Niko Resources Ltd. (TSX:NKO) report its operating and financial results for the quarter ended September 30, 2013. The operating results are effective November 14, 2013. All amounts are in U.S. dollars unless otherwise indicated and all amounts are reported using International Financial Reporting Standards unless otherwise indicated.
PRESIDENT'S MESSAGE TO THE SHAREHOLDERS
In the second quarter of fiscal 2014, the Company announced a shift in its strategic focus to developing and appraising the assets in the D6 Block in India, while maintaining optionality on the balance of its exploration portfolio. To provide the financial capacity to implement this strategy, the Company has signed a non-binding term sheet for up to $340 million of debt financing and signed a letter of intent with Diamond Offshore relating to a settlement of the Company's payment obligations and other commitments under drilling contracts for the semisubmersible drilling rigs Ocean Lexington and Ocean Monarch. The settlement agreement is expected to be executed upon completion of negotiations and concurrently with the Company's proposed financing. The Company is also finalizing its plans for the remainder of the portfolio and have engaged Citi to act as its financial advisor in connection with the sale of certain of its non-core assets in India and Trinidad. In addition, the Company is working on farming out portions of its interests in many of its exploration production sharing contracts and rescheduling its exploration commitments.
The management of Niko has been aggressively engaged in active pursuit of a comprehensive financing arrangement since the beginning of the fiscal year. To date it has secured net proceeds of $110 million from two short term "bridge" financings and has received proceeds of $61 million from its program of farm-outs, asset sales and other arrangements. Despite this aggressive pursuit, the Company has not been able to raise from conventional sources the funds required to completely reset its capital structure. As a result, it has been necessary to look for funds from lenders that are willing to lend to companies whose credit standing is considered to be high risk.
"Admittedly, this will be a very high cost finance package with tight repayment terms and other highly restrictive terms. However, the proposed debt financing is to be repaid in four years and there is the ability to prepay in two years with certain premium considerations. The D6 Block is a valuable and growing asset that is expected to have a long life with higher production and revenue from new wells, new fields and increases in the price of natural gas. Bridging the gap from the Company's current condition to the expected higher value and production from D6 and other Niko assets is worth the high cost of the arrangements."
Edward S. Sampson - President and Chief Executive Officer, Niko Resources Ltd.
LIQUIDITY AND CAPITAL RESOURCES
The Company has entered into a non-binding term sheet with sophisticated institutional investors to provide the majority of the funding for a senior secured credit facility of up to $340 million (the "Proposed Credit Facility") that would provide funds to refinance certain of its existing debt obligations, to fund the Company's investment in the D6 Block and otherwise for general corporate and working capital purposes. The Proposed Credit Facility would be secured on a first priority basis, subject to certain permitted liens, by substantially all of the assets of the Company and its subsidiaries and would have terms that are customary for debt financings of this type for similarly situated borrowers. The Proposed Credit Facility would provide for quarterly interest payments as well as a certain royalty payment by the Company to the lenders in respect of revenues received from the D6 Block.
In addition, the Company has signed a letter of intent with Diamond Offshore relating to a settlement of the Company's payment obligations and other commitments under drilling contracts for the semisubmersible drilling rigs Ocean Lexington and Ocean Monarch. The settlement agreement is expected to be executed upon completion of negotiations and concurrently with the Company's proposed financing transaction.
The consummation of the Proposed Credit Facility is subject to a number of closing conditions, including, without limitation, execution of the settlement agreement with Diamond Offshore, satisfaction of the Company's unsecured non-convertible notes obligation from sources other than the Proposed Credit Facility, the completion of the lenders' due diligence, and the execution and delivery of certain definitive documentation.
The Company has engaged Credit Suisse and another global investment bank to arrange the proposed financing transactions.
There can be no assurance, however, that the Company will be able to obtain the Proposed Credit Facility or execute the settlement agreement with Diamond Offshore on the terms described above or at all.
The Company is also finalizing its plans for the remainder of the portfolio and have engaged Citi to act as its financial advisor in connection with the sale of certain of its non-core assets in India and Trinidad. Sale of these assets could provide proceeds that could be used to fund the Company's future capital programs or pay down the Proposed Credit Facility. In addition, the Company is working on farming out portions of its interests in many of its exploration production sharing contracts and rescheduling its exploration commitments.
As at September 30, 2013, the Company had a working capital deficiency of $110 million. The Company's unrestricted cash and cash equivalents balance of $55 million at September 30, 2013 and anticipated revenues from its operating assets are expected to be sufficient to satisfy the anticipated cash requirements of its operating subsidiaries for the foreseeable future, but are not expected to be sufficient to satisfy its current liabilities and meet its current exploration and drilling rig commitments. The Company has negotiated extended payment terms with many of its suppliers of drilling and related services to its exploration subsidiaries.
The Company's current credit facilities are reserve based lending facilities that are not expected to provide sufficient borrowing base capacity for funding of the Company's planned activities. As at September 30, 2013, the availability under the facilities is $80 million and the facilities are fully drawn. The Company is working with the syndicate banks on a deferral from October 31 to November 29, 2013 for the date of the re-determination of the borrowing base under the current credit facility and from November 29 to December 31, 2013 for the date of any required repayment to reflect the new borrowing base. As at September 30, 2013, the Company had placed $15 million in escrow for the benefit of its credit facility lenders and a further $18 million received by the Company in October was placed in escrow, with these funds to be used, if required, to fund any reduction in outstanding borrowings. The Company has received a waiver from the syndicate banks of a provision in a previous consent agreement regarding a restriction on the use of cash balances, with similar waivers potentially required in future months.
This article is for information and discussion purposes only and does not form a recommendation
to invest or otherwise. The value of an investment may fall. The investments referred to in this
article may not be suitable for all investors, and if in doubt, an investor should seek advice from
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