October 19, 2012 / 5:53 PM / in 5 years

UPDATE 2-Niko cuts FY production, capex outlook; shares fall

* Cuts full-year production forecast by about 4 pct

* Lowers full-year capex to $170 mln from $210 mln

* Fall in full-year output to reduce oil and gas revenue by about $2 mln

* Shares fall as much as 15 percent

By Shounak Dasgupta

Oct 19 (Reuters) - Canadian oil and gas producer Niko Resources Ltd cut its production forecast for the full year by about 4 percent due to mechanical issues at one of its blocks in Bangladesh.

Shares of the company fell 15 percent to C$11.73 on the Toronto Stock Exchange in morning trade. The stock was one of the top percentage losers on the exchange.

Niko abandoned a deep-water exploration well off the coast of Indonesia last month after it came up dry, and it is also facing declining gas output at one of its blocks in India.

The company forecast production to be 168 million cubic feet equivalent per day (MMcfe/d) for the full-year ending March 31, 2013, lower than 175 MMcfe/d it forecast earlier.

The fall in production, due to mechanical issues at its Block 9 in Bangladesh, will reduce full-year oil and gas revenue by about $2 million, the company said.

Niko holds 60 percent interest in the 6,880-sq-km onshore block that includes Bangladesh’s capital Dhaka. Production from the field began in May 2006 and accounted for 21 percent of the company’s oil and gas revenue in the first quarter.

The company -- which also operates in the Kurdistan region of Iraq, Trinidad, Pakistan and Madagascar -- cut its capital expenditure for the full year to $170 million from $210 million it had earlier announced.

DEBT PREPAYMENT

Niko said it intends to prepay a part of its convertible debentures maturing in December. The company will bring down the amount to C$220 million from C$310 million using cash on hand and advances under its credit facility.

“Probably the reason for the weaker share price relates to the market being concerned about a definitive plan to restructure the debt that is maturing in December,” Haywood Securities analyst Alan Knowles said.

LOWER SALES VOLUME

Niko now expects second-quarter average sales volume of 173 MMcfe/d, down 9 percent from 189 MMcfe/d in the first quarter.

The company attributed the lower average sales volumes to anticipated natural declines in its D6 block in the Krishna Godavari (KG) basin off India’s east coast.

The D6 Block accounted for 72 percent of the company’s oil and gas revenue in the first quarter.

Output at the D1 and D3 fields in the KG D6 block has dropped to 26 million metric standard cubic metres per day (mmscmd) from 60 mmscmd in 2010.

Production at the block is projected to fall further to 20 mmscmd in 2014-15. The block has never managed to reach the forecast peak flow of 80 mmscmd.

Niko owns 10 percent of the block, while India’s Reliance Industries Ltd holds 60 percent and BP the rest.

Reliance and BP are the operators of the block.

“(Niko) had in their budget plans to spend money on D1 and D3 that would have been development capital. Reliance and BP have submitted plans for development but the definitive timeline hasn’t been fixed yet,” Knowles said.

“It’s more a deferral of those development activities.”

Shares of Calgary-based Niko, which has a market value of C$724.5 million, were down 13 percent at C$12.18 in afternoon trade. They have fallen about 72 percent since the beginning of the year to Thursday close.

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