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.