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RE: RE: niko on BNN

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Niko Resources

Update

On January 6, 2010, Niko Resources provided an update on recent and planned exploration activities. The only new result was that the AJ3 well on the NEC 25 block in India (10% WI, non-operating) was successful. The AJ5 exploration well is currently drilling in the same area and will be followed by at least one additional exploration well. While another successful well on NEC 25 is positive, we do not see the news as material to our assumptions.

In addition, Niko announced that Don R. Hansen has joined the company's Board of Directors. Mr. Hansen, a recognized figure in the oil and gas industry, is currently Managing Director of Scotia Waterous. Prior tenures include senior positions with Unocal, CEO of Northrock Resources Ltd., and director/founding member of Black Gold Energy, which was recently acquired by Niko.

Big companies can drill material wells too

In total, we estimate that successful drilling on Niko's D6, D4 and Qara Dagh blocks could increase our target price by over 30%, which is considerable given Niko's market capitalization of over $5 billion. That impact assessment does not account for potential de-risking of the company's 12 million net acres offshore Indonesia, where resource potential could be de-risked by drilling on adjacent blocks and planned seismic acquisition.

Niko expects to drill six new exploration wells on the D6 block in India (10% WI, non-operating). We believe these wells have potential to materially increase the proven resource potential of the block. In particular, the BD1 and BA1 wells are likely to target structures of comparable size to the Dhirubai-1 and -3 fields that are currently producing (over 10 Tcf of gas).

However, we believe that anticipated drilling on the D4 block in India and the Qara Dagh block in Iraqi Kurdistan hold even greater potential to materially impact valuation.

1. Three drilling locations have been selected on the D4 block with drilling planned to commence in Q3/10 (NKO has a 15% WI, non-operating). We believe the D4 block holds gas resource potential that could be an order of magnitude larger than the >10 Tcf discovered on the D6 block. We currently assume a 15% chance of over 40 Tcf being discovered. If drilling is successful and our resource estimate is accurate, the block could ultimately be worth over C$40.00 per share to Niko. If successful, the first three wells would dramatically reduce the risk of additional drilling.
2. Drilling on the company's Qara Dagh block in Iraqi Kurdistan, expected to start in March, could also provide material results, as we assume the well is likely to target potential resources of around 700 MMBbl. A resource assessment that we expect to be published in late January could firm up this estimate.

   Due to the fact that the D6 partners have submitted revised development plans for a second phase of fields to be developed on D6, we doubt government approval will be forthcoming in a timely manner (which if Genuity Capital Markets www.genuitycm.com

   received before end-March, would allow contingent resources to be converted to probable reserves in Niko's next year-end reserve assessment).

   We have not attempted to quantify the potential impact of continued production ramp-up from the D6 gas and oil developments. Note that based on an update from Reliance Industries (operator of the D6 development) in late December, we have adjusted our production assumptions for D6 gas in H2/F10 downward significantly from 2.0 Bcf/d to 1.5 Bcf/d. This has a significant negative impact on near-term cash flow estimates, but is relatively immaterial to our NAV estimates.

Exhibit 16: Key potential catalysts

EventTimingCommentPotential target price impact% of current target priceResource report for Kurdistan acreageJanuary 2010Year-end financials and reservesQ2/10Reserve bookings for D6 phase II and NEC 25 developments will likely not occur this year, in our view$8.647%Resource report for Indonesia exploration acreageQ2/10Potentially included with year-end reservesFinal results from drilling Qara Dagh structure in KurdistanQ3/10We assume a 40% chance of discovering 700 MMBbl$4.844%D4 exploration drillingQ3/10Assumes we increase our assumed chance of developing 40 Tcf from 15% to 50%$17.9514%D6 exploration drilling ContinuousWe assume a 50% chance of discovering 11 Tcf$8.137%

Source: Genuity Capital Markets Research

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