UPDATE 3-Canada's Niko raises "going concern" doubt, shares plunge

Fri Nov 15, 2013 1:36pm EST

Related Topics

* Says may not be able to meet current liabilities

* Second-quarter loss widens, sales volume falls

* Hires United Airlines former CFO to advise on refinancing

* Plans to shed non-core assets in India, Trinidad

* Shares fall to life-low (Adds details from conference call, background)

By Garima Goel

Nov 15 (Reuters) - Canadian oil and gas producer Niko Resources Ltd lost more than half its market value after it raised "significant" doubt about its ability to continue as a going concern.

Niko said it was negotiating for a $340 million loan to avoid defaulting on debt payments and other obligations.

The company said it had a working capital deficiency of $110 million as of Sept. 30, while its cash and cash equivalents had dropped to $55 million from $98.1 million a year earlier.

Niko had $734.5 million in total liabilities, including issued debt, loans and other obligations.

The company, which has been trying to restructure debt and refinance loans to fund drilling in India, said it would continue to focus on the D6 block off the country's east coast. Production from the block has been falling.

"They have about $100 million due within one year," Macquarie Research analyst David Popowich told Reuters.

"It looks like they will be able to pay it with this new debt facility but the problem is they also have to ramp up spending at the D6 block and there are other expenditures they are going to be on the hook for."

Niko shares plunged as much as 57 percent to a life-low of C$1.12 on the Toronto Stock Exchange on Friday when the company also announced its 10th straight quarterly loss.

At the low, the company was valued at C$79 million. The stock has lost about 90 percent since the start of the year.

Niko said it had not been able to raise funds from usual sources despite "aggressive" efforts and was now looking at "high-cost finance package with tight repayment terms."

The company said it has hired United Airlines' former chief financial officer, Jake Brace, to advise on the refinancing. Brace, who retired from United in 2008 after two decades, led the airline's restructuring through its bankruptcy.

"We are not in the best financial shape, so we are dealing with people who deal with companies like us. They are sophisticated investors," Brace said on a conference call with analysts. He did not name the potential lenders but said none of them was a shareholder.

The $340 million loan, which would be repayable in four years, is dependent on Niko settling payments with Diamond Offshore Drilling Inc for drilling off Indonesia. Niko did not elaborate on how much money it owes Diamond Offshore.

"They have secured some very high-costs debt. It raises questions about whether there is going to be anything left for the equity holders," said Popowich.

The company's quick ratio, an indicator of its ability to meet short-term payments and debt liabilities, stands at 0.54 - its lowest in a year. The ratio has remained under 1 since the end of 2011.

A ratio under 1 suggests that the company might be unable to pay off its debts if they became due immediately.

INDIA OUTPUT NEARLY HALVES

Sales volumes from the D6 block, in which Niko has a 10 percent working interest, almost halved to 54 million cubic feet of gas equivalent per day in the second quarter.

The block accounted for almost half of the company's total sales volumes in the quarter, down from nearly 61 percent a year earlier.

India's Reliance Industries Ltd operates the D6 block, in which it holds a 60 percent interest. BP Plc holds the remaining interest.

Uncertainty over the Indian government's decision to double domestic gas prices from April 1, 2014 is also weighing on Niko.

The company is selling assets and has suspended drilling in Indonesia to focus on its India operations.

Niko agreed in August to sell a 40 percent stake in an offshore exploration block in Madagascar to Austrian oil and gas group OMV and interests in some Indonesian assets for $40 million.

Niko said on Friday it would sell some non-core assets in Trinidad and a 24 square km onshore block adjacent to the Hazira field in western India. Niko holds 33.33 percent in the Hazira field and is its operator.

Calgary, Alberta-based Niko also operates in Pakistan, Bangladesh and the Kurdistan region of Iraq.

The company's net loss widened to $149 million in the second quarter from $28.6 million a year earlier.

Niko shares were down 50 percent at C$1.30 in early afternoon trading on the Toronto Stock Exchange. (Editing by Kirti Pandey and Sayantani Ghosh)

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