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JAKARTA (rambuenergy.com) – Canadian oil and gas company Niko Resources is seeking to extend the exploration period for its production sharing contracts (PSCs) in Indonesia, which are mostly located in offshore. The move was made as the company carries on its restructuring process amid financial difficulties.
“For six production sharing contracts (PSCs) in Indonesia that have commitments due in November 2014, the Company has requested amendments to the PSCs to extend the initial exploration period to ten years, and related extensions to the commitment dates,” Niko Resources said.
As at Dec. 31, 2014, the company had US$108 million of accounts payable and accrued liabilities related to its exploration subsidiaries in Indonesia and Trinidad. It also has US$272 million of exploration work commitments associated with these subsidiaries, including commitments of the Trinidad subsidiaries that are backed by parent company guarantees.
The terms of the company’s term loan facilities limit the funding of capital expenditures and working capital requirements in these areas. Therefore, the company is evaluating its options for these subsidiaries as part of its strategy of maintaining optionality in its exploration portfolio.
Niko Resources has divested some of its assets due to financial difficulties. In October 2014, the company executed a definitive agreement with a subsidiary of Ophir Energy Plc relating to the sale of the company’s interests in seven Indonesian PSCs for cash consideration of US$31 million, with further payments of up to US$56 million contingent on future exploration success.
“Closings of the transactions for each of the seven PSCs are subject to closing adjustments and a number of conditions including the approval of the government of Indonesia, certain other third party consents and agreements, and other conditions customary for transactions of this nature,” it said.
Niko Resources said upon closings of the transactions, a specified portion of the proceeds would be used to reduce the company’s outstanding contract settlement obligation to Diamond Offshore, with the remainder subject to conditions outlined in the company’s term loan facilities agreement.
The company will indemnify Ophir for any Land and Building Tax obligations related to its interests in three of the PSCs being sold through issuance of a parent company guarantee.
Niko Resources said it will continue its efforts to sell or farm out interests in many of its exploration PSCs, reschedule its exploration commitments, and settle its vendor liabilities.
“There is significant uncertainty regarding whether these efforts will be sufficient to allow certain of the Company’s exploration subsidiaries to meet existing and future obligations and continue activities in the future,” it said.
“As a result of the foregoing matters (including the ongoing obligations of the Company and its subsidiaries), there is material uncertainty that may cast significant doubt about the ability of the company to continue as a going concern,” it added. (*)
Divesting Indian assets
Niko also mulls a plan to sell some of its assets in India after the government of India in October last year announced its new domestic gas pricing policy, effective Nov. 1, 2014. The announced price for the period from Nov. 2014 to March 2015 is a 33 percent increase over the price received previously, but is lower than expected. In addition, there is uncertainty around the long-term natural gas price outlook in India.
Following the change of this landscape, the company announced in December that it had appointed Jefferies as its financial advisor to assist the company in pursuing strategic alternatives including the sale of assets of the company, a merger or other business combination, the outright sale of the company, a refinancing of its existing debt with replacement debt, or some combination thereof.
Marketing efforts are underway for the potential sale of the company’s interest in the D6 Block in India along with other assets of the company.
On February 12, 2015, the company announced that it had reached an agreement with the institutional lenders of its term loan facilities to amend the terms of the facilities agreement. The company believes that the amendment provides the company with sufficient flexibility during the next year to complete its strategic alternatives plan. (*)
