Niko Resources Ltd. reports results for the three and six months ended September 30, 2006.
operational and financial Highlights
Operational
• The MG-1 well in the D6 Block encountered two new high potential natural gas zones
• D6 natural gas development on track for start up in mid-2008
• Submitted application for commerciality for the MA-1 discovery and target for first production in mid-2008
• Block 9 added 45 billion cubic feet (Bcf) proved and 35 Bcf probable reserves (year to date 99 Bcf proved and 36 Bcf probable)
• Bangora-2 well tested at rates over 40 million cubic feet (MMcf) per day
• Seismic operations commenced at Cauvery
• 3D seismic program was completed in Thailand
India
In the D6 Block, drilling operations resumed with the arrival of the Deepwater Frontier deepwater drilling rig. Drilling commenced in late July 2006 with the MG-1 well. The MG-1 well was drilled in the deepest water (1,943 metres) and reached the deepest depth (6,153 metres) of any well drilled to date in the D6 block. Evaluation of the well indicates two new high potential natural gas zones have been encountered in the Pliocene and the Miocene intervals. These natural gas zones have not been discovered in previous drilling and extend the known natural gas further into the deeper-water area of the prolific D6 block.
The MG-1 well was also targeting the potential of another Mesozoic section not encountered in the MA-1 well, but recognized on seismic at the MG-1 location. This section, although having indications of hydrocarbons, was considered non-commercial and was not tested. The Mesozoic section penetrated at the MG-1 well was associated only with the MG-1 location and does not impact the Mesozoic prospectivity throughout D6 confirmed by the MA-1 well. The MG-1 well was the 19th consecutive successful well in the deepwater D6 Block.
The Deepwater Frontier rig is currently drilling the MB-1 well. The MB-1 well is an exploration well designed as a Cretaceous follow-up to the successful MA-1 discovery well. It is approximately 11 kilometres east of the MA-1 location and will test a shallower separate structure with similar targets and geologic setting as the MA-1 well. An application for commerciality has been submitted to the Directorate General of Hydrocarbons (DGH) and is expected to be approved shortly. A field development plan for the MA-1 discovery is being prepared and will be submitted once commerciality is approved. Commencement of production from the MA-1 discovery is targeted for mid-2008.
Subsequent to the MB-1 well, further drilling of Cretaceous prospects is planned to fully evaluate the Cretaceous potential in the D6 Block. Upon completion of the Cretaceous program, drilling to evaluate deeper-water prospects identified by the 2004 and 2005 3D seismic will commence, utilizing the Deepwater Frontier rig as well as the Transocean D-534 and the Deepwater Expedition rigs, which are expected to arrive in April 2007 and December 2007, respectively.
Essentially all of D6 is now covered with 3D seismic. Processing and integration of all the separate surveys are expected to be completed by year-end. The Company is looking forward to continued drilling success on this block.
The design and installation of the production facilities is well underway. Major tender packages have been issued and the civil construction of the natural gas plant site is substantially complete. Development drilling will commence in calendar 2007 using the same three-rig fleet as for the exploration drilling, along with the installation of the sub-sea manifolds, pipelines, and wellhead equipment.
In the NEC-25 Block, an eight-well drilling program is scheduled to commence in December 2006 as a follow-up to the six natural gas discoveries made to date on the block. Some of the eight drilling locations are in the original 3D seismic area, where all of the discoveries have been made to date, and the remainder will be drilled within the 1,700-square-kilometre 3D seismic area which was acquired in 2005 and 2006. The prospectivity of this block continues to be very attractive and the Company looks forward to additional discoveries. Development plans for the six discoveries, which have been declared commercial by the Indian regulatory authorities, are being prepared with a target for commencement of production in late calendar 2009.
Oil production began in Hazira in March 2006 and production during the quarter averaged 160 barrels of oil per day (net). Natural gas production from Hazira during the quarter averaged 30 million cubic feet per day (net). Production in Surat averaged 11 million cubic feet per day.
