Wednesday, June 29, 2011
Niko Resources Ltd.
Niko reported its financial and operating results, including consolidated financial statements and notes thereto, as well as its managements' discussion and analysis, for the year ended March 31, 2011. The operating results are effective June 28, 2011. All amounts are in U.S. dollars unless otherwise indicated.
FINANCIAL HIGHLIGHTS
- There was a year-over-year increase of 32 percent in funds from operations.
- In October 2010, Niko repaid all of its outstanding long-term debt.
- At March 31, 2011, the Company's unrestricted cash totaled $108 million.
- In January 2009, the Company announced that the Canadian authorities were engaged in a formal investigation into allegations of improper payments in Bangladesh. The Company cooperated in the investigation, which was concluded on June 24, 2011. The Company pleaded guilty to one count of bribery under the Corruption of Foreign Public Officials Act, was fined Cdn$9.5 million and is subject to a 3-year Probation Order. In early 2009, the Company adopted a full anti-corruption compliance program.
EXPLORATION HIGHLIGHTS
- Indonesia: Four new offshore exploration blocks were added and the Company farmed out 45 percent of its working interest in the Seram and East Bula blocks and 40 percent of its working interest in the North Makassar Strait, West Papua IV and Halmahera-Kofiau blocks. Seismic acquisition activity continued during the year and the planning of drilling has commenced.
- Trinidad: The Company increased its exploration acreage in Trinidad with three new offshore blocks, all of which are in proximity to producing gas fields, and entered into an agreement, which closed subsequent to year-end, to acquire a 25 percent working interest in Block 5(c), located 94 kilometres off the east coast of Trinidad.
- Madagascar: Seismic acquisition has been completed and processing is underway.
- Kurdistan: Drilling was completed to a depth of 3,908 meters in May and testing is underway and expected to continue into July 2011.
PRESIDENT'S REPORT
The Company's strategy of accumulating a highly prospective exploration portfolio continued.
In Indonesia, four new blocks were added and farm-outs occurred in five blocks. Farm-outs are a part of the Company's exploration strategy. Partners in Indonesia now include Exxon/Mobil, Marathon, Repsol and Statoil.
In Trinidad & Tobago, four new blocks were added. Partners in this country include Centrica and RWE.
From a drilling perspective, in Trinidad and Tobago, the Company has contracted an offshore rig that is expected to spud the Company's first offshore well in the country in October. In Indonesia, Niko has established an extremely strong drilling organization staffed with seasoned professionals that bring extensive deep-water drilling experience.
During the past year, uncertainty regarding D6 production, reserves and gas price has been a concern. This uncertainty has been largely removed by an independent reserve report that shows that the revision to the Company's worldwide net proved plus probable reserves was approximately 6.8 percent. Operationally, the D6 field's gross gas production averaged approximately 2 billion cubic feet per day over the year with no downtime.
Due to a pre-emptive right, Niko expects to have the opportunity to increase its net interest by 30 percent in each or all of the D6, NEC-25 and D4 blocks in India. Niko expects this opportunity would be financed with debt.
Niko has a strong production base and an extensive portfolio of exploration prospects. Two thousand and twelve could prove to be Niko's most exciting year ever.
Production from the D6 Block has increased year-over-year and is the primary reason for total production increases of 25 percent compared to production in the prior year. The D6 Block is also the primary reason for improved operating netbacks as the D6 Block has higher realized prices and lower profit petroleum than the average of the Company's other properties.
Gas sales volumes from the D6 Block for the year averaged approximately 198 MMcf/d versus a budget of 210 MMcf/d due to well performance. Current gas sales volumes from the block are approximately 167 MMcf/d. Production from the D6 Block is expected to decline until additional wells are drilled and tied-in.
The Company is forecasting total production of 236 MMcfe/d for Fiscal 2012, which assumes that no additional wells will be tied in at D6 during the year and is consistent with the estimated production from total proved reserves in the Company's reserve report.
Operating cashflow increased in Fiscal 2011 primarily as a result of increased oil and gas sales from the D6 Block. Forecast operating cashflow for the coming year is expected to decrease with the decrease in production described above. In addition, maintenance of the onshore terminal and subsea systems for the D6 Block are expected to result in a decreased operating netback.
Exploration expenditures for Fiscal 2011 were for drilling activities on three exploration wells in the D6 Block, seismic acquisition in Indonesia and Madagascar, drilling of the first exploration well in Kurdistan and seismic on Block 2AB in Trinidad and carrying costs of the Trinidad blocks. Forecast expenditures for Fiscal 2012 include drilling on the D6 and D4 Blocks in India; seismic activity and preparation for drilling activities in Indonesia; completion of drilling the well in Kurdistan, and seismic activity in Trinidad on all blocks and commencement of drilling on Block 2AB.
Development expenditures forecast for Fiscal 2012 are primarily for workovers, drilling new wells and acquisition of compression equipment for the D6 block.
In addition to exploration and development expenditures, the Company's acquisition of Block 5(c), located 94 kilometres off the east coast of Trinidad closed in June 2011 for a purchase price of $78.1 million.
Funds from operations improvements resulted from improved volumes and operating netbacks partially offset by higher current income taxes, higher interest expense related to the Company's convertible debentures, a Cdn$9.5 million (US$9.7 million) fine described previously herein and lower other income as the prior year periods benefited from a favorable arbitration ruling related to a pipeline dispute.
Net income increased year-over-year as a result of the increase in funds from operations. The benefit from improved funds from operations was offset by higher non-cash charges related primarily to depletion and a loss on short-term investments.
Exploration Acreage
Niko has increased its exploration acreage with the addition of three blocks in Trinidad and four blocks in Indonesia. In addition, Niko farmed out 45 percent of its working interest in two blocks in Indonesia to Repsol and 40 percent of its working interest in three blocks in Indonesia to Statoil.
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