June 29, 2011 / 11:36 AM / in 6 years

UPDATE 3-Niko sees lower 2012 output on India woes

* . Q4 EPS $0.01 vs $0.76 yr-ago

* . Q4 oil and gas sales down

* . Says unable to supply a customer

* . Sees lower 2012 output from flagship India property

* . Shares down 3 percent (Adds analyst comments, background on D6 field, Reliance’s role in D6)

By Maneesha Tiwari

June 29 (Reuters) - Canada’s Niko Resources Ltd warned of lower oil and gas production in fiscal 2012 unless more wells are drilled in its flagship D6 block in India, sending its shares down 3 percent.

The D6 block, which is 90 percent owned by India’s Reliance Industries , lies off the east coast of India and contributed 79 percent of Niko’s total production in 2011.

Output at the D6 block -- Reliance’s biggest gas producer -- has slipped due to technical problems and in February, the Indian company sold some stake in the area to BP , but the deal is still waiting for government approvals.

Christopher Brown of BMO Capital Markets believes that till the Indian government approves the deal and BP becomes an operating partner, no major activity will happen at the block.

“We think they are at the mercy of Reliance’s ongoing approval of incorporating BP as a working interest partner in the D6 block,” he said.

“I would suspect that we are at least 6-8 months away before some definitive changes begin to happen at D6, so the block has become a deferred project for the time being.”

Calgary, Alberta-based Niko, which operates mainly in India, now expects total 2012 production in 2012 of 236 million cubic feet equivalent a day (mmcfe/d). Production in 2011 rose 25 percent to 295 mmcfe/d.

Current gas sales volumes at D6 are about 167 mmcf/d, compared with 198 mmcf/d in 2011, and well below the budget of 210 mmcf/d, Niko said.

The production warning comes days after the company was fined C$9.5 million ($9.7 million) and given three years probation after pleading guilty to charges that it bribed a Bangladeshi official.

Niko’s shares fell as much as 3 percent to a year-low of C$59.72 on the Toronto Stock Exchange. They have fallen 5 percent since June 24 when news of the bribery broke.

LOW PRODUCTION WOES

The problems at the D6 block also affect Niko’s ability to supply a customer at its 33 percent-owned Hazira block in west India, which could lead it to declare a force majeure.

“We had contracts to supply gas but our production levels aren’t quite high enough to fulfill that commitment,” Chief Financial Officer Murray Hesje told Reuters.

One option was to route gas from the D6 block, but as production began to fall at the block, the Indian government specified that the power and fertilizer segments would get first priority for supplies, Hesje said.

The company was in talks with the customer and with Gujarat State Petroleum Corporation (GSPC), its joint venture partner at the Hazira block, but no resolution was reached.

GSPC had stepped in to supply gas to the customer, which Hesje refused to name, for a period ending December 31, 2007, for which Niko owes it $11 million.

Niko’s oil and natural gas revenue in the fourth quarter fell 4 percent to $106.2 million hurt by lower production at all its Indian properties.

Profit slumped to $0.6 million, or 1 cent per share, from $38.7 million, or 76 cents per share a year ago.

However Niko plans to increase its net interest by 30 percent in each or all of the D6, NEC-25 and D4 blocks in India. (Additional reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Don Sebastian, Prem Udayabhanu and Savio D‘Souza)

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