Niko Resources Ltd.
TSX : NKO

Niko Resources Ltd.

August 10, 2007 09:00 ET

Niko Resources Announces First Quarter Financial Results

CALGARY, ALBERTA--(Marketwire - Aug. 10, 2007) - Niko Resources Ltd. (TSX:NKO) reports results for the three months ended June 30, 2007.

Q1 three months interim report for the period ended June 30, 2007

President's Report to Shareholders

Niko Resources Ltd. reports results for the three months ended June 30, 2007.

OPERATIONAL AND FINANCIAL HIGHLIGHTS

- Niko raises over $500 million in an equity offering

- The successful D6-R1 exploration well is the deepest location drilled so far in the Block. The well opens up new areas in deeper stratigraphic levels, demonstrating further upside on the Block.

- D6 development remains on schedule for start-up in less than one year

- Cauvery exploration drilling commences

- The Company submits bids for four large offshore exploration blocks in Pakistan



OPERATING
Three months ended June 30,
2007 2006
Average daily production
Oil and condensate (bbls/day) 366 366
Natural gas (Mcf/day) 84,499 88,924
---------------------------------------------------------------------------
Total combined (Mcfe/day) 86,697 91,119
Revenues, royalties and operating costs
Gross revenue received ($/Mcfe) 3.54 3.57
Royalties ($/Mcfe) (0.19) (0.25)
Profit Petroleum ($/Mcfe) (1.19) (0.59)
Operating costs ($/Mcfe) (0.41) (0.40)
---------------------------------------------------------------------------
Operating netback ($/Mcfe) 1.75 2.33
Drilling activity
Gross wells 3 -
Net wells 0.7 -



FINANCIAL
Three months ended June 30,
2007 2006
($ thousands, except per share
amounts and number of shares)
Petroleum and natural gas sales 27,952 29,627
Funds from operations 13,342 14,699
Per share, diluted ($) 0.30 0.38
Net (loss) (6,168) (11,627)
Per share, diluted ($) (0.14) (0.30)
Capital expenditures 62,798 9,297
Total assets (end of period) 670,971 471,025
Shareholders' equity (end of period) 633,584 405,197
Weighted average common shares outstanding 43,157 38,537
Common shares outstanding (end of period)
Basic (thousands) 43,271 38,569
Diluted (thousands) 46,820 42,097


The selected financial information is prepared in accordance with Canadian generally accepted accounting principles (GAAP), except for "funds from operations", "funds from operations per share - diluted" and "operating netback", 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 from operating activities prior to the change in operating non-cash working capital and the change in long-term accounts receivable. 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 of similar measures 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. Operating netback is calculated as the average sales price per thousand cubic feet equivalent (Mcfe), less royalties, profit petroleum and operating expenses per Mcfe, and represents the before-tax cash margin directly related to production for every Mcfe sold.

OPERATIONS UPDATE

India

D6 Block - In the D6 Block, exploration continued with the R1 well, which was successfully drilled during the quarter. R1 is located 22 kilometres southwest of the P2 discovery in 2,010 metres of water, which is the deepest water depth drilled to date in the D6 Block. The R1 well reached a total measured depth of 4,857 metres and encountered two significant gas-bearing zones in the Miocene stratigraphic interval. The success in these zones opens up new areas in the deeper stratigraphic levels for the D6 block. Data obtained from logging and modular dynamic testing (MDT) confirmed the presence of hydrocarbons in the reservoir intervals. All well information has been submitted to the Directorate-General of Hydrocarbons (DGH) and other concerned authorities as a new discovery.

In the ongoing Dhirubhai field development program, KG-D6-A5 was successfully drilled. Extensive coring was carried out on A-5 to provide further reservoir information to aid in the optimal development of the Dhirubhai gas field. The A-5 well will be completed for production later in 2007. Another development well, KG-D6-A6, has finished drilling. The A-6 well was also cored extensively and will also be completed for production later in 2007. Four additional development wells, B4, B6, B-11 and A-13 spudded and are currently drilling. This brings the total number of development wells drilled to date and currently drilling to 13 wells of a total of 18 wells targeted prior to the commencement of production.

