A junior Calgary energy company announced last week it has a sizable share in what is potentially one of the biggest natural gas discoveries in history.
But the announcement by Niko Resources that it holds a 10-per-cent stake in a seven trillion cubic foot gas field didn’t get extensive media coverage and its shares dropped from a high of $26 to $21 the day the find was revealed.
Company spokesman Paul Wright said he was a little surprised that the news didn’t gain much attention, but added he gave up trying to explain stock market behavior a long time ago.
Niko’s find is located off the east coast of India. Reliance Industries of India and the government of India own the remaining 90 per cent. Reliance is the operator of the field.
Wright refused to estimate what the gross value of the field is worth, but he did say it qualifies under a worldwide size ranking as a “giant” of a field.
Using today’s North American natural gas price and a recoverable amount of five trillion cubic feet of natural gas, the find could have a gross value of roughly $17 billion US, making Niko’s share worth $1.7 billion US.
Niko’s shares were trading in the range of $13 one month ago. They climbed steadily to reach the high of $26 on the Toronto Stock Exchange Wednesday, before a trading halt was imposed pending the company announcement.
Niko issued a press release before trading resumed Thursday morning and the shares slipped to bottom out at $21 that day. On Friday, the shares closed up at $24.10.
Kirby Thibeault, a Calgary-based economist and owner of a market strategy company called Kapital Investments Corp., said Niko has a strong management team with extensive international experience. In addition, India is a relatively stable country in which to do business.
Despite that, Thibeault said investors are generally worried about companies operating in developing countries, given the history of some of these nations claiming unexpected shares of successful foreign ventures, or restricting the amount of cash that resource companies can remove from the country.
The latter concerns could explain why Niko’s announcement received scant attention and the shares dropped, Thibeault said.
Thibeault said speculators will also typically drive a stock higher than is reasonable prior to an announcement, only to dump large amounts when the press release acts as an antidote to speculation fever.
“Generally speaking, it’s the emotion and the speculation that gaps the stock up from $13 to $26 and back down to $20,” Thibeault said.
“No question it’s a big find . . . but it is early in the game and it will take the market some time to fully evaluate this announcement,” Thibeault added, noting Niko will have to do more exploratory work before it can confidently estimate how much of the gas is physically and commercially recoverable.
