Scotia update is in Recent Update Text as of 21OCT14
. The Government of India officially revised its gas pricing formula, effective
November 1, 2014, from $4.20/mmBtu to $5.61/mmBtu. We see this as positive, but
perhaps not enough to get Niko out of its current financial constraints.
. Under our revised price outlook and assuming capital expenditures remain flat at
~$70M, we estimate operating cash flow of $30M and $37M in 2015F and 2016F,
respectively, would leave a significant gap in funding. That said, capital
spending in F2016 could increase substantially to $150M-$200M with D6
development should the operator, Reliance, elect to do so.
. Given current expectations for natural gas prices and potential financial
difficulties ahead, we have downgraded Niko Resources to a Sector Underperform
rating (from Sector Perform) and have lowered our one-year target price to $0.55
(from $2.50) per share based on our revised risked NAVPS estimate of $0.52 (was
$2.71).
. In our opinion, revenues from the revised price may not be sufficient for Niko
to continue its operations without another significant injection of cash (needs
to be asset sales).