(NKO : TSX : $10.05)
Niko was under pressure after announcing a sub-commercial discovery off Indonesia.
The company said it encountered 23 feet of net pay of liquid hydrocarbons at its Ajek-1 location offshore Indonesia. The
primary pre-drill risk at this location was assessed as reservoir, which was proven with Ajek-1. Although the discovery was a
geological success, net pay was deemed too thin for commerciality.
Canaccord thinks the result will allow the company to reprocess seismic on the Kofiau block to better identify hydrocarbon bearing reservoirs. Reprocessing will take some time but will likely lead to a second location (optimistically later in the year), particularly if the remaining Calon-1, Dugong-1 or Gajah-1 prospects can be refined. Overall, this is exploration work; to prove a working geological system is a big step for Niko, and Brown would expect the next location to target thicker sand packages (and/or a serendipitous carbonate play).
Niko holds a 57.5% working interest on the block, while Hess holds the remainder. He expects Niko was carried on the location, which was drilled ahead of schedule. Ajek-1 was the first well drilled using Niko’s SeaSeep technology. Going forward, the Ocean Monarch drilling rig is mobilizing to the Niko-operated West Papua IV block where it will spud the Cikar-1 well in mid-January, with a projected drilling time of 60-70 days. Cikar-1 is targeting a large Miocene carbonate prospect.
Niko also announced on Thursday that the G2 well on the D19 discovery at D6 was successfully drilled. The D19 discovery is one of four satellite discoveries approved for development by the Government of India. The MJ-1 exploration well in the D6 block is currently expected to spud within the next few months. MJ-1 will target the Mesozoic synrift clastic reservoir, similar to the currently producing MA oil and gas field. Lastly, on a positive note, recent news out of India continues to support a revised gas price in 2014 that should be at least US$8/MMBtu, up from the current US$4.20/MMBtu price Reliance and Niko receive for D6 gas production.