The development plan for the Dhirubhai 1 and 3 gas fields has provisions for the natural gas production rate of 2.8 billion cubic feet per day (280 million cubic feet per day net to the Company) with corresponding Phase I initial field development costs estimated at US$5.2 billion (US$520 million net to the Company). The Company has spent US$76.9 million to June 30, 2007 of the expected US$520 million estimated for the project. Commencement of production is scheduled for mid-2008. The approved field development plan of Dhirubhai 1 and 3 provides flexibility in the critical portions of the facilities to facilitate gas production of up to 4.2 billion cubic feet per day.

Construction of the onshore terminal, laying the grid of gas pipelines and installation of the offshore facilities are all progressing to enable gas production from the Dhirubhai gas field in 2008. The operator's reports as of the end of July 2007 indicate that the offshore facilities are 50 percent complete and the onshore facilities are 35 percent complete.

There have been two oil wells drilled in the D6 Block. A high-intensity 3D acquisition program (Q seismic) was carried out to further increase the resolution of the seismic over the field. The field is on schedule to commence production in the second quarter of 2008, initially from two oil producers with initial targeted production of 30,000 to 35,000 barrels per day (3,000 to 3,500 barrels per day net to the Company). More oil producers and gas injector wells will be drilled to complete the oil development plan.

There are currently two drillings rigs active on the D6 block. The C. Kirk Rhein, Jr. rig has finished drilling the A6 development well and is currently drilling the B6 development well. This rig is expected to move to another block in the last calendar quarter of 2007. The Deepwater Frontier rig has returned to D6 and is currently drilling the B4, B11 and A13 development wells. The D-534 drillship is expected to commence drilling on the D6 Block in the fourth calendar quarter of 2007 and the Deepwater Expedition in the third calendar quarter of 2008.

NEC-25 Block - The C Kirk Rhein, Jr. rig is expected to return to the NEC-25 block in the fourth calendar quarter of 2007 for drilling of the third and fourth wells of the planned drilling program. In addition, the Deepwater Driller-4 will commence drilling on the NEC-25 in the fourth calendar quarter of 2007. Development plans for the six gas discoveries that have been declared commercial by the Indian regulatory authorities have been prepared, approved by the Operating Committee and submitted to the Government of India.

Cauvery - In the Cauvery Block, the 3D seismic acquisition program resumed in April 2007 with the receding of monsoon flood waters allowing access for the seismic crew. The 183 square kilometres of 3D seismic planned has been completed, bringing the seismic coverage on the block to a total of 550 square kilometres. A further 250 square kilometres will be acquired, which would provide 3D coverage over most of the block's accessible areas. Based on the evaluation of the seismic acquired last year, three drilling locations have been selected. These drilling sites are in various stages of preparation and are to be ready for the commencement of drilling. The first well of this three-well program spudded in June 2007 and is currently drilling with the remaining two wells to follow.

D4 Block - In the deepwater block MN-DWN-2003/1 (D4), located in the Mahanadi Basin, a 2,365-kilometre 2D seismic acquisition program was completed and the data has been processed. Evaluation of the data set is ongoing and a further 2,800-kilometre 2D seismic program is scheduled for later in 2007, along with a 3,600-square-kilometre 3D seismic program. A drilling date for the first well is yet to be set.

Bangladesh

Block 9 - Two wells in Block 9, Bangora-1 and Bangora-5, are currently producing at a rate of over 70 MMcf/d. Production is currently facility-constrained at this rate and facilities upgrades are expected to commence in the current year. Further drilling prospects have been identified south of Bangora on the anticline between the wells drilled to date and the Lalmai-3 gas discovery. Drilling is planned to commence on these prospects when a drilling rig is available.

Feni and Chattak - A plant turnaround was completed in May and production from the Feni field is currently 5-6 MMcf/d. Future drilling activities at Feni and Chattak remain postponed pending resolution of overdue payment for gas owed to the Company by the Government of Bangladesh.

Thailand - A well was drilled in the Mae Soon oilfield during the quarter, FA-MS-50-01, to a total depth of 1,545-metres and encountered four oil-bearing intervals. Three of the intervals tested at an aggregate 550 barrels of oil per day. The well is expected to commence production in August 2007. The successful results of FA-MS-50-01 are being integrated into the existing seismic database and options for further evaluation of the field are being formulated. It is expected that at least a further eight wells will be re-entered or re-drilled.

New Ventures - Niko has submitted bids for four large offshore exploration blocks in the Indus Basin of southern Pakistan. The total area of these blocks is 9,920 square kilometres with the majority of the acreage within the 200-metre shallow water depth. The successful bidder has not yet been determined.

