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Credit Suisse Says Ajek Finds Non-Commercial Hydrocarbons; Lowering Target Price to C$10 (from C$11)

Ajek Drilled Fast, but Not Commercial: "Niko reported that its Ajek-1 exploration well on the Kofiau block in Indonesia encountered 23 feet of pay that confirmed the presence of reservoir and contained hydrocarbons, though not in commercial amounts. While disappointing, exploration can be a process and we do not write-off the Kofiau block in its entirety after one well. This announcement was also roughly two to three weeks ahead of our expectations as the company has been able to drill much faster than anticipated, which is a silver lining within operations."

Cikar at West Papua IV Next: "The drilling rig will now mobilize to drill the Cikar-1 exploration well on the West Papua IV block in Indonesia. The well is expected to spud in mid-January 2013 and is currently planned for 60-70 days, although drill times could be faster given performance thus far. We carry the West Papua IV block at roughly US$2 risked."

Flexibility in the Exploration Program: "With accelerated drilling times, Niko will likely be able to drill through its initial exploration prospects faster than expected. There currently remain six carried wells within the Indonesia portfolio, with more flexibility coming if the company is able to further farm-down its working interests. Beyond Cikar-1, the exploration program remains flexible and yet to be cemented. A possibility may be the Cendrawasih blocks, where Exxon and Respol are partnered."

Recommendation: "We maintain our portfolio approach to valuation and continue to heavily discount our risked portfolio NAV of US$54 (was US$57), due to a number of qualitative considerations. We lower our TP to C$10 (was C$11) as a result of the Ajek well result."

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