Niko Resources Ltd.
TSX : NKO

Niko Resources Ltd.

August 10, 2006 08:45 ET

Niko Resources Announces First Quarter Financial Results

CALGARY, ALBERTA--(CCNMatthews - Aug. 10, 2006) - Niko Resources Ltd. (TSX:NKO) reports results for the three months ended June 30, 2006.

OPERATIONAL AND FINANCIAL HIGHLIGHTS

OPERATIONAL

- Production from the Bangora-1 well in Block 9 began at a rate of 33 million cubic feet per day (net)

- Internal estimates add 54 billion cubic feet of working interest proved reserves at Block 9

- Oil production from Hazira reached 276 barrels of oil per day (net)

- Production Exploration License received for Cauvery

- Seismic operations commenced in Thailand



Three months ended June 30
2006 2005

FINANCIAL

(thousands of dollars, except per share amounts)
Oil and gas revenue 29,627 32,706
Funds from operations 14,699 20,571
Per share, diluted ($) 0.38 0.54
Net (loss) income (11,627) 4,343
Per share, diluted ($) (0.30) 0.11
Capital expenditures 9,297 19,111

OPERATIONS
Average daily production
Oils (bbls/day) 366 114
Natural gas (MMcf/day) 89 85
------------------------------------------------------------------------
Total combined (Mcfe/day) 91,119 85,428
Revenues, royalties and operating costs
Gross revenue received ($/Mcfe) 3.57 4.21
Royalties ($/Mcfe) (0.25) (0.50)
Profit Petroleum ($/Mcfe) (0.59) (0.47)
Operating costs ($/Mcfe) (0.40) (0.28)
------------------------------------------------------------------------
Operating netback ($/Mcfe) 2.33 2.96
Drilling activity
Gross wells - 2.0
Net wells - 1.1
------------------------------------------------------------------------


Mcfe is a measure used throughout the MD&A. Mcfe is derived by converting oil and condensate to natural gas in the ratio of 1 bbl: 6Mcf. An Mcfe conversion of 1 bbl: 6Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

The Company's activities are carried out primarily in U.S. dollars as well as the currencies of each country in which the Company operates. The Company reports financial results in Canadian dollars.

The selected financial information presented above is prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP), except for funds from operations and funds from operations per share, which are used by the Company to analyze the results of operations and liquidity. By examining funds from operations, the Company is able to determine its ability to fund future capital projects and investments. Funds from operations is calculated as cash flows prior to the change in non-cash working capital related to operating activities. Funds from operations is not an alternative to cash flow from operating activities as determined in accordance with Canadian GAAP and may not be comparable with the calculation or similar measure for other companies. Funds from operations per share-diluted is calculated by dividing the funds from operations by the weighted average number of diluted shares outstanding.

The fiscal period for the Company is the 12 months ended March 31st of each year. The term 'Fiscal 2006' is used throughout this report and refers to the period from April 1, 2005 through March 31, 2006. The term 'Fiscal 2007' is used throughout this report and refers to the period from April 1, 2006 through March 31, 2007.

OPERATIONS REVIEW

OPERATIONS UPDATE

India

Oil production began in Hazira in March 2006 and production during the quarter averaged 276 barrels of oil per day (net). Natural gas production from Hazira during the quarter averaged 38 million cubic feet per day (net). Production in Surat averaged 11 million cubic feet per day.

In the D6 Block, drilling operations have resumed with the mobilization of two deepwater drilling rigs, one of which arrived in July 2006 and the second of which is scheduled to arrive in August 2006. The drilling will continue evaluation of the Cretaceous prospectivity of D6 following the MA-1 oil and natural gas discovery announced recently. The MG-1 well, another Cretaceous prospect, will be drilled south of the MA-1 discovery. A second well, MB-1, will be drilled approximately 11 kilometres east of the MA-1 discovery. The MB-1 well will test a shallower separate structure with similar targets and geologic setting as were successful in the MA-1 well.

Further drilling to evaluate prospects in deeper water depths identified by the 2004 3D seismic will commence, after drilling of the Cretaceous wells, utilizing the two contracted rigs as well as a third contracted rig which is scheduled to arrive in November 2006. Essentially all of D6 is now covered with 3D seismic. Processing and integration of all the separate surveys are expected to be completed by year end. The Company is looking forward to continued drilling success on this block. The design and installation of the production facilities is well underway. Major tender packages have been issued and the civil construction of the natural gas plant site is substantially complete.

