fool.co.uk/hi-this-post-relates-to-schachters-comments-at-11322629.aspx?sort=username

They say that they'll complete the drilling and testing of Cladhan and West Breagh but after that they clearly need to do a deal.No real surprises there for Encore followers but with the shares languishing at C$65 cents and 130m shares issued the market cap is around £46m. They hold 39.9% of Cladhan and 45% of Breagh and have lots of nice acreage adjacent to these discoveries. I think that Sterling Recources are a sitting duck for the likes of TAQA or Dana or anyone else with cash looking to develop in the NS. Why bother helping them by farming in, or buying an asset, when the whole company can probably be bought at a fraction of the value of the NS assets. Sterling also have decent asets in Romania.

http://boards.fool.co.uk/cladhan-a-new-buzzard-11335744.aspx?sort=whole

That's a new thread too. I would recommend people read it because it is quite informative, especially when some people think this oil and gas business is down to luck. One snippet which still rings true to me

What I like about Encore is that AB seems to be able to get pretty much a free ride on some decent prospects. Whatever is in the gas storage, Breagh and Bowstring boxes hasn't really cost EO. that much hard cash. He knows the geology of the NS better than most I reckon so it is like playing with Noel but it feels like AB is the only one who can do the sums properly.

Here's  one I made some strong money on. I bet you lot didn't;-)

http://boards.fool.co.uk/fugro-11272722.aspx?sort=whole

Didn't exactly get a response either. I've not seen any meaningful bulletin board discussion of that company anywhere in English or Dutch by the way.

As for 'sniping' and 'berating' you do your fair share of that Darron, but I'm not moaning about that because you do add a lot of value too by landing on some 'ideas' with some potential. As does Peterg but I can't ever remember him coming up with anything even approaching original, though he's often worth a read when he's on message.

repo

 

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djpreston 10th Mar '11 47 of 136
4

Just a reminder that Niko is presenting today on the second day of the First Energy East Coast Conference in New York:

The link to the presentation doesnt appear to like being in quotes so here it is:

http://jetslides.tv/lobby/389

NIKO RESOURCES LTD. (TSX - NKO) will be presenting at the FirstEnergy/Société Générale Canadian Energy Conference, which takes place March 9 & 10, 2011, at the Waldorf Astoria Hotel in New York, NY. Mr. Edward Sampson, President & CEO of Niko Resources Ltd., is scheduled to present at 4:00pm Eastern Time, Thursday March 10. The Conference will be accessible at that time via webcasting at the following site and will be archived for 30 days:

  

 

Fund Management: European Wealth
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djpreston 10th Mar '11 48 of 136
2

Just noticed from one of my morning notes that:

 

.....according to India's upstream regulator, NKO's partner in D6, Reliance Industries may increase its natural gas production in April to 2.37 bcf/d. Current production is reported to be 1.87 bcf/d and the JV is expected to achieve peak production of 2.82 bcf/d in 2012-13.

One wonders if this is a sign of movement on the gas price issue? Either way, its a nice increase in cashflow for NKO.

Fund Management: European Wealth
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alano20 10th Mar '11 49 of 136
1

In reply to Fangorn, post #42

Fangorm,

To back up peterg's comment, I bought around 150 yesterday through selftrade and paid £57.47 each at 15:15. Using the today's exchange rate that works out at around $CDN 90.02 each (didn't check yesterday as it was around what I was expecting to pay). By eye the quotemedia chart for yesterday gives the mid price around $90 around 10:15. So given you save on UK stamp duty, I don't think it should be off putting for liquid shares.

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marben100 10th Mar '11 50 of 136
3

In reply to djpreston, post #45

Hi Darron,

Apologies to others for the O/T.

Sadly, these days I'm so snowed under that my own amount of posting has declined markedly and I'm not able to start a new stock idea and maintain a thread properly. I had hoped others would join in and yet....

I'd have liked to contribute more, but I'm "sorry" to say I'm in similar boat myself. These are "interesting times" in the markets, with plenty of opportunities to make money (and avoid losing it) keeping me busy.

