VALUE, OPTIONS, GROWTHIt is very hard for me to overlook the value of this stock;
Most of the downturn of the stock price had to do with the decline in reserve & production rate in D6. This was mainly due to halt to remedial & development work which was a necessary strategy to get the government to increase gas prices based on economics. Now that this has happened, Reliance has now started work to improve production & will spend a few billion dollars over the next few years to develop the area. This is the begenning of what an investor is waiting for. Projction for cash flow for next year is $2 just based on $8 gas price, afer that production is expected to double or triple over the next 5 to10 years.
All current analyst targets have not taken MJ discovery in their calculation, RBC risked it at only 33%
based on haywood projection, they estimate that MJ is worth 362 BCF which is 45% of the latest Niko 2P reserve of 800BCF. So just MJ should push reserves up another 45%
So clear growth in production, reserve & cash flow is coming
Finances remain a problem but NIKO has options;
- since more money is diverted to development, sub contract the rig for the next 4 years
- raise money through equity, dilutive but will be good in the long run based on growth mentioned above & will improve share liquidity
- Continue selling assets
- Sell a percentage of india to other partners, so go from 10 to 8%
- hopefully credit ine will be increased based on gas pricing & reserve increase
- Finally putcompany up for sale to realise value
All above are options as the company has value, comments about bankrubtcy seems off. bankrubtcy result when you have no more value in your assets as debt is more than the asset is worth. this is not te case here
technically we might re-test the $5 bottom & close the gap there which is unfortunate since NIKO had these positive events since then;
- double gas prices confirmed
- Massive increase in 2P reserve
- substantial new discovery potentially adding 45% to 2P reserve
- raised some money
- development plans for D6 are now firming up
Below from RBC regarding Reliance plans;
Niko Resources (NKO.TO): Reliance outlines $6.5bn investment in Block D6 increase
production by >1.4bcf/d
Reliance plans to invest $6.5bn to rebuild production on Block D6 (Niko 10%) from current ~500mmcfd to1.4-2.1bcf/d by 2019/20, based on an interview by Reliance's President and COO B Ganguly and the PTI.
This depends on timely approvals and the improved gas price (no less than $7.5/mcf). Near term work ($747m gross investment) is underway on the existing D1/D3 and MA-1 fields to mitigate decline with plans to invest $3.1bn in the R-Series fields (plateau production of 710mmcfd) and $1.5bn to develop four satellite fields (plateau of 350mmcfd, first gas 2017/18). A further $1.2bn will be invested to develop further discoveries on the block, not including the recent 2-3tcf MJ-1 discovery.