In the NEC-25 block, a jack-up drilling rig is scheduled to commence drilling an eight well program to follow up the six natural gas discoveries made to date on the block. Some of the eight drilling locations are in the original 3D seismic area where all of the discoveries have been made to date and the remainder will be drilled within the 1,700 square kilometre 3D seismic area which was acquired in 2005 and 2006. The prospectivity of this block continues to be very attractive and the Company looks forward to additional discoveries. Development plans for the six discoveries made to date, which have been declared commercial by the Indian regulatory authorities, are being prepared with a target for commencement of production in late calendar 2009.

The Company was granted the Production Exploration Licence in July 2006 for the Cauvery Block in India, in which it holds a 100 percent interest. A 550 square kilometre 3D program is scheduled to commence in August 2006 with a multiple well program planned to commence in early 2007.

In the deep water block MN-DWN-2003/1 (D4) located in the Mahanadi basin, in which Niko holds a 15 percent interest, a 2,365 kilometre 2D seismic acquisition program has been completed and the data is currently being processed. An 1,800 square kilometre 3D seismic program is anticipated to commence in calendar 2007 followed by exploratory drilling.

Bangladesh

Combined natural gas production from the three wells in the Feni field averaged 20 million cubic feet per day during the quarter.

Three drilling locations have been identified on the western part of the Chattak structure and one location on the east Chattak structure.

The proposed activities at Feni and Chattak have been postponed pending further developments in the various disputes between the Company and the Government of Bangladesh.

In Block 9, the 620 square kilometre 3D seismic program over the Lalmai/Bangora anticline is complete and processing is near completion. The commissioning of natural gas production and processing facilities was completed during the quarter, the Bangora-1 well was tied in and an extended production test period began. Production from the Bangora-1 well has averaged 50 million cubic feet per day (33 million cubic feet per day net) since being placed on production. The Company anticipates commerciality to be declared in Fiscal 2007 at which time the Company expects to collect the receivable owed for all natural gas and condensate produced in Block 9 to date.

An appraisal well, Bangora-2, began drilling in April 2006 and reached total depth in early June 2006. The well encountered natural gas pay similar to that encountered in the Bangora-1 well and the well has been completed for production subsequent to the end of the quarter. At June 30, 2006, Company reservoir engineers estimated that the Company's working interest proved reserves at Block 9 had increased by 54 Bcf as a result of analyzing data obtained from drilling the Bangora-2 well and production data from the Bangora-1 well. Probable reserves decreased by 1 Bcf as the Bangora-2 well moved probable reserves into the proved reserves category. The increase to the Company's internal estimate of the proved and proved plus probable reserves for Block 9 has not been reviewed by an independent reserves evaluator and is based on the Company's assumptions about Block 9, which assumptions the Company believes to be reasonable at the time the assumptions were made, which may not be consistent with actual results.

Drilling of the Bangora-3 well commenced in July 2006 and will be followed by two more appraisal wells on the anticline containing the Bangora and Lalmai discoveries. Production rates are expected to increase with the completion and tie-in of the Bangora-2 well and the drilling of additional appraisal wells.

Thailand

Acquisition of a 150 square kilometre 3D seismic program commenced in June 2006 on the South Fang Block in Thailand and is anticipated to be completed in August 2006. Drilling of several exploratory drilling prospects as defined by the 3D seismic program is anticipated to commence late in the third quarter of Fiscal 2007. Plans are underway to commence re-completions on existing wells in the Mae Soon oil field in the second quarter of Fiscal 2007. The Company looks forward to commencing oil production from its Thailand blocks based on success of the re-completion and drilling programs.

FORECAST

Capital Expenditures

The following table displays the actual capital spending for the first quarter of Fiscal 2007 and the forecast capital spending for Fiscal 2007. The Company revises the forecast on a quarterly basis and any changes are incorporated in the table below.



Exploration and Development Spending (net) Three months
ended Estimated
(millions of dollars) June 30, 2006 Fiscal 2007
------------------------------------------------------------------------

India
Cauvery - 15 - 17
D4 - 0 - 1
D6 2.1 45 - 50
Hazira 0.5 3.5 - 4
NEC-25 0.3 10 - 12
Surat - -
------------------------------------------------------------------------
Bangladesh
Block 9 6.2 30 - 35
Chattak (2.2) (2.2)
Feni (0.3) -
------------------------------------------------------------------------
Thailand
Mae Soon - 5 - 7
Fang 0.1 12 - 15
Acquisition of rights 2.6 2.6
------------------------------------------------------------------------
------------------------------------------------------------------------
Total 9.3 121 - 141
------------------------------------------------------------------------


India

The Company was granted a Production Exploration License for the Cauvery Block from the Government of India and is planning to commence seismic work in August 2006. Forecast capital expenditures are for the 3D seismic program and future wells, which are expected to commence drilling in early 2007.

Planned capital expenditures for the D4 Block include 1,800 square kilometres of 3D seismic.

