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Niko (NR) results provide limited information on gas production prospects for KG-D6. More
importantly, Niko's release indicates that the drilling for the highly prospective D4 block has been
pushed back indefinitely (earlier guidance later this year).
Niko Resources released its 3QFY11 results yesterday. Niko is the partner in three important
blocks with Reliance Industries (RIL) - KG-D6 (RIL 90%, Niko 10%), NEC-25 (RIL 90%, Niko
10%), D4 (RIL 85%, Niko 85%). Niko has always provided additional commentary on
operations in this block which has been used by the market to evaluate the prospects for the
block. However, 3QFY11 press release does not shed much light.
For KG-D6, the press release states that "gas volumes are currently approximately
177mmcf/day (51mmscmd) versus a budget of 210mmcf/day (60mmscmd) due to well
performance. The timing of drilling and tie-in of additional wells will be determined in the next
few months when the operator finalises their budget for the upcoming fiscal year". Even at
RIL's analyst meet post its 3QFY11 results, the company had not provided any update of
guidance on KG-D6 production profile and this has been a major overhang on the stock - see
our note, A Mixed Bag, dated 24 January 2011.
On NEC-25, Niko has maintained its earlier stance that the company has fulfilled its capital
commitments for the block and is drilling additional well. Once commerciality is concluded, the
company expects to submit a development plan to the government. The earlier press release
talked of submission on completion of drilling. The focus on commerciality highlights what we
believe is the critical issue holding back the development plans - the gas price. Development
costs for all new discoveries are likely to be higher than for D1/D3 discoveries (which are
currently producing in KG-D6) and hence the current gas price of US$4.2/mmbtu needs to be
revised up. RIL is probably not keen to commence any development process unless there is
clarity on the gas pricing.
The biggest disappointing news is likely to be on D4 block, which is expected to be highly
prospective. The operators have until the end of 2012 to complete the three wells drilling
commitment. Niko's 2QFY11 press release had indicated that drilling would commence later
this year. Now, the drilling schedule is stated as " to be determined", indicating that no
positive news on drilling is likely anytime soon.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Niko (NR) results provide limited information on gas production prospects for KG-D6. More
importantly, Niko's release indicates that the drilling for the highly prospective D4 block has been
pushed back indefinitely (earlier guidance later this year).
Niko Resources released its 3QFY11 results yesterday. Niko is the partner in three important
blocks with Reliance Industries (RIL) - KG-D6 (RIL 90%, Niko 10%), NEC-25 (RIL 90%, Niko
10%), D4 (RIL 85%, Niko 85%). Niko has always provided additional commentary on
operations in this block which has been used by the market to evaluate the prospects for the
block. However, 3QFY11 press release does not shed much light.
For KG-D6, the press release states that "gas volumes are currently approximately
177mmcf/day (51mmscmd) versus a budget of 210mmcf/day (60mmscmd) due to well
performance. The timing of drilling and tie-in of additional wells will be determined in the next
few months when the operator finalises their budget for the upcoming fiscal year". Even at
RIL's analyst meet post its 3QFY11 results, the company had not provided any update of
guidance on KG-D6 production profile and this has been a major overhang on the stock - see
our note, A Mixed Bag, dated 24 January 2011.
On NEC-25, Niko has maintained its earlier stance that the company has fulfilled its capital
commitments for the block and is drilling additional well. Once commerciality is concluded, the
company expects to submit a development plan to the government. The earlier press release
talked of submission on completion of drilling. The focus on commerciality highlights what we
believe is the critical issue holding back the development plans - the gas price. Development
costs for all new discoveries are likely to be higher than for D1/D3 discoveries (which are
currently producing in KG-D6) and hence the current gas price of US$4.2/mmbtu needs to be
revised up. RIL is probably not keen to commence any development process unless there is
clarity on the gas pricing.
The biggest disappointing news is likely to be on D4 block, which is expected to be highly
prospective. The operators have until the end of 2012 to complete the three wells drilling
commitment. Niko's 2QFY11 press release had indicated that drilling would commence later
this year. Now, the drilling schedule is stated as " to be determined", indicating that no
positive news on drilling is likely anytime soon.
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