FORECAST

PRODUCTION

The following table displays working interest production in the first quarter of fiscal 2008 and forecast production for fiscal 2008. The Company revises the forecast on a quarterly basis and any changes are incorporated in the table below:



Three Months Lower Upper
NET PRODUCTION Ended Estimate Estimate
(daily average) June 30, 2007 Fiscal 2008 Fiscal 2008
Natural Gas (MMcf/d)
India
Hazira 24 20 25
Surat 10 8 10
Bangladesh
Block 9 45 45 50
Feni 5 3 5
Oil (bbls/d)
India
Hazira 271 195 205
Other (1) 95 - -
---------------------------------------------------------------------------
Total (MMcfe/d) 87 77 91
---------------------------------------------------------------------------
(1) Less than 2.5 percent of total corporate volumes and revenues are from
Canadian oil, Bangladeshi condensate and Hazira condensate production.
Therefore, the results from Canadian oil, Bangladeshi condensate and
Hazira condensate production are included in "Other", are not
discussed separately and a forecast is not prepared for the items
included in 'Other'.


OPERATING

For the quarter ended June 30, 2007, operating expenses averaged $0.41/Mcfe and are anticipated to average $0.40 to $0.42/Mcfe in fiscal 2008.

CAPITAL EXPENDITURES

The following table displays capital spending during the current quarter and forecast capital spending for fiscal 2008:





Exploration and Development Spending (net to the Company)
Three Months Ended Estimated
(millions of dollars) June 30, 2007 Fiscal 2008
India
Cauvery 7.0 18-22
D4 - 5-7
D6 46.2 315-325
Hazira 0.4 3-5
NEC-25 2.8 6-8
Surat - 3-5
Bangladesh
Block 9 2.7 4-6
Chattak 0.6 1
Feni 0.1 0.1
---------------------------------------------------------------------------
Thailand 3.0 5-7
---------------------------------------------------------------------------
Total 62.8 360-386
---------------------------------------------------------------------------


India

Cauvery - The Company was awarded 100 percent interest in the Cauvery Block, which is located in southern Tamil Nadu, in the NELP-V bidding round in 2005. The block is in the exploration phase and has mainly oil potential.

Capital expenditures in the quarter were $7.0 million, related to seismic activities and commencement of drilling the first of three planned wells. The remaining capital expenditures related to the minimum work program under the Phase I Commitment for seismic and drilling five exploration wells are estimated at US$10.2 million, which must be spent within three years of the issuance of the Production Exploration Licence. Planned capital expenditures estimated for fiscal 2008 include seismic and drilling three exploration wells.

D4 - The Company was awarded a 15 percent interest in the D4 Block, located in the Mahanadi Basin offshore the east coast of India, as part of the NELP-V bidding round in 2005. The block, which is currently in the exploration phase, encompasses more than 17,000 square kilometres and contains similar play types to the natural gas discoveries made by Reliance and Niko in the D6 and NEC-25 blocks. A drilling date for the first well is yet to be set.

A 2,365-kilometre 2D seismic acquisition program was completed in the D4 Block and the data has been processed. Evaluation of the data set is ongoing and a further 2,800-kilometre 2D seismic program is scheduled for later in calendar 2007, along with a 3,600-square-kilometre 3D seismic program. A drilling date for the first well is yet to be set. The estimated cost of the Phase I commitment, which includes seismic and drilling three exploration wells, totals US$97.6 million (US$14.6 million net to the Company), which must be expended by September 2009.

D6 - The Company has a 10 percent working interest in the 7,645-square-kilometre D6 Block. The block was awarded to the Company and its partner in the Government of India's first international bid round in 1999. Development of the Dhirubhai 1 and 3 natural gas fields is ongoing in addition to continued exploration on this block.

In the ongoing Dhirubhai gas development program, the KG-D6-A5 well was successfully drilled. Extensive coring was carried out on A5 to provide further reservoir information to aid in the optimal development of the Dhirubhai gas field. The A5 well is planned to be completed for production later in 2007. Another development well, KG-D6-A6, has been drilled. The A6 well was also cored extensively and is also planned to be completed for production later in 2007. Four additional development wells, B4, B6, B11 and A13, spudded and are currently drilling. This brings the total number of development wells drilled to date and currently drilling to 13 wells of a total of 18 wells targeted prior to the commencement of production.

