UPDATE 2-Niko abandons Indonesia well on mechanical snags

* Says Candralila-1 well did indicate presence of oil and natural gas

* Zaratex NV was partnering Niko in the drilling

* Shares hit 9-year low

June 11 (Reuters) - Canadian oil and gas producer Niko Resources Ltd plugged and abandoned the Candralila-1 well in western Indonesia without reaching the targeted depth of 1,875 meters due to mechanical problems.

Shares of Niko, which explores for oil and gas in southeast Asia and the Caribbean, slumped to a nine-year low of C$23.60 on Monday morning on the Toronto Stock Exchange. The stock has lost nearly half its value so far this year.

Analysts said since Niko abandoned the well because of difficulties drilling it and not reservoir conditions, it did not have a significant implication.

"It is poor short-term news in a difficult market, so the stock gets punished because of that. I think it is a bit of an over-reaction," said analyst Nathan Piper of RBC Capital Markets.

Niko said the Candralila-1 well indicated presence of oil and natural gas while drilling.

Niko, which co-owns the KG D6 block in India with BP Plc and India's Reliance Industries Inc, has been grappling with lower natural gas reserves at the block and other negative news from its Indian operations.

Reliance last month cut its India gas reserves by 7 percent and the Indian government rejected its plan to recover $1.2 billion in costs at the gas field.

Niko has a 10 percent stake in the D6 block, which is estimated to hold more than 9 trillion cubic feet (tcf) of gas.

What is weighing on investors' mind is the reserves update from the D6 block at the end of the month, Piper said. Earlier this year, Niko said it expected lower natural gas reserves at the D6 block.

"We have assumed a 50 percent downgrade year on year. Last year, Niko had 10 tcf, we have assumed that is going to be halved," he said.

The company also recently said it would relinquish its interest in the D4 block at the Mahanadi basin off India's east coast.

Calgary, Alberta-based Niko had interests in 20 deepwater blocks in Indonesia, before it started drilling the Candralila-1 and another well in April.

Zaratex NV was partnering Niko in the drilling.