Expenditures in the quarter for the D6 Block were for production facilities. Activity in the D6 block is expected to increase in the coming quarters with the arrival of one drilling rig in July 2006, a second in August 2006 and a third in November 2006.

Oil processing and storage facilities at Hazira were completed in the quarter at a cost of $0.5 million. The remaining forecast expenditures are related to the two or three oil wells planned to be drilled from the land-based drilling platform.

Capital expenditures for the NEC-25 Block in the quarter were for seismic activities and general and administrative costs. Activity is expected to increase in the NEC-25 Block with the arrival of a jack-up drilling rig that will begin drilling the eight well program.

Bangladesh

Capital expenditures in the quarter for Block 9 were $6.2 million related to the tie-in of Bangora-1; the drilling of Bangora-2; seismic; engineering and general and administrative charges. Drilling of Bangora-3 commenced in July 2006 with further wells to follow.

Drilling of the planned wells at Feni, Feni-6 and Feni-7, and wells in Chattak has been postponed pending further developments in the various disputes between the Company and the Government of Bangladesh. During the quarter, $4.0 million was received from a care, custody and control insurance policy for Chattak, and was a reduction to capital. There were capital additions for allocable common branch costs of $0.6 million and capital spending of $1.2 million related to the data acquisition well. The result is a net capital reduction of $2.2 million.

Thailand

Thailand costs in the quarter ended June 30, 2006 totalled $2.7 million, including $0.1 million for the reprocessing of data on the Fang property and $2.6 million paid to the operator for costs of acquiring the rights as specified in the agreements. Forecast expenditures for Fiscal 2007 include the 3D seismic, recompletions of existing wells in the Mae Soon oil field in the second quarter of Fiscal 2007 and drilling of several exploratory drilling prospects as defined by the 3D seismic program commencing late in the third quarter of Fiscal 2007.

Production

The following table displays the actual production for the first quarter of Fiscal 2007 and the forecast production for Fiscal 2007. The Company revises the forecast on a quarterly basis and any changes are incorporated in the table below.



Net Production
Three months Lower Upper
ended Estimate Estimate
(Daily average) June 30, 2006 Fiscal 2007 Fiscal 2007
------------------------------------------------------------------------
Natural Gas (MMcf/d)
India
Hazira 38 30 35
Surat 11 10 12
Bangladesh
Block 9 20 40 45
Feni 20 15 20
Oil (bbls/d) (1)
India
Hazira 276 275 400
------------------------------------------------------------------------
Total (MMcfe/d) 91 97 114
------------------------------------------------------------------------
(1) Less than 2 percent of total corporate volumes and revenues are from
Canadian oil, Bangladesh condensate, Bhandut oil, Sabarmati oil and
Hazira condensate production. Therefore, the results from Canadian
oil, Bangladesh condensate, Bhandut oil, Sabarmati oil and Hazira
condensate production are not discussed separately.


The Company had average natural gas production from Hazira of 38 million cubic feet per day (net). The Company expects decreases in production due to natural declines to continue at Hazira, resulting in forecast average natural gas production for the Fiscal 2007 of 30 to 35 million cubic feet per day (net). Oil production from Hazira in the quarter was 276 barrels per day (net) and the Company expects oil production to increase through pressure maintenance from water injection.

Consistent with production in the first quarter of Fiscal 2007, production at Surat is forecast to remain stable at 10 to 12 million cubic feet per day for Fiscal 2007.

Production from Block 9 in the first quarter of Fiscal 2007 was from one well, Bangora-1, for the period May 9 through June 30, 2006. Drilling of Bangora-2 was recently completed and drilling of Bangora-3 commenced in July 2006. As a result of the current producing well and additional wells to be drilled, the Company has forecast an average production for Fiscal 2007 from Block 9 of 40 to 45 million cubic feet per day (net).

The Company expects the natural declines in Feni production to continue until the compression equipment can be placed into service and has forecast average production from Feni for Fiscal 2007 between 15 and 20 million cubic feet per day. Placing compression equipment into service has been postponed pending further developments in the various disputes between the Company and the Government of Bangladesh.

Operating Expense Outlook

During the quarter operating costs averaged $0.40 per Mcfe, and are anticipated to average $0.35 to $0.40 per Mcfe in Fiscal 2007. The forecast operating costs have increased based on current costs and production.

OVERALL PERFORMANCE

Funds from operations

Daily production increased by seven percent to 91 million cubic feet equivalent per day as volumes from Block 9 and oil from Hazira more than offset natural field declines at Hazira and Feni. Block 9 began producing in May 2006 at a rate of 50 million cubic feet per day (33 million cubic feet per day net). At Hazira, three oil wells were producing in the quarter at a rate of 828 barrels of oil per day (276 barrels of oil per day net) that were not producing in the same period in the prior year.