The development plan for the Dhirubhai 1 and 3 gas fields has provisions for a natural gas production rate of 2.8 billion cubic feet per day (280 million cubic feet per day net to the Company) with corresponding Phase I initial field development costs estimated at US$5.2 billion (US$520 million net to the Company). The Company has spent US$76.9 million to June 30, 2007 of the expected US$520 million estimated for the project. Commencement of production is scheduled for mid-2008. The approved field development plan of Dhirubhai 1 and 3 provides flexibility in the critical portions of the facilities to facilitate gas production of up to 4.2 billion cubic feet per day gross.

Construction of the onshore terminal, laying the grid of gas pipelines and installation of the offshore facilities are all progressing to enable gas production from the Dhirubhai Gas field in 2008.

There have been two oil wells drilled in the D6 Block. A high-intensity 3D acquisition program (Q seismic) was carried out to further increase the resolution of the seismic over the field. The field is on schedule to commence production in the second quarter of calendar 2008, initially from two oil producers with initial targeted production of 30,000 to 35,000 barrels per day (3,000 to 3,500 barrels per day net to the Company). More oil producers and gas injector wells are planned to be drilled to complete the oil development plan.

Capital expenditures in the current quarter were $46.2 million (net) for drilling of an exploration well, R1, a development well, A5, the commencement of drilling a second development well, A6, and production facilities. Forecast activity for fiscal 2008 includes the continuation of the gas development for the Dhirubhai 1 and 3 natural gas fields, development of the oil field and additional exploration drilling.

Hazira - The Company has a 33 percent working interest in the 50-square-kilometre Hazira onshore and offshore block on the west coast of India, which lies adjacent to a large industrial corridor about 25 kilometres southwest of the city of Surat. Gas production began from this field in 1996 and oil production commenced in March 2006.

Capital expenditures in the year were $0.4 million (net), primarily related to workover costs for natural gas wells. Capital expenditures forecast for fiscal 2008 are primarily for recompletions of existing wells.

Surat - The Company was awarded 100 percent interest in the Surat Block in July 2001 and after completion of the exploratory phase retained a development area of 24 square kilometres containing the Bheema and NSA shallow natural gas fields. These fields have been producing natural gas since April 2004.

Forecast activity for fiscal 2008 relates to drilling and tie-in of three planned wells.

NEC-25 - The Company has a 10 percent working interest in the NEC-25 Block, which covers 10,755 square kilometres in the Mahanadi Basin off the east coast of India awarded to the Company and its partner in the Government of India's first international bid round in 1999. The Company and its partner have capital commitments for Phase II exploration for seismic and two exploration wells as per the PSC and have drilled sufficient wells to meet the commitment.

During the current quarter, the Company spent $2.8 million (net to the Company) primarily on preparation for future drilling activities and the remaining costs of the A6 well. A rig is expected to return in fiscal 2008 to drill the third and fourth wells of the planned eight-well drilling program and a second rig is expected to arrive in fiscal 2008 to drill additional exploration wells. Development plans for the six discoveries that have been declared commercial by the Indian regulatory authorities are being prepared.

Bangladesh

Block 9 - In October 2003 the Company acquired a 60 percent interest in Block 9, a 6,880-square-kilometre onshore block which encompasses the capital city of Dhaka. This field began natural gas production in May 2006 and commerciality was declared in December 2006. The Company and its partner have capital commitments for Phase I exploration, which includes seismic and the drilling of three wells and, in certain circumstances, up to 10 wells. The Company and its partner have completed the seismic and have drilled six wells that apply towards the commitment.

Capital expenditures during the current year were $2.7 million (net to the Company) primarily for the rig demobilization after completion of the Bangora-5 well. Planned capital activity for the remainder of fiscal 2008 includes upgrading the facilities.

Feni - The Feni field covers 43 square kilometres and is located 6 kilometres west of the main natural gas line to Chittagong. The Company has been producing natural gas from the field since November 2004. Future drilling activities at Feni have been postponed pending resolution of overdue payments for gas owed to the Company by the Government of Bangladesh.

Chattak - The Chattak structure covers 376 square kilometres and rights to this block were obtained in October 2003. The upper fault block to the west previously produced from one well, while the down-thrown eastern fault block has not been drilled.

During the quarter, $0.6 million was spent on the block, primarily on insurance premiums related to the previous well blow-out. Future drilling activities at Chattak have been postponed pending further developments in the various disputes between the Company and the Government of Bangladesh.