Due to its sheer scale, certain companies attract rather more useful comment on ADVFN (or elsewhere). I tend to post where the action is - but avoid those threads that are just full of dross. As you say, if "lurkers" want to see more posting here, then they need to come out of the closet a bit and post themselves.

For me, in common with quite a few others, Niko is simply a "bottom-drawer" stock, to tuck away and watch the story unfold. Frictional costs are not such a big issue, if you're not trading actively.

Cheers & thanks,

Mark

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loglorry 10th Mar '11 51 of 136
4

I like Niko but they only have too much exposure to a single customer/role e.g. supplying India's gas. Their QD asset in Kurdistan is very interesting but if that is what you want exposure to then buy VST because it has much greater exposure.

It is hard to say what leverage Niko have on their own destiny. If the price they sell the gas for is not raised I can't see the shares putting on a steady 25% a year to be honest. Yes they have some good explo assets and the cash flow from the gas fields should allow them to do this without much/no shareholder dilution.

I don't like the fact they are not masters of their own destiny with respect to almost all their current cashflow.

Log


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repobear 10th Mar '11 52 of 136
5

In reply to loglorry, post #51

log,

Apologies for regurgitating this old thread but the discussion on it may help clarify the gas price position.

http://boards.fool.co.uk/niko-q3-results-and-a-buying-opportunity-12174711.aspx?sort=whole

My view at the time was

The price rise looks nailed on now, imv.

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..........

Would a major commit so much to work at below market prices? I don't think so.

Since then Niko have been offered the chance to take a larger percentage in the three key blocks. It's going to cost them plenty to do so and I'll be interested in any news from the presentation on this issue. Would they expose themselves even more if they weren't confident that gas prices were being increased? I doubt it unless they're stupid and given that NKO has already 100 bagged I believe that they're not stupidThese things take time, but India needs the gas badly and getting BP along to help out was really important to the economic development of the country and I believe it came at a price and part of that price involved a deal on gas prices.

This may help too;-)

http://www.firstenergy.com/UserFiles/File/NKO-ny11.pdf

 Arguably, the most important aspect of Niko’s investment in India is the realized natural gas price.

The economics of the D6 development were agreed on in a different gas price environment. Currently,Niko and their partner Reliance receive approximately$4.00 per mcf for gas. Reliance is in negotiationswith the Indian government to raise this price. Support is in place from industry for prices of $6.50+per mcf. Recall, recent landed LNG prices in India have exceeded $10.00 per mmbtu given the shortageof gas in the Country. We believe Reliance has postponedthe D6 development as a point of leverage inits negotiations with the government – the message,from a potential reallocation of capital, is quite clear.Many expect this gas price situation to be resolved prior to the Indian fiscal year-end of March 31, 2011.

The situation is similar in Argentina and that too is unsustainable. As explained here

http://seekingalpha.com/article/257082-kevin-shaw-horizontal-drilling-an-oil-gas-game-changer

Historically, foreign direct investment in Argentina had been suppressed by government-controlled pricing caps in a lot of the gas production agreements. Of late, a couple of noteworthy things are happening on the macro side in Argentina, which is a net importer of gas. In the last several years, Argentina has sold gas domestically anywhere from $0.50 to $2 per million cubic feet (MCF), yet paying about $9 per MCF to import LNG from places like Bolivia. It's an unsustainable situation.

repo

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peterg 10th Mar '11 53 of 136
4

In reply to repobear, post #52

I have to say that I'm in total agreement with Repo on this issue :-)

The gas price is certainly a risk, thought I find it very hard to see the Indian govt being able to hold out against some rise for very long, given that alternatives like LNG are so much more expensive than the present gas price. However, while a failure to get a higher price soon might put the dampners on any more SP rises it's not going to leave Niko facing major problems either, so I can live with it. 

I also view the BP involvment very positively. They bring in size, funding and experience, all of which will be benficial, and I think it's fair to assume that they are happy with what they see, or they wouldn't be there.

