09/28/2012 11:18 EDT | Updated 11/28/2012 05:12 EST

Niko Resources suspends dividend as it kicks of major Indonesian exploration

CALGARY - Niko Resources Ltd. is suspending its quarterly dividend as it embarks on what it describes as the most significant exploration program in its history.

The Ocean Monarch drilling rig is expected to start moving toward an exploration block in Indonesia on Sunday.

It's been contracted for a four-year term to drill numerous prospects in offshore Indonesia. Niko has the option to extend the term by a year.

Niko (TSX:NKO) says its board of directors will periodically review the timing and level of future dividends.

Most recently, Niko doled out six cents per share to its investors every quarter.

On the Toronto Stock Exchange around mid-day Friday, Niko shares rose nearly six per cent to $13.23.

Niko also said Friday it's challenging allegations by the government in India that it and its partners are in breach of contracts related to the D6 block.

India alleges Niko, Reliance Industries Ltd. and BP Exploration failed to drill all the wells and reach production levels set out in an initial development plan.

The government also says the partners aren't allowed to recover more than $1.46 billion in costs. Niko's share of that is $146.2 million.

"The joint venture partners are of the view that the disallowance of recovery of costs incurred by the contractor has no basis in the terms of the (production sharing contract) and that there are strong grounds to challenge the action of the (government of India) before an appropriate forum," Niko said.

Arbitration proceedings have been launched against the Indian government, Niko said.