Thailand

In fiscal 2006 Niko gained a presence in Thailand through the acquisition of a 50 percent equity stake in a production and exploration block in northern Thailand, which includes a development area, Mae Soon, and an exploration area, Fang.

The Company has estimated the remaining cost to complete the required drilling and workovers at US$2.8 million. The Company has performed initial recompletions on four existing wells, resulting in little or no fluid production, and has drilled three unsuccessful exploration wells. The rig was then moved and drilled a successful well in the development area. It is expected that a further eight wells will be re-entered or re-drilled by the end of the current fiscal year.

During the quarter, the Company spent $3.0 million for drilling of the successful well and general and administrative costs.

OVERALL PERFORMANCE

Funds from operations

The reported funds from operations for the quarter were $13.3 million compared to $14.7 million in the prior year's quarter. Daily production in the quarter decreased by 5 percent from the prior year's quarter to 87 million cubic feet equivalent (MMcfe) as the increase in volumes from Block 9 was more than offset by forecast natural declines at Hazira and Feni. The decrease in revenues net of royalties of $1.2 million or 4 percent was comparable to the decrease in production.

Profit petroleum expense for the quarter increased by $4.5 million from the prior year's quarter. This was mainly due to adverse resolution of a previously disclosed dispute regarding profit petroleum of US$3.7 million (Cdn$4.1 million). The Company calculates and remits profit petroleum expense to the Government of India in accordance with the PSC. The calculation considers revenues, which are the aggregate revenues of the Company and its joint venture partner. The Company's joint venture partner offers a price discount to the contracted prices, reducing the profit petroleum expense. The government has indicated that it does not accept the discounted prices in the calculation of profit petroleum and, as a result, the Company has accrued an additional US$3.7 million (Cdn$4.1 million) related to the profit petroleum expense of prior years. The remaining change in profit petroleum was largely due to the increase in proportion of Block 9 volumes where the Government of Bangladesh was entitled to a 61 percent share of the profit gas during the year or approximately 34 percent of the revenues, which is higher than the profit petroleum rates on other producing fields.

There was a positive effect on funds from operations from the period-over-period increase of $1.7 million in interest income related to larger cash balances in the quarter compared to the prior year's quarter. There was a realized foreign exchange gain in the current quarter of $0.6 million compared to a realized foreign exchange loss in the prior year's quarter, resulting in a positive effect on funds from operations. The realized foreign exchange gain was on the conversion of funds between currencies. Finally, the Company paid the remaining balance of its debt in October 2006 and, as a result, there was no interest paid in the quarter compared to $0.7 million paid in the prior year's quarter.

Net loss

The reported loss for the quarter is $6.2 million compared to a loss of $11.6 million in the prior year's quarter, an improvement of $5.4 million. A decrease in funds from operations, as discussed above, had the effect of increasing the loss quarter-over-quarter by $1.4 million. The items discussed below net to cause a $6.8 million improvement in non-cash charges.

The increase in the Company's stock-based compensation expense of $0.8 million is due to a higher number of stock options outstanding during the quarter and a higher average exercise price for the outstanding options, resulting in a higher expense per option and increasing the net loss for the quarter.

The unrealized foreign exchange loss increased by $4.1 million, also increasing the loss over the prior year's quarter. There was an unrealized foreign exchange loss incurred due to the strengthening of the Canadian dollar against the U.S. dollar, which was applied to working capital amounts, partially offset by an unrealized foreign exchange gain incurred due to the strengthening of the Indian Rupee against the U.S. dollar, which was applied to working capital amounts.

Depletion, depreciation and accretion expense for the quarter decreased by $11.7 million to $11.2 million. On a per Mcfe basis, this is a reduction of 51 percent. There was a 53 percent decrease in the rate per Mcfe in India as a result of an increase in the Hazira and Surat reserves at March 31, 2007 and a decrease in the remaining costs being depleted due to a translation adjustment in the fourth quarter of fiscal 2007. The 6 percent decrease in the Bangladesh depletion rate was due to an increase in the reserves for Block 9 subsequent to the prior year's quarter, partially offset by an increase in the cost base due to capital additions.

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.

Contact Information

  • Niko Resources Ltd.
    Edward S. Sampson
    Chairman of the Board, President and Chief Executive Officer
    (403) 262-1020
    or
    Niko Resources Ltd.
    Murray Hesje
    Vice President, Finance
    (403) 262-1020
    Website: www.nikoresources.com