Peter 

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marben100 10th Mar '11 54 of 136
3

In reply to loglorry, post #51

Hi Log,

What many may be overlooking (as emphasised by the FirstEnergy note) is Niko's explo base. You mention QD - but AFAIAC that's just a small hors d'oeuvre for Niko.

Indonesia is where the real excitement will come from. The acreage, as djp has emphasised, is massive and prospective - drawing the interest of several of the world's majors. It is equivalent to over 3,000 Gulf of Mexico blocks, according to the First Energy note. Niko is expected to participate in 14-16 wells there next year. Whilst this may seem a long way off, a report on prospect sizes, following a preparatory seismic campaign, is expected within the next 3 months. When published, that might cause a few people to sit up and take notice.

I strongly recommend viewing Niko's presentation, linked above - you might have a different opinion once you've seen it.

 

IMO what we have is a company  with solid, highly cashflow generative assets in a relatively stable part of the world, and a huge explo portfolio to expend that cashflow on productively: India, Kurdistan, Trinidad and Indonesia - all potentially material. FE put the potential explo upside at over $9bn. IMO they are being conservative and unlike many smaller companies, Niko has the ability to drill and drill and drill - so lots of shots at those prospects. cf Encore who achieved the same effect on a much smaller scale by farming down extensively and doing shrewd deals to be able to participate in many wells with a limited amount of capital. One could regard Niko as Encore on steroids - but with the backing of production.

Dear oh dear - I'm sounding as ramptastic as repo talking about Sterling there. :0)

Once again: see the presentation.

 

Cheers,

Mark

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loglorry 10th Mar '11 55 of 136
6

Yes repo I saw the BP deal and it was mildly positive but you might be reading a bit too much into it. BP also have taken part in deals in Southern Iraq where their profit margins were very very small around $1/barrel I believe. BP seem to want to be in very very large deals where they can add value. I'm not sure it necessarily means they expect higher gas prices.  It all depends in the details of the BP deal and we don't know what they were. 

Yes India needs gas but I'd say NKO and their partners need the market more than the market needs them. It's not like the can take their produce elsewhere. Politics can play a big part in all this and these things can take years to resolve.

Also the small issue of reduced production could spook the market. I know Shell have been brought in to save the day but there might be some deep geological problems yet to be solved. A lot is in the price for these gas fields. Let's not also forget that gas is cheap relatively to oil and we have seen more and more LNG plants coming into existance of the back of big gas finds elsewhere in the world. It looks like the liquid stuff is going to be harder and hader to find not the gaseous version.  

I do realise NKO have some great prospective area but it will cost a lot of money to drill and take time to prove anything up. Many here don't even want to wait until production starts with Soco in August to realise a decent return but are prepared to wait several years for this - go figure?

Sorry I'm not totally sold on this one. If I was paying nearer core NAV I'd bite their hands off but I don't want to pay up for a stock which I perceive as having a few problems.

In the same risk category (or at least my risk category) I prefer SQZ. Lots of cash on the balance sheet and a great producing gas asset that could probably be sold for way more than the current market cap without cash. Also some very interesting explo offshore Ireland. I'd also prefer Sterling over Niko for reasons already explained. Oh and then there is coastal - another great stock that I think is way better value than NKO. Market cap below core NAV and plenty of explo to come in the near term. All their drilling relatively cheap and more than enough cashflow to finance it.

I'll go over the presentation once more though and take another look. I'd say it was fair valued at the moment and not particularly cheap. I think my money would go in the direction of CEN, SQZ or SLG before NKO in that order for this particular risk category.

Sorry guys - being a big negative and all - but it takes more than one view to make a market!

Log

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peterg 10th Mar '11 56 of 136

In reply to loglorry, post #55

Hi Log,

Also the small issue of reduced production could spook the market.

One of the interesting things the First Energy report says, which I certainly had not appreciated previously is that the PSA terms mean that the NPV rises the more wells they have to drill! The belief appears to be that the connectivitiy problem does not affect gas in place, but will require more wells to recover, which in turn is better for Niko balance sheet. None of that stops the market being spooked as you suggest, but at some time they will be convinced otherwise. 

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