In the Cauvery Block in Southern India, where the Company holds 100 percent interest, acquisition commenced on a 550-square-kilometre 3D program. By the end of October 2006, 367 square kilometres were completed and the work was suspended with the onset of the monsoon season. This portion of the survey is currently being processed. The remainder of the 3D program will be completed in April or May 2007. A multiple-well drilling program is planned to commence in July 2007.
In the deepwater block MN-DWN-2003/1 (D4) located in the Mahanadi basin, in which Niko holds a 15 percent interest, a 2,365-kilometre 2D seismic acquisition program has been completed and the data is currently being processed. A 1,800-square-kilometre 3D seismic program is anticipated to commence in calendar 2007, followed by exploratory drilling in late 2007 or early 2008.
Bangladesh
Combined natural gas production from the three wells in the Feni field averaged 17 million cubic feet per day during the quarter.
Future drilling activities at Feni and Chattak have been postponed pending further developments in the various disputes between the Company and the Government of Bangladesh.
In Block 9, acquisition of the 620-square-kilometre 3D seismic program over the Lalmai/Bangora anticline is complete and processing is substantially complete. Production through the recently installed natural gas production and processing facilities continued throughout the quarter at an average rate of 41 million cubic feet per day (27 million cubic feet per day, net) from the Bangora-1 well. During the quarter the Bangora-2 well was tested at a combined rate of over 40 million cubic feet per day from two zones. Production from the two wells is expected to increase production to between 60 and 70 million cubic feet per day (40 and 46 million cubic feet per day, net) in November 2006. The Company anticipates commerciality to be declared in fiscal 2007, at which time the Company expects to collect the receivable owed for all natural gas and condensate produced in Block 9.
An appraisal well, Bangora-3, began drilling in July 2006 and reached total depth in early September 2006. The well encountered natural gas pay similar to that encountered in the Bangora-1 and Bangora-2 wells and the well has been completed for production and is awaiting testing. The Bangora-3 well was drilled approximately 3.9 kilometres to the south of Bangora-2 and confirms the continuity of the productive sands to the south.
At September 30, 2006, Company reservoir engineers estimated that the Company’s working interest proved reserves at Block 9 had increased by 99 Bcf (328 percent) as a result of analyzing data obtained from drilling the Bangora-2 and Bangora-3 wells and production data from the Bangora-1 well. This figure is net of the Company’s 66.7 percent share of the 6.4 Bcf produced from Bangora-1 during the ongoing production test. Proved plus probable reserves also increased by over 135 Bcf (195 percent) as the Bangora-3 well extended the confirmed area of natural gas reserves to the south. These figures represent increases over reserve figures determined as at March 31, 2006.
These increases to the Company’s internal estimate of the proved and proved plus probable reserves for Block 9 have not yet been reviewed by an independent reserves evaluator. They are based on the Company’s assumptions about Block 9, which the Company believes to be reasonable at the time they were made. At year-end, reserves reported by the Company will be those estimated by the independent reserves evaluator and these may or may not be not be exactly consistent with the Company’s internal estimates.
Drilling of the Bangora-4 well commenced in October 2006 and will be followed by one or two more appraisal wells on the anticline containing the Bangora and Lalmai discoveries. Production rates are expected to increase with the tie-in of the Bangora-3 well and the drilling of additional appraisal wells.
Thailand
Acquisition of a 140-square-kilometre 3D seismic program was completed in August 2006 and processing of the data is substantially complete. Several drilling prospects have been identified by the 3D seismic program and drilling is expected to commence in January 2007 utilizing a modern, state-of-the-art drilling rig that is currently being moved to Thailand from Canada. Re-completions of the existing wells in the Mae Soon oilfield commenced in November 2006. The Company looks forward to commencing oil production from its Thailand blocks, based on the anticipated success of the re-completion and drilling programs.