Short sellers have recently been having a field day with Niko Resources Ltd.
, Stock Forum
), a Calgary-based oil and gas explorer, which has been working to avoid a debt default and finance offshore drilling operations in India and Bangladesh.
So far this year, the stock has dropped from $11.60 in January, to as low as $1.12 last week. After clawing back 9.5% of its lost value Thursday, Niko is trading at $1.85, leaving a market cap of $118.7 million based on 70.2 million shares outstanding.
The seasaw ride follows announcements last week that cast doubt on the company’s ability not only to fund its operations, but also to continue as a going concern.
This prompted a handful of financial analysts to downgrade their targets for Niko’s stock price.
On November 14, 2013 after failing to secure financing from “conventional sources,” the company said it had signed a non-binding term sheet for up to $340 million of debt financing that would be used to provide funds needed to refinance certain debt obligations.
Terms of the proposed credit facility include a 15% interest rate and a royalty payment to the lendes of 6% of revenues received from the D6 Block, which covers 7,645 square kilometres of oil and natural gas rights located 20 kilometres offshore from the east coast of India.
However, the company has said consummation of the proposed credit facility is subject to a number of closing conditions, including $42 million worth of unsecured non-convertible note obligations, and the settlement of up to US$80 million worth of additional obligations to Diamond Offshore, a major deepwater drilling contractor.
In other words, there appears to be no guarantee that the money will be forthcoming.
“Admittedly, this will be a very high cost finance package with tight repayment terms and other highly restrictive terms,’’ said Niko President and CEO Edward Sampson, who has served notice that he plans to retire at the end of this year, according to a company statement, released late Wednesday.
Effective January 1, 2014, Jake Brace will assume the role of President on an interim basis the company, said, adding that Brace recently joined the company as a senior advisor to assist management in dealing with immediate liquidity issues.
These developments come after Niko posted a net loss for the second quarter ended September 30, 2013 of $149 million, or $2.12 per share. That compared to a loss of $54 million or 55 cents in the same period last year.
Oil and natural gas revenue was $36.4 million in the second quarter, down from $58 million in the same period last year. The company attributed the drop to anticipated natural declines and reservoir management activities in the D6 Block in India, the company said.
Niko has disclosed that $55 million of cash and cash equivalents available as of September 30, 2013, plus anticipated revenues from operations are not expected to be enough to meet its current liabilities as well as drilling rig commitments.
In its November 20, 2013 release the company said a special committee of non-management directors has been established to oversee the implementation of a comprehensive restructuring and recovery plan. It said the central focus of the plan is on the preservation and development of producing assets in India and Bangladesh.
“We believe that this program incorporates all the elements necessary to address the correction of those difficulties and that it will be successful in returning the company to a profitable growth profile,” the company said in a statement.
Still, analysts aren't seeing much upside for the stock price. Concerns about the immediate outlook for the stock prompted TD Securities to reduce its target price to $6 from $13.50.
BMO Nesbitt Burns has also downgraded Niko to underperform from market perform, while slashing its price target to $1.50 from $5.