reason for wednesdays sp drop, page-2

This from Huntleys re Ching today as well ??

We would be at $1 now if not for the offer me thinks ?


Event
Last Update - 02/11/2006
HDR’s share of 3Q06 Chinguetti production fell 26% to 458kbbls close to expectations. Sales volumes fell 34% to 563kbbls. Two oil liftings substantially reversed HDR’s underlifted position. Only around 15kbbls remain outstanding. The average price achieved fell 6% to US$60.30/bbl. The ~US$10 discount to spot reflects uncertain Chinguetti production levels and ‘new crude’ status. A lengthy unplanned shutdown in late August and early September impacted output. Reservoir delivery was otherwise fairly stable and facility availability high.

Barring the possibility of Tullow Oil withdrawing it’s A$2.02ps cash offer for HDR, the fundamentals take a back seat to the corporate maneuverings. The bid strengthened share price remains within our Hold zone. We feel the likelihood of a counter bid is somewhat reduced since our last report. The bid was already set at a substantial premium to the pre-offer price, HDR’s board is on side, an A$14.7m break fee is payable and the Flamant gas prospect proved dry. If other bidders are there, they may wait for the explanatory memorandum and independent expert’s report due in mid November before moving. Candidates include Woodside, British Gas, Dana Petroleum and any number of other international oil and gas companies yet to gain a foothold in Mauritania. Shareholders will vote on the merger scheme of arrangement in December.


Business Impact: Our $1.95ps valuation and earnings forecasts are intact. Long term assumptions remain a US$60/bbl oil price, A$/US$ exchange rate of 0.76 and a 15% discount rate for Mauritania sovereign risk. HDR’s underlying attractions remain the strong balance sheet, single digit forward earnings multiples and strong exploration potential. Negatives include development risk, potential for ongoing Chinguetti underperformance and sovereign risk.

Forecast Impact: --

Recommendation Impact: Unchanged. (Last updated: 02/11/2006

Event Analysis

Quarterly Production 2Q06 3Q06 % Chg
Gross Production (mmbls) 728 542 -25.6
Entitlements Share (mmbls) 622 458 -26.4
Sales Volume (mmbls) 856 563 -34.2

Sales Revenue (A$m) 73.9 44.2 -40.2
Realised Price (US$/bbl) 63.9 60.3 -5.6

Net Cash (A$m) 136 139 +2.2


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HDR said measures to improve Chinguetti field underperformance are progressing. The first infill well Chinguetti-18 will drill from late 2006 to increase field deliverability. It targets a currently undrilled segment of the reservoir. A production increment of around 10,000bopd gross or 0.7mmbls annually net to HDR is expected. There appears to be little evidence of support from water injection to the reservoir. A review of the estimated recoverable reserves is ongoing and results are anticipated by year end. Expect a substantial downgrade. Tiof development concept definition studies continue. Expect some delay and potential cost inflation Project sanction remains scheduled for mid 2007.

HDR is spending $65m on exploration and appraisal this year and next.


The 16.2% Aigrette-1 exploration well is drilling in the Dana Petroleum operated Block 7. It is 43km along trend from Pelican-1 gas discovery and has 0.7tcf (115mmboe) potential. The 21.6% Kibaro-1 (130mmbls) will follow Chinguetti-18. Drilling in 2007 and 2008 is to focus on prospects within tie back distance of Chinguetti and Tiof. Patudo is a 40mmbbl prospect 6km west of Chinguetti and Batrachus, a 35mmbbl prospect, is 15km SW of Tiof. This follows a lackluster exploration run on larger targets and seems a sensible lower risk move, reducing capital cost requirements.



Uganda Upside Beckons
A successful production test of the onshore Mputa-1 yielded a sustained 810bopd confirming reservoir quality and potentially commercial, albeit fairly modest, flow rates. Initial estimates are for 100-300mmbls of oil in place and recoverable volumes at Mputa-Waraga of 30mmbls. A study has begun on an early production concept that could supply a local power station and mini-refinery. The Nzizi well is to spud in November to test the up-dip potential of the Mputa structure. It represents near term upside. The main targets however remain the larger prospects under Lake Albert. HDR is looking to accelerate exploration and appraisal of discoveries made