CH:Niko shares drop as gas production falls in India
Shares in Niko Resources Ltd. of Calgary fell more than $4 on the Toronto Stock Exchange Thursday after it reported production at its key offshore India natural gas field continues to drop.
The shares rallied from a low of $52.11 to end the day at $53.31, down $3.02. So far this year they have fallen by 48 per cent.
During the three months ended June 30, the company noted gas production at the D6 field averaged 170 million cubic feet per day, down from 210 mmcf/d a year earlier. It fell further to 164 mmcf/d in July.
The declines have come as India's Reliance Industries Ltd., the 90 per cent owner and operator of the field, suspended drilling and tie-ins while trying to work out a $7.2-billion partnership deal with BP PLC on 23 fields, including D6 and others it shares with Niko.
That deal, announced in February, is not yet complete.
Niko chief financial officer Murray Hesje said two new wells have been drilled on D6 since July, leaving four to be tied in to the gathering system serving 18 older wells.
"There's a lot of equipment and so on that's required to tie in wells so it makes sense to tie them in in clusters of wells," he said. "So the exact timing has not been decided at this point. It's something that BP may well have a view on as well."
A total of more than 50 wells are planned, he said.
Niko reported funds from opera-tions in the quarter fell to $60 million from $78 million. It had a net loss of $55 million versus a net profit of $14 million in the same three-month period of 2010. All of its results are reported in U.S. dollars.
Analyst Rafi Khouri of Raymond James, the only analyst in a Bloomberg survey of 13 who rates Niko a sell, said the results were disappointing but not surprising.
Niko reported spending $97 million in Trinidad, including paying signing bonuses of $18 million and completing the purchase of offshore Block 5(c) from Sonde Resources of Calgary for $79 million.
"They definitely have a lot of land but maybe $100 million could have been better spent drilling as opposed to getting even more land," said Khouri, who also pointed out the company's exploration well in Kurdistan has failed to deliver commercial results.
Analysts' target prices for Niko stock vary from $55 to $150, with Christopher Brown of BMO Capital Markets suggesting $65.
"Essentially the overall production numbers were on target at 246 million cubic feet equivalent per day but I believe that when it comes to competing for investment dollars in the international market Niko remains in the penalty box," Brown wrote in an e-mail.
He added the drop in share price was likely due to shareholder frustration.
Niko also has assets in Indonesia, Pakistan and Madagascar.