Even though volumes increased seven percent, revenues net of royalties decreased by $1.2 million compared to the same period in the prior year as the Company realized a lower average price in the quarter. The lower reported realized price is due primarily to Feni natural gas being accrued at US$1.75 per Mcf in the quarter ended June 30, 2006 compared to US$2.20 per Mcf in the same period in the prior year and the prevailing market price in Bangladesh, which is applicable to Block 9 production, being lower than the Company's realized price in India. In addition, the Company receives its revenues in U.S. dollars, and the strengthening Canadian dollar over the past year also reduced reported revenue.

Profit petroleum expense increased by $1.3 million in the quarter ended June 30, 2006 compared to the same period in the prior year. Profit petroleum expense increased as a percentage of revenue largely due to the addition of Block 9 volumes where the Government of Bangladesh was entitled to a 39 percent share of the profit petroleum during the quarter. The Government of India was entitled to 20 percent of the profit petroleum for the Hazira field. The Government of Bangladesh was entitled to 20 percent of revenues for the months April and May and 25 percent of revenues for the month of June 2006. No profit petroleum expense was incurred with respect to the Surat field in India.

Production expenses were $1.1 million higher in the quarter ended June 30, 2006 than in the same period in the prior year due primarily to the commencement of production from Block 9. In addition, there was a foreign exchange loss of $1.8 million in the quarter compared to a $0.5 million gain in the same period in the prior year.

Net (loss) income

The reported loss for the quarter is $11.6 million compared to net income of $4.3 million in the same period in the prior year, a change of $15.9 million. A reduction in funds from operations, as discussed in this MD&A, accounts for $5.9 million of this change.

The increase in the Company's stock based compensation expense accounts for a further $2.4 million of the change and is due to additional options issued in January 2006 as well as a change in the vesting structure resulting in increased expense at the beginning of the vesting period.

Depletion, depreciation and accretion expense increased by $7.2 million to $22.9 million. The increase is due to a seven percent increase in production and a 37 percent increase in the depletion rate per Mcfe. The primary reason for the rate increase is the previously announced downward revision to reserves at the Hazira field, which was reported in the Company's Fiscal 2006 results. In Bangladesh, depletion expense in the quarter ended June 30, 2006 benefited because the Company increased its internal estimate of proved reserves for Block 9 by 54 Bcf after analyzing the data from drilling the Bangora-2 well and the production data from Bangora-1 well. The increase to the Company's internal estimate of the proved reserves for Block 9 has not been reviewed by an independent reserves evaluator and is based on the Company's assumptions about Block 9, which assumptions the Company believes to be reasonable at the time the assumptions were made, which may not be consistent with actual results.

Certain statements in this press release are forward-looking statements. Specifically, this press release contains forward-looking statements relating to management's approach to operations, estimates of future sales, production and deliveries, business plans for drilling and development, estimated amounts and timing of capital expenditures, anticipated operating costs, royalty rates, cash flows, transportation plans and capacity, anticipated access to infrastructure or other expectations, beliefs, plans, goals, objectives, assumptions and statements about future events or performance. The reader is cautioned that the assumptions used in the preparation of such information, although considered reasonable by Niko at the time of preparation, may prove to be incorrect. Actual results achieved during the forecast period will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors. Such factors include, but are not limited to: general economic, market and business conditions; industry capacity; competitive action by other companies; fluctuations in oil and gas prices; the results of exploration and development drilling and related activities; the uncertainty of estimates and projections relating to productions, costs and expenses; uncertainties as to the availability and cost of financing; fluctuations in currency exchange rates; the imprecision in reserve estimates; risks associated with oil and gas operations, such as operational risks in exploring for, developing and producing crude oil and natural gas; risks and uncertainties involving geology of oil and gas deposits; the weather in the Company's area of operations; the ability of suppliers to meet commitments; changes in environmental and other regulations; actions by governmental authorities including changes in laws and increases in taxes; decisions or approvals of administrative tribunals; risks in conducting foreign operations (for example, political and fiscal instability or the possibility of civil unrest or military action in countries such as India and Bangladesh); the effect of acts of, or actions against international terrorism; and other factors, many of which are beyond the control of Niko. There is no representation by Niko that the actual results achieved during the forecast period will be the same in whole or in part as those forecast.

The Toronto Stock Exchange has not reviewed and does not accept responsibility for the adequacy and accuracy of this release.

Contact Information

  • Niko Resources Ltd.
    Edward Sampson
    Chairman of the Board, President & Chief Executive Officer
    (